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Friday, September 29, 2006
Calls of Note Part 6
- FBR comments on Cerner (NASDAQ:CERN) noting that yesterday, the U.K.'s National Health Service allowed CSC to replace Accenture as the primary local service provider contractor in the Northeast and Eastern regions under the Connecting for Health program. While both vendors used iSoft for clinical software development, CSC has been more solicitous of the troubled software provider's work, which probably limits further monster U.K. contracts for Cerner in the near term.
Cerner could benefit longer term if iSoft stumbles. Although the CSC news probably limits further near- term U.K. opportunities, the firm believes it also simplifies succession planning in three regions should iSoft continue to miss commitments or cease to exist as a going concern. Given the NHS' demonstrated preference for smooth transitions under IT contracts, Cerner's execution capabilities in the South and London may make it the de facto white knight on as many as three regions at once should change be inevitable.
Firm reiterates Outperform rating and price target of $51, based on solid 2007 EPS growth and burgeoning HIT opportunities worldwide.
Notablecalls: This is the type of stuff that may hurt high valuation stocks like CERN. While I have no idea how much of CERN's revenues come from UK, there has been a lot of talk regarding the NHS deals over the past 6 months.
Cerner could benefit longer term if iSoft stumbles. Although the CSC news probably limits further near- term U.K. opportunities, the firm believes it also simplifies succession planning in three regions should iSoft continue to miss commitments or cease to exist as a going concern. Given the NHS' demonstrated preference for smooth transitions under IT contracts, Cerner's execution capabilities in the South and London may make it the de facto white knight on as many as three regions at once should change be inevitable.
Firm reiterates Outperform rating and price target of $51, based on solid 2007 EPS growth and burgeoning HIT opportunities worldwide.
Notablecalls: This is the type of stuff that may hurt high valuation stocks like CERN. While I have no idea how much of CERN's revenues come from UK, there has been a lot of talk regarding the NHS deals over the past 6 months.
Calls of Note Part 5
-Baird notes thay believe Illumina's (NASDAQ:ILMN) high trading volume sell-off yesterday was related to uncertainty surrounding news of a lawsuit initiated by deCODE against former employees and their new employer, Children's Hospital of Philadelphia (CHOP).
These two institutions are the largest customers of ILMN. Firm believes that ILMN has excellent working relationships with both organizations. In fact, both installed systems in June/July and have been ramping chip usage. They confirmed with a CHOP representative that its Center for Applied Genomics plans to run business as usual despite this lawsuit. CHOP has stated that it will "vigorously" defend its employees.
While these lawsuits can cause confusion and become drawn-out affairs, they believe the lawsuit is centered around employer/employee issues and will not directly involve either ILMN or its management team.
Firm continues to believe that ILMN's genotyping and gene expression businesses remain robust and that the company remains on track for a good Q3-06 and 2006.
They believe that AFFX's 500K price reductions did lead to ILMN lowering its pricing structure, but think that ILMN's chips still command a premium price to AFFX's chips. Firm notes they have talked to some researchers who stated that they have used the price reduction to increase the number of samples they could run.
Maintains Outpeform and $41 tgt.
Notablecalls: Not actionable but good to know. When stocks start going down on reasons like this one, it's usually a bad sign for the bulls. Generally, I believe the better opportunitities are to be found on the short side over the next months.
These two institutions are the largest customers of ILMN. Firm believes that ILMN has excellent working relationships with both organizations. In fact, both installed systems in June/July and have been ramping chip usage. They confirmed with a CHOP representative that its Center for Applied Genomics plans to run business as usual despite this lawsuit. CHOP has stated that it will "vigorously" defend its employees.
While these lawsuits can cause confusion and become drawn-out affairs, they believe the lawsuit is centered around employer/employee issues and will not directly involve either ILMN or its management team.
Firm continues to believe that ILMN's genotyping and gene expression businesses remain robust and that the company remains on track for a good Q3-06 and 2006.
They believe that AFFX's 500K price reductions did lead to ILMN lowering its pricing structure, but think that ILMN's chips still command a premium price to AFFX's chips. Firm notes they have talked to some researchers who stated that they have used the price reduction to increase the number of samples they could run.
Maintains Outpeform and $41 tgt.
Notablecalls: Not actionable but good to know. When stocks start going down on reasons like this one, it's usually a bad sign for the bulls. Generally, I believe the better opportunitities are to be found on the short side over the next months.
Calls of Note Part 4
- Wachovia comments on Monster Worldwide (NASDAQ:MNST) saying that when they assumed coverage of MNST on 8/22/06 they thought the deceleration in the overall U.S. help wanted ad market could continue, potentially more quickly than anticipated. Exiting 3Q, it appears that their employment ad thesis is playing out, and they believe data is pointing to continued deceleration in job posting growth. Therefore, the firm is modestly lowering their estimates for 4Q06 and 2006 to $0.33 and $1.19 (guidance of $1.17 - $1.22), from $0.34 and $1.20 respectively, and are maintaining Market Perform rating.
Help wanted ad revenues for co.'s fell 2.3 % in 2Q but declined sequentially by 6.4% and 7.8% in July and August, and channel checks and posting counts imply continued deceleration in Sept. Importantly, while they think the secular shift of employment revenues from print to the Internet is intact, they also believe the online segment is also beginning to slow, supported by online posting counts.
Firm's staffing firm online counts showed y/y posting growth slowing as well, from the high teens in early 3Q to the mid to high single digits in Sept.
Valuation Range: $38 to $40
Notablecalls: So now we know why MNST took that big hit on Monday. Would not be surprised to see some additional weakness over the coming weeks. The shares are not expensive but nor are they cheap. Trading around their growth rate that seems to be slowing.
Help wanted ad revenues for co.'s fell 2.3 % in 2Q but declined sequentially by 6.4% and 7.8% in July and August, and channel checks and posting counts imply continued deceleration in Sept. Importantly, while they think the secular shift of employment revenues from print to the Internet is intact, they also believe the online segment is also beginning to slow, supported by online posting counts.
Firm's staffing firm online counts showed y/y posting growth slowing as well, from the high teens in early 3Q to the mid to high single digits in Sept.
Valuation Range: $38 to $40
Notablecalls: So now we know why MNST took that big hit on Monday. Would not be surprised to see some additional weakness over the coming weeks. The shares are not expensive but nor are they cheap. Trading around their growth rate that seems to be slowing.
Calls of Note Part 3
- Thomas Weisel Partners is positive on Rackable Systems (NASDAQ:RACK) ahead of results saying are comfortable with their estimates of $85mn in revenue (a 48% y/y increase) and $0.20 in pro forma EPS for Rackable in the current September quarter. They continue to believe that Rackable could grow 35-40% over the next several years, with improving margins: a classic growth story at an attractive valuation, in firm's view.
Firm believes the most likely scenario for Rackable this quarter is some very modest possible upside to their estimates and strong guidance, with some chance for an alternate scenario of more significant upside this quarter, but then less aggressive guidance.
Length of sales cycle shortened = increased visibility: The pause has passed with sales cycles back to normal. Intel versus AMD choices appear mixed-largely irrelevant for Rackable.
Rackable seeing success in EU: Expect an increase with Amazon (and others) in EU this quarter and next, after a drop to 1% of total revenue last quarter due to a planned reduction in spending.
Terrascale a big boost to Storage offerings: Rackable now has a proprietary high margin offering that aligns perfectly with its target server customers. The distributed file system market should grow rapidly, and the primary competition today is with small private companies.
Notablecalls: Not actionable but good to know category. Absolutely nothing new in this note. Although I must admit I may have been somewhat too negative on the co in the past. RACK may indeed be one of tech's secular growth stories. As TWP notes, they believe that Rackable could be a $1-2bn company in the next three to five years, with 10%-plus share of the low-end server market complemented by a healthy high-margin storage business.
Firm believes the most likely scenario for Rackable this quarter is some very modest possible upside to their estimates and strong guidance, with some chance for an alternate scenario of more significant upside this quarter, but then less aggressive guidance.
Length of sales cycle shortened = increased visibility: The pause has passed with sales cycles back to normal. Intel versus AMD choices appear mixed-largely irrelevant for Rackable.
Rackable seeing success in EU: Expect an increase with Amazon (and others) in EU this quarter and next, after a drop to 1% of total revenue last quarter due to a planned reduction in spending.
Terrascale a big boost to Storage offerings: Rackable now has a proprietary high margin offering that aligns perfectly with its target server customers. The distributed file system market should grow rapidly, and the primary competition today is with small private companies.
Notablecalls: Not actionable but good to know category. Absolutely nothing new in this note. Although I must admit I may have been somewhat too negative on the co in the past. RACK may indeed be one of tech's secular growth stories. As TWP notes, they believe that Rackable could be a $1-2bn company in the next three to five years, with 10%-plus share of the low-end server market complemented by a healthy high-margin storage business.
Calls of Note Part 2
- Merrill Lynch reiterates their Buy on Corning (NYSE:GLW), and raises price target back up ($30 from $24). Firm's new target again assumes the shares approach 25X new 2007 EPS estimate of $1.25 (vs. $1.18) or ~1X PEG ratio to 2007 EPS growth, which can also occur in 2008 as LCD TVs penetrate further. Firm ups their 2006 EPS estimate a penny to $1.01. Prior target assumed a lower P/E (~20X) on pricing pressures that have eased. VZ headlines could help but the EPS impact is limited.
The firm is also modeling in troubles at a portion of a competitor's operations (Asahi; ~20% market share vs. ~50-55% at GLW family) to help EPS by a penny per quarter in Q4 and Q1 due to reduced industry pricing pressures and some incremental share gains.
The new 2007 EPS estimates also reflect higher LCD TV estimates that could still be conservative (~65MM TVs vs. a prior estimate of 60MM and 40MM in 2006E). They are most recently encouraged by further TV price declines (down 12% in the past 11 weeks), which are a good leading indicator. Also, the trend toward larger size TVs (which is highly beneficial to Corning given the square meters of glass) could still outpace current expectations. According to firm's LCD tracker, retail prices for LCD TVs are down 21% since the beginning of the year. Lastly, large discounts on 'Tier II' brands could provide another competitive pricing impetus.
Notablecalls: These comments are likely to spur some buy interest in GLW. Would not overstay my welcome as there is nothing really new to be found in the note.
The firm is also modeling in troubles at a portion of a competitor's operations (Asahi; ~20% market share vs. ~50-55% at GLW family) to help EPS by a penny per quarter in Q4 and Q1 due to reduced industry pricing pressures and some incremental share gains.
The new 2007 EPS estimates also reflect higher LCD TV estimates that could still be conservative (~65MM TVs vs. a prior estimate of 60MM and 40MM in 2006E). They are most recently encouraged by further TV price declines (down 12% in the past 11 weeks), which are a good leading indicator. Also, the trend toward larger size TVs (which is highly beneficial to Corning given the square meters of glass) could still outpace current expectations. According to firm's LCD tracker, retail prices for LCD TVs are down 21% since the beginning of the year. Lastly, large discounts on 'Tier II' brands could provide another competitive pricing impetus.
Notablecalls: These comments are likely to spur some buy interest in GLW. Would not overstay my welcome as there is nothing really new to be found in the note.
Calls of Note Part 1
- Teradyne (NYSE:TER) will be in the casualty list today as two firms are cautious on the co this AM:
* Banc of America is cutting their second half calendar 2006 estimates oN TER saying they think the ongoing chip inventory correction will result in weak orders in the SOC test segment and Asian contract manufacturers. Teradyne has high exposure to both.
They now estimate that September revenues will be $350M, at the low end of prior guidance, $340-370M. Firm expects December revenues to decline another 7% to the $320M range.
With most of the restructuring behind the company, earnings appear to be peaking in the $1.00 range or $0.85 fully taxed. It raises questions as to the normalized earnings power of the company. To date, the firm was thinking that peak earnings would be in the $1.30-1.40 range, fully taxed.
If the normalized earnings estimate moves materially lower because of a lower than expected peak earnings, then there could be downside risk for the stock to the $10 range. The firm will wait for the earnings call to consider any adjustments.
* FBR notes their checks at subcontractors/contacts suggest that 3Q bookings decline will be in the 30%-40% range QOQ, much worse than expectations of down 20%, thus resulting in a shortfall in revenue/EPS estimates. The firm expects semi test bookings to decline by as much as 35%-40% QOQ, while non-semi test bookings are expected to decline by 30%-35% QOQ. Their checks also suggest that semi test bookings by subcons were especially weak, with an estimated 40%-plus decline sequentially.
Given such a scenario, they expect shortfall in their revenue and EPS estimates in both 3Q and 4Q.
Given weaker 3Q bookings, they are lowering their below-consensus estimates. 3Q/4Q revenue
estimates changed from $355M/$321M to $348M/$251M, vs. consensus of $354M/$336M. GAAP EPS estimates changed from $0.18/$0.14 to $0.16/ $0.05, vs. consensus of $0.20/ $0.16. Pro-forma EPS is ~$0.03 > GAAP in 3Q and 4Q. Consensus began to decline post 2Q06 earnings report, and the firm expects another round of cuts following 3Q06 report.
Reits Underperform and $11.50 tgt.
Notablecalls: Both calls are actionable and together they will likely do some serious damage to the stock price. In fact, I would not be surprised to see the whole Semi space to get hit following the notes.
* Banc of America is cutting their second half calendar 2006 estimates oN TER saying they think the ongoing chip inventory correction will result in weak orders in the SOC test segment and Asian contract manufacturers. Teradyne has high exposure to both.
They now estimate that September revenues will be $350M, at the low end of prior guidance, $340-370M. Firm expects December revenues to decline another 7% to the $320M range.
With most of the restructuring behind the company, earnings appear to be peaking in the $1.00 range or $0.85 fully taxed. It raises questions as to the normalized earnings power of the company. To date, the firm was thinking that peak earnings would be in the $1.30-1.40 range, fully taxed.
If the normalized earnings estimate moves materially lower because of a lower than expected peak earnings, then there could be downside risk for the stock to the $10 range. The firm will wait for the earnings call to consider any adjustments.
* FBR notes their checks at subcontractors/contacts suggest that 3Q bookings decline will be in the 30%-40% range QOQ, much worse than expectations of down 20%, thus resulting in a shortfall in revenue/EPS estimates. The firm expects semi test bookings to decline by as much as 35%-40% QOQ, while non-semi test bookings are expected to decline by 30%-35% QOQ. Their checks also suggest that semi test bookings by subcons were especially weak, with an estimated 40%-plus decline sequentially.
Given such a scenario, they expect shortfall in their revenue and EPS estimates in both 3Q and 4Q.
Given weaker 3Q bookings, they are lowering their below-consensus estimates. 3Q/4Q revenue
estimates changed from $355M/$321M to $348M/$251M, vs. consensus of $354M/$336M. GAAP EPS estimates changed from $0.18/$0.14 to $0.16/ $0.05, vs. consensus of $0.20/ $0.16. Pro-forma EPS is ~$0.03 > GAAP in 3Q and 4Q. Consensus began to decline post 2Q06 earnings report, and the firm expects another round of cuts following 3Q06 report.
Reits Underperform and $11.50 tgt.
Notablecalls: Both calls are actionable and together they will likely do some serious damage to the stock price. In fact, I would not be surprised to see the whole Semi space to get hit following the notes.
Paperstand
According to the Barron's Online shares of Force Protection (FRPT.OB) have rocketed 513% over the past 52 weeks, but two insiders at the armored-vehicle manufacturer have also sold off hefty portions of their stake in the co. In transactions from Sept. 22 to 26, Force Protection's CEO and general counsel together sold nearly $5m in stock. Ben Silverman, of InsiderScore.com, notes that both men sold off significant portions of their stake in Force Protection. Considering the amount of insider selling, Silverman says, "This is the perfect time for investors who were in early on the name or came to the party when [Force Protection] still had a lot of upside, to…take some profits."
Barron's Online "Weekday Trader" section suggests that for investors gunning for big returns in the energy sector, the recent drop in oil and natural-gas prices has proved to be a challenge to best-laid plans. But the dip may provide some buying opportunities. According to savvy investors at the John S. Herold Pacesetters Energy Conference Thursday, trusts with dividends near 8%, exploration co's with undervalued assets and alternative energy solutions like wind and ethanol offer promise. "The economy in the next 25 years will be about oil rationing, oil replacement, fads, busts, incredible discoveries," says Ashton Lee, a hedge-fund manager with Lucas Capital Mgmt. "So how do you make a buck?" "We love long [oil and gas] reserve life and cheap co's," Lee told an audience of investors and energy-sector professionals. On his short list is Canadian Oil Sands Trust. Shares in the trust are down 20% from their 52w high. The heavy crude the co produces in Canada has a 35y reserve life, making it likely that its dividend yield will rise, says Lee. But its reserves are trading at $6.40 per barrel. And he likes global integrated oil giant ConocoPhillips (COP), whose reserves of oil and equivalents are valued at $7.43 per barrel. Even if some of those reserves are in political hotspots for energy like Venezuela and Russia, the assets are worth more, Lee says.
DigiTimes reports that Founder Technology, China's 2nd-largest PC provider and the world's 7th-largest desktop PC vendor, on Sep.28 announced it will begin selling desktop PCs based on AMD64 processors in China next month. The co is also looking to expand its sales agreement with AMD (AMD) to cover notebook and server mkts in the near future.
Barron's Online "Weekday Trader" section suggests that for investors gunning for big returns in the energy sector, the recent drop in oil and natural-gas prices has proved to be a challenge to best-laid plans. But the dip may provide some buying opportunities. According to savvy investors at the John S. Herold Pacesetters Energy Conference Thursday, trusts with dividends near 8%, exploration co's with undervalued assets and alternative energy solutions like wind and ethanol offer promise. "The economy in the next 25 years will be about oil rationing, oil replacement, fads, busts, incredible discoveries," says Ashton Lee, a hedge-fund manager with Lucas Capital Mgmt. "So how do you make a buck?" "We love long [oil and gas] reserve life and cheap co's," Lee told an audience of investors and energy-sector professionals. On his short list is Canadian Oil Sands Trust. Shares in the trust are down 20% from their 52w high. The heavy crude the co produces in Canada has a 35y reserve life, making it likely that its dividend yield will rise, says Lee. But its reserves are trading at $6.40 per barrel. And he likes global integrated oil giant ConocoPhillips (COP), whose reserves of oil and equivalents are valued at $7.43 per barrel. Even if some of those reserves are in political hotspots for energy like Venezuela and Russia, the assets are worth more, Lee says.
DigiTimes reports that Founder Technology, China's 2nd-largest PC provider and the world's 7th-largest desktop PC vendor, on Sep.28 announced it will begin selling desktop PCs based on AMD64 processors in China next month. The co is also looking to expand its sales agreement with AMD (AMD) to cover notebook and server mkts in the near future.
Thursday, September 28, 2006
Calls of Note Part 4
- Eric Ross and Eddie Cheung from ThinkEquity are downgrading Advanced Micro Devices (AMD) from BUY to SELL and lowering price target from $30 to $20 as they believe AMD will suffer in 3Q06 and 4Q06 from several issues.
They believe the supply chain at Dell is incorporating AMD parts slower than expected (due to DELL-specific issues). AMD's margins are likely to be lower than expected due to a higher mix of laptop processors, and DELL revenues cannot make up the difference. And they believe AMD is still seeing pricing competition from Intel even though pricing cuts are slowing in the near future. A weaker antitrust suit against Intel and a much later trial date of 2009 are negatives as well.
Eric and Eddie note they heard in Asia that AMD is likely to suffer near-term from the DELL supply chain. Their sources in Asia"corroborated by sources in the U.S."have indicated to that DELL's ramp of AMD products is progressing more slowly than originally expected. Most of this is due to DELL-specific issues, with DELL losing share and in disarray. Unfortunately for AMD, these revenues will not likely be booked in any significant way in 2007. While this is not tragic, they believe when the Street begins to hear this from other channels, it will provide downward pressure on the stock.
They want to emphasize that this is a trading call, not a long-term investment call: They believe AMD is a solid company, with superior technology and a real chance to gain substantial market share over the next several years. In the near term, however, a challenging supply chain, mix/ margin issues and Intel's product refresh will most likely curtail AMD's share gains and/or profits.
Notablecalls: What a U-turn! Check out ThinkEquity's comments on AMD from last week. Or the week before. But, as Eric and Eddie note, this is a trading call. AMD is now heading lower, just as I suspected yesterday. And ThinkEquity seems to be beating all the other firms yet again (notice Citi upping their ests and tgts this AM, also BAC yesterday).
They believe the supply chain at Dell is incorporating AMD parts slower than expected (due to DELL-specific issues). AMD's margins are likely to be lower than expected due to a higher mix of laptop processors, and DELL revenues cannot make up the difference. And they believe AMD is still seeing pricing competition from Intel even though pricing cuts are slowing in the near future. A weaker antitrust suit against Intel and a much later trial date of 2009 are negatives as well.
Eric and Eddie note they heard in Asia that AMD is likely to suffer near-term from the DELL supply chain. Their sources in Asia"corroborated by sources in the U.S."have indicated to that DELL's ramp of AMD products is progressing more slowly than originally expected. Most of this is due to DELL-specific issues, with DELL losing share and in disarray. Unfortunately for AMD, these revenues will not likely be booked in any significant way in 2007. While this is not tragic, they believe when the Street begins to hear this from other channels, it will provide downward pressure on the stock.
They want to emphasize that this is a trading call, not a long-term investment call: They believe AMD is a solid company, with superior technology and a real chance to gain substantial market share over the next several years. In the near term, however, a challenging supply chain, mix/ margin issues and Intel's product refresh will most likely curtail AMD's share gains and/or profits.
Notablecalls: What a U-turn! Check out ThinkEquity's comments on AMD from last week. Or the week before. But, as Eric and Eddie note, this is a trading call. AMD is now heading lower, just as I suspected yesterday. And ThinkEquity seems to be beating all the other firms yet again (notice Citi upping their ests and tgts this AM, also BAC yesterday).
Calls of Note Part 3
- Piper Jaffray comments on Novatel Wireless (NASDAQ:NVTL) saying Nokia announced the development of an HSDPA module designed to be embedded in notebook computers, in collaboration with Intel. The module will be included as part of Intel's next-generation Intel Centrino Duo platform.
Firm believes Novatel Wireless has more experience delivering wireless data solutions to notebook manufacturers, and has a strong portfolio of design wins that are expected to ramp later this year and into 2007
Nevertheless, they believe Nokia's new product offering could accelerate competition for future design wins and add further pricing pressure. Firm believes a combined Nokia/Intel solution could prove compelling to laptop OEMs seeking to streamline their supply chains, although performance specifications for Nokia's solution are unclear.
Maintains Mkt Perform and $12 tgt on NVTL.
Notablecalls: Not actionable but good to know category. Competing with the likes on Nokia will likely have a LT negative impact on margins.
Firm believes Novatel Wireless has more experience delivering wireless data solutions to notebook manufacturers, and has a strong portfolio of design wins that are expected to ramp later this year and into 2007
Nevertheless, they believe Nokia's new product offering could accelerate competition for future design wins and add further pricing pressure. Firm believes a combined Nokia/Intel solution could prove compelling to laptop OEMs seeking to streamline their supply chains, although performance specifications for Nokia's solution are unclear.
Maintains Mkt Perform and $12 tgt on NVTL.
Notablecalls: Not actionable but good to know category. Competing with the likes on Nokia will likely have a LT negative impact on margins.
Calls of Note Part 2
- Citigroup is raising their estimates and price target on AMD (NYSE:AMD), reflecting solid PC environment and strength in AMD's OEM business Dell represents an obvious source of strength but upside comes from HPQ, who helped buoy 1H September Contrary to concerns over a price war, the 3Q06 pricing environment was relatively stable versus expectations. This and mix shift weighted toward OEM business drives them to increase 3Q06 GM estimate.
Raising 2007 estimates above consensus, reflecting 8M net new processors from Dell. AMD now gaining 170 bps of share in 2007. With a significant increase in estimates ahead, and positive news from OEM customers, the firm expects momentum to favor AMD shares through year-end. Raises price target to $31 from $27.50.
- Citigroup is also increasing estimates and price target (to $24 from $23) for Intel (NASDAQ:INTC) reflecting better PC environment for 3Q06. Gross margin remains unchanged as sales were dominated by lower margin Pentium D (resulting in share gain in the channel).
Revenue estimates 3Q06 to $8.6B from $8.4B; 2006 to $35.0B from $34.6B. GAAP EPS for 2006 to $0.81 from $0.79.
Inventories to not increase as much as expected given strong unit sales and increased production of chipsets. Solid outlook expected for 4Q06, reflecting seasonal PC trends, and improved gross margin outlook on Core 2 Duo push in the channel. Firm notes that while they were too early when they upgraded Intel, they believe the groundswell is forming for a turnaround in 2007. Firm confidently views Intel as a 12-month Buy.
Notablecalls: Not actionable but good to know. Citi's late. The stocks have made their moves.
Raising 2007 estimates above consensus, reflecting 8M net new processors from Dell. AMD now gaining 170 bps of share in 2007. With a significant increase in estimates ahead, and positive news from OEM customers, the firm expects momentum to favor AMD shares through year-end. Raises price target to $31 from $27.50.
- Citigroup is also increasing estimates and price target (to $24 from $23) for Intel (NASDAQ:INTC) reflecting better PC environment for 3Q06. Gross margin remains unchanged as sales were dominated by lower margin Pentium D (resulting in share gain in the channel).
Revenue estimates 3Q06 to $8.6B from $8.4B; 2006 to $35.0B from $34.6B. GAAP EPS for 2006 to $0.81 from $0.79.
Inventories to not increase as much as expected given strong unit sales and increased production of chipsets. Solid outlook expected for 4Q06, reflecting seasonal PC trends, and improved gross margin outlook on Core 2 Duo push in the channel. Firm notes that while they were too early when they upgraded Intel, they believe the groundswell is forming for a turnaround in 2007. Firm confidently views Intel as a 12-month Buy.
Notablecalls: Not actionable but good to know. Citi's late. The stocks have made their moves.
Calls of Note Part 1
- Jefferies notes that at the Intel's Developers Forum, the company displayed a prototype 128 MB wafer based on Energy Conv. Devices' (NASDAQ:ENER) phase change memory that it intends to use as a flash memory replacement. Firm believes this is a significant development that is likely to drive ENER's share price higher.
This is the first confirmation from Intel that it was developing a product based on this technology. Importantly, Intel has staffed an entire "Phase Change Group" to develop this technology. And according to Intel at the forum, phase change memory is likely to be the memory technology of the future. Where Intel goes, others likely follow.
Firm notes they have not included any revenues or licensing fees from phase change memory until they get better visibility on the timing and scale of product rollout from Samsung, Intel and others. But the market for DRAM and Flash memory is expected to be close to $50 billion in 2008-2009. At a 1% licensing fee, this could amount to an incremental $2.50/share to earnings.
Jeffco is calling ENER shares inexpensive saying the co is is trading at a discount to the solar industry even though it has similar expected growth rates and the best balance sheet with $400M in cash. They reiterate Buy rating and $65 price target, which is about 90% upside from current levels.
Notablecalls: High five to Jeffco's Clean Energy team! I know some people from Jeffco are reading this blog, so do give my best regards to Bencik. ENER will surely see strong interest in the coming days. Note that the $65 price tgt does not include any contibution from INTC.
This is the first confirmation from Intel that it was developing a product based on this technology. Importantly, Intel has staffed an entire "Phase Change Group" to develop this technology. And according to Intel at the forum, phase change memory is likely to be the memory technology of the future. Where Intel goes, others likely follow.
Firm notes they have not included any revenues or licensing fees from phase change memory until they get better visibility on the timing and scale of product rollout from Samsung, Intel and others. But the market for DRAM and Flash memory is expected to be close to $50 billion in 2008-2009. At a 1% licensing fee, this could amount to an incremental $2.50/share to earnings.
Jeffco is calling ENER shares inexpensive saying the co is is trading at a discount to the solar industry even though it has similar expected growth rates and the best balance sheet with $400M in cash. They reiterate Buy rating and $65 price target, which is about 90% upside from current levels.
Notablecalls: High five to Jeffco's Clean Energy team! I know some people from Jeffco are reading this blog, so do give my best regards to Bencik. ENER will surely see strong interest in the coming days. Note that the $65 price tgt does not include any contibution from INTC.
Wednesday, September 27, 2006
Calls of Note Part 4
- Banc of America notes that based on channel checks within the Asia supply chain, they believe that AMD's (NYSE:AMD) Sept qtr is tracking above current consensus forecast for 7.5% Q/Q rev growth. The upside in large part is being driven by 1) a significant improvement in microprocessor fundamentals from depressed levels in 1H06; 2) a healthier inventory situation in the channel following significant reduction to excess inventory for AMD's parts from elevated levels in June; and 3) the ramp of Dell's business, which, although only a modest contributor to AMD's Q3 results, is having a 'ripple effect' by driving upside to near-term orders from OEMs and the channel. Consequently, they are raising otheir Sept. qtr rev est from +3.5% to +9.9% Q/Q, with new CY07 GAAP EPS est. now at $1.35, up from $1.15 previously (consensus of $1.34).
Despite the strong unit upside vs. initial forecasts, the firm believes that the strong reception of Intel's Conroe, coupled with the attractive prices for Intel's other desktop products is limiting AMD's market share gains in desktops. Overall, despite the increased presence at Dell (they project 15-20% share at Dell by Q4), they think AMD's overall market share gains will be limited at best, and will likely be offset by share gains by Intel elsewhere (Apple, channel).
Maintains Neutral. Tgt goes to $26 from $23.
Notablecalls: Sorry, guys from ThinkEquity beat you by about 2 weeks. Also, AMD stock looks to be turning South from here.
Despite the strong unit upside vs. initial forecasts, the firm believes that the strong reception of Intel's Conroe, coupled with the attractive prices for Intel's other desktop products is limiting AMD's market share gains in desktops. Overall, despite the increased presence at Dell (they project 15-20% share at Dell by Q4), they think AMD's overall market share gains will be limited at best, and will likely be offset by share gains by Intel elsewhere (Apple, channel).
Maintains Neutral. Tgt goes to $26 from $23.
Notablecalls: Sorry, guys from ThinkEquity beat you by about 2 weeks. Also, AMD stock looks to be turning South from here.
Calls of Note Part 4
- Piper Jaffray notes that recent channel checks (at several Dick's and Sports Authority locations) indicate significant sell-throughs of Under Armor (NASDAQ:UARM) football cleats. Nineteen of twenty retailers indicated that selections were very limited, particularly in the higher priced Metal line (retails at $109.99). Perhaps even more importantly, the "on field" performance of the shoe appears to be solid as only three of the twenty retailers reported returns. Fim believes the successful launch of footwear further establishes UARM as an emerging "top-tier" athletic brand.
They believe Under Armour's ability to establish a strong customer following in new categories such as golf will enable it to offset the natural seasonality associated with the company's traditional compression apparel. In addition, the company's ability to capture increased market share in the much larger loose fitting athletic apparel sector (according to NPD and SportScan the active sports apparel market is approx. $12B of which compression makes up approx. $400mm-$500mm) enables it to capture additional floor space at key retailers.
At this time, the firm is taking up their FY06 and FY07 EPS estimates from $0.70 and $0.95 to $0.72 and $0.96, respectively. In tandem with earnings adjustments, they are keeping price target intact at $38 (40x new FY07 EPS estimate of $0.96).
Notablecalls: So, there is much more sell-through than Piper originally thought but ests go up by a measly $0.01-$0.02? Also, it's the 3rd time Piper has issued positive comments on UARM but left their tgt unch'ed. That will not move the stock up.
They believe Under Armour's ability to establish a strong customer following in new categories such as golf will enable it to offset the natural seasonality associated with the company's traditional compression apparel. In addition, the company's ability to capture increased market share in the much larger loose fitting athletic apparel sector (according to NPD and SportScan the active sports apparel market is approx. $12B of which compression makes up approx. $400mm-$500mm) enables it to capture additional floor space at key retailers.
At this time, the firm is taking up their FY06 and FY07 EPS estimates from $0.70 and $0.95 to $0.72 and $0.96, respectively. In tandem with earnings adjustments, they are keeping price target intact at $38 (40x new FY07 EPS estimate of $0.96).
Notablecalls: So, there is much more sell-through than Piper originally thought but ests go up by a measly $0.01-$0.02? Also, it's the 3rd time Piper has issued positive comments on UARM but left their tgt unch'ed. That will not move the stock up.
Calls of Note Part 3
- UBS comments on BearingPoint (NYSE:BE) saying 06 pro forma results were ahead of aggressive ests & the business trends into F07 are very solid. Bookings & rev growth ests were very strong & oper margins of ~10% are a year ahead of schedule, but turnover remains a concern. 1x-ers will cause F06 cash & FCF to be lower than expected, but the firm thinks the outlook for recurring ops in F07 & beyond looks very compelling.
The firm spoke to several convert experts and think BE (to file the 10K & prevent mat'l business disruption) & the Series A/B holders (b/c they are subordinate to the banks & Class C/D tranches) are both incented to get a fair deal done quickly & move on (hopefully in the next few weeks). The process could drag on but b/c that would be debilitating to both parties, the firm thinks it's less likely.
Strong fundamentals, valuation & potential for a relatively quick resolution on the debt causes the firm to think potential weakness indicated in after-hrs trading will be short-lived. On even more conservative ests, DCF suggest a $12 value & they project a F07 FCF yield of 12%. Firm would view weakness as a buying opportunity.
Notablecalls: BE stock was down as much as 15% in after hrs trading. That looks a bit excessive. Would be a buyer around these levels.
The firm spoke to several convert experts and think BE (to file the 10K & prevent mat'l business disruption) & the Series A/B holders (b/c they are subordinate to the banks & Class C/D tranches) are both incented to get a fair deal done quickly & move on (hopefully in the next few weeks). The process could drag on but b/c that would be debilitating to both parties, the firm thinks it's less likely.
Strong fundamentals, valuation & potential for a relatively quick resolution on the debt causes the firm to think potential weakness indicated in after-hrs trading will be short-lived. On even more conservative ests, DCF suggest a $12 value & they project a F07 FCF yield of 12%. Firm would view weakness as a buying opportunity.
Notablecalls: BE stock was down as much as 15% in after hrs trading. That looks a bit excessive. Would be a buyer around these levels.
Calls of Note Part 2
- Jefferies has positive comments on Intel (NASDAQ:INTC) saying that on the first day of IDF, they were impressed with Intel's technology and manufacturing plans. The firm is getting increasingly convinced that the company has turned around and should begin to regain market share on back of its new products, superior roadmap and manufacturing capabilities. Finally, Intel now has in place all the ingredients that should enable the company to show demonstrable share gains in 2007 and beyond.
Company unveiled quad core processors for servers and desktops. These new processors are expected to ship in middle of November this year. Firm is encouraged by Intel's introduction of Quad- Core MPUs at least six months ahead of AMD (NYSE:AMD) and believes that this is a sign that Intel is aggressively responding to AMD's lead in multi-core architectures.
Based on their increased confidence in Intel's ability to compete driven by a competitive product lines across the board and a leaner organization structure, the firm is raising their 2007 estimates for Intel. While they are keeping revenue estimates unchanged at $38.8B, the firm is raising pro-forma EPS estimate (including ESOs) to $1.09 from $1.02. A superior product line should result in better pricing power and improved margin profile. Current 2007 street estimates for INTC are $37.7B/$1.09.
Tgt is upped to $24 from $22.
Notablecalls: Not actionable but good to know category. I still think INTC is a sell here. It will take more than new processors to fix this one.
Company unveiled quad core processors for servers and desktops. These new processors are expected to ship in middle of November this year. Firm is encouraged by Intel's introduction of Quad- Core MPUs at least six months ahead of AMD (NYSE:AMD) and believes that this is a sign that Intel is aggressively responding to AMD's lead in multi-core architectures.
Based on their increased confidence in Intel's ability to compete driven by a competitive product lines across the board and a leaner organization structure, the firm is raising their 2007 estimates for Intel. While they are keeping revenue estimates unchanged at $38.8B, the firm is raising pro-forma EPS estimate (including ESOs) to $1.09 from $1.02. A superior product line should result in better pricing power and improved margin profile. Current 2007 street estimates for INTC are $37.7B/$1.09.
Tgt is upped to $24 from $22.
Notablecalls: Not actionable but good to know category. I still think INTC is a sell here. It will take more than new processors to fix this one.
Calls of Note Part 1
- Thomas Weisel Partners comments on Apple (NASDAQ:AAPL) after just completing a round of about 30 channel checks with Apple specialist resellers and Apple retail stores across the United States, and their checks suggest strong demand for Intel-based notebooks. Firm's checks suggest that 50% of Mac buyers are switchers and that there is quite strong demand for MacBook. Checks also indicate a healthy demand/supply balance and availability for most products; thus, Apple should be in a position to deliver upside relative to firm's original estimates for notebooks. They continue to believe that the real key to the Apple story over the next 12 months will be the actual Mac units sold, as iPod momentum is likely to fade somewhat.
iPod checks suggest relatively less excitement related to new products compared to previous launches. More than 70% of checks indicated that iPod demand is the same or worse compared to last quarter and the firm saw limited stock-outs, the first time in recent memory when
Apple has sufficient supply of the newly launched products.
TWP believes that the strength on the notebook side could mean that Apple might post numbers above current Street estimates, but notes that expectations appear to be increasing. They are increasing their ests as well.
At a 26.4x C07E P/E, Apple is slightly above the group average of 21.1x, but on a PEG basis, Apple is at 1.3x below the group of 1.7x. This suggests valuation is reasonable, thus they maintain a Peer Perform rating.
Notablecalls: Not actionable but good to know category.
iPod checks suggest relatively less excitement related to new products compared to previous launches. More than 70% of checks indicated that iPod demand is the same or worse compared to last quarter and the firm saw limited stock-outs, the first time in recent memory when
Apple has sufficient supply of the newly launched products.
TWP believes that the strength on the notebook side could mean that Apple might post numbers above current Street estimates, but notes that expectations appear to be increasing. They are increasing their ests as well.
At a 26.4x C07E P/E, Apple is slightly above the group average of 21.1x, but on a PEG basis, Apple is at 1.3x below the group of 1.7x. This suggests valuation is reasonable, thus they maintain a Peer Perform rating.
Notablecalls: Not actionable but good to know category.
Paperstand
Barron's Online discusses Arch Coal (ACI), whose stock is down roughly 30% so far this year. But prices for Arch's coal, concentrated in Wyoming's Powder River Basin, look favorable long term. Western coal is increasingly needed over Appalachian coal for its cleaner-burning qualities and abundance. And as winter comes, and coal-fueled heat kicks in, supplies should moderate, boosting coal prices broadly and Arch's profits. Add to that a cheap valuation and Arch shares look like a compelling energy play. "We believe most of the coal-fired power-plant demand added over the next decade is going to use Powder River Basin coal, and the most leveraged to that is Arch Coal," says Adam Donsky, of Dynamic Focus+ Balanced Fund. "And the stock is very cheap."
"Inside Scoop" section highlights XTO Energy (XTO), whose two insiders have sold $25.1m worth of shares. On Sept. 21, CEO Bob R. Simpson sold 575K shares, pocketing a total of $23.1M in the transaction. On the same day, SEVP Vaughn Vennerberg also sold 50K shares for a total of $2M. Simpson's transaction last week is notable in part b/c it marks the first time in 3 years that his stock sales have not been options-related, says Ben Silverman of InsiderScore.com.
Tuesday, September 26, 2006
Calls of Note Part 5
- Piper Jaffray is positive on Crocs (NASDAQ:CROX) following recent travel with co CEO,
Ron Snyder, that reaffirmed firm's thesis that diversification remains key to LT growth. The company is actively expanding its product portfolio, observing strict supply chain management, building sufficient capacity, and reinvesting strong cash generation in long-term business processes and brand marketing.
Firm's 2H FY06 and FY07 estimates are unchanged, however, they maintain an upward bias given early signs of strong retail and consumer acceptance of fall styles including the Mary Jane, Prima, and Islander and strong initial order flow for both the NCAA and Disney product - all of which offset seasonality tied to Crocs' heritage spring styles.
They estimate the company will add roughly 1,000 net new doors during FQ3, including ~200 doors through West Coast boardsport retailer Tilly's and mall-based retailer, The Walking Company. The acquisition of Marshall Field's (MAY) by FD/Macy's also provides a foray into roughly 400 Macy's East and West locations.
By year-end, the firm expects capacity to near 3.5M units/month progressing toward 4M units/month into early 2007.
Expects NT catalysts to support CROX shares including: strong FQ3 results, improved visibility surrounding sell-throughs and reorder potential, capture of additional floorspace at key accounts, NCAA & Disney product introductions, and capacity & supply chain improvements.
Maintains $40 tgt.
Notablecalls: Check out my comments on CROX couple of weeks back. The trade is working out nicely and will keep doing so over the next weeks.
Ron Snyder, that reaffirmed firm's thesis that diversification remains key to LT growth. The company is actively expanding its product portfolio, observing strict supply chain management, building sufficient capacity, and reinvesting strong cash generation in long-term business processes and brand marketing.
Firm's 2H FY06 and FY07 estimates are unchanged, however, they maintain an upward bias given early signs of strong retail and consumer acceptance of fall styles including the Mary Jane, Prima, and Islander and strong initial order flow for both the NCAA and Disney product - all of which offset seasonality tied to Crocs' heritage spring styles.
They estimate the company will add roughly 1,000 net new doors during FQ3, including ~200 doors through West Coast boardsport retailer Tilly's and mall-based retailer, The Walking Company. The acquisition of Marshall Field's (MAY) by FD/Macy's also provides a foray into roughly 400 Macy's East and West locations.
By year-end, the firm expects capacity to near 3.5M units/month progressing toward 4M units/month into early 2007.
Expects NT catalysts to support CROX shares including: strong FQ3 results, improved visibility surrounding sell-throughs and reorder potential, capture of additional floorspace at key accounts, NCAA & Disney product introductions, and capacity & supply chain improvements.
Maintains $40 tgt.
Notablecalls: Check out my comments on CROX couple of weeks back. The trade is working out nicely and will keep doing so over the next weeks.
Calls of Note Part 4
- CIBC notes that RF MicroDevices (NASDAQ:RFMD) remains firm's favorite RF component company. Although prospects for gross margin expansion appear modest from current levels, they believe that revenue growth, driven by seasonal strength in 2H06 and content gains in 3G handsets, may provide upside to our current EPS expectations. In firm's view, they believe that RFMD could achieve operating margins in the 15% range with gross margins of 37%.
Despite recent concerns of loss of share at Motorola to Freescale and Skyworks, they believe that the company is maintaining its strong position at both MOT and NOK. Moreover, they believe RFMD will benefit as these two OEMs in particular are likely to have strong 2H06 results based on both overall handset demand and continue market share growth. Firm believes that RFMD is already seeing an increase in demand from these customers in typical seasonal fashion and that this increased demand is likely to deliver upside to RFMD's C3Q06 results and C4Q06 expectations. Moreover, the firm believes that RFMD could deliver a still stronger 2007 as EDGE demand increases.
RFMD shares currently trade at 1.7x CY07E TEV/sales, a premium to the company's closest comp Skyworks (at 1.1x) and in line with the peer group. In firm's view, RFMD continues to grow market share and increase its relative dollar content in handsets with its Polaris transceiver and front-end modules. In addition, the company expects to see growth in its wireless connectivity business with Bluetooth, GPS and WLAN products. Therefore, they believe the shares are attractively valued and reiterate Outperform rating.
Notablecalls: Not actionable but good to know category.
Despite recent concerns of loss of share at Motorola to Freescale and Skyworks, they believe that the company is maintaining its strong position at both MOT and NOK. Moreover, they believe RFMD will benefit as these two OEMs in particular are likely to have strong 2H06 results based on both overall handset demand and continue market share growth. Firm believes that RFMD is already seeing an increase in demand from these customers in typical seasonal fashion and that this increased demand is likely to deliver upside to RFMD's C3Q06 results and C4Q06 expectations. Moreover, the firm believes that RFMD could deliver a still stronger 2007 as EDGE demand increases.
RFMD shares currently trade at 1.7x CY07E TEV/sales, a premium to the company's closest comp Skyworks (at 1.1x) and in line with the peer group. In firm's view, RFMD continues to grow market share and increase its relative dollar content in handsets with its Polaris transceiver and front-end modules. In addition, the company expects to see growth in its wireless connectivity business with Bluetooth, GPS and WLAN products. Therefore, they believe the shares are attractively valued and reiterate Outperform rating.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 3
- CIBC reiterates their Sector Outperform rating on Openwave (NASDAQ:OPWV) and raises their tgt to $12 from $9. A rash of recent deals supports their thesis that key mobile data foodchain participants like OPWV are being aggressively targeted for M&A. Given going takeout prices, firm's implied 1.5x EV/rev target for OPWV remains conservative.
Firm believes Openwave's most attractive assets include: its widely used WAP gateways, which an established OEM/SI could leverage to win more service engagements; the browser business, with its unique penetration among feature phones; & Musiwave, one of the last remaining mobile music plays.
The new tgt also considers the net present value to an acquirer of OPWV's NOLs. OPWV has approximately $1.1B in federally recognizable NOLs and $391M in NOLs recognizable by the state of California. Firm believes these would give an acquirer a tax saving with an NPV of $148M ($1.60/share).
The price target of $12 is at a slight discount to firm's sum of the parts valuation, which pegs Openwave's value at approximately $13. New price target implies and EV/sales value of 1.5x, well below the 2.0x-7.5x takeout multiples fetched in the space in the last several months (including WiderThan, Mobile365, and Mobilitec).
Notablecalls: Nice note but nothing really new in it. Would expect mild buy interest following the call.
Firm believes Openwave's most attractive assets include: its widely used WAP gateways, which an established OEM/SI could leverage to win more service engagements; the browser business, with its unique penetration among feature phones; & Musiwave, one of the last remaining mobile music plays.
The new tgt also considers the net present value to an acquirer of OPWV's NOLs. OPWV has approximately $1.1B in federally recognizable NOLs and $391M in NOLs recognizable by the state of California. Firm believes these would give an acquirer a tax saving with an NPV of $148M ($1.60/share).
The price target of $12 is at a slight discount to firm's sum of the parts valuation, which pegs Openwave's value at approximately $13. New price target implies and EV/sales value of 1.5x, well below the 2.0x-7.5x takeout multiples fetched in the space in the last several months (including WiderThan, Mobile365, and Mobilitec).
Notablecalls: Nice note but nothing really new in it. Would expect mild buy interest following the call.
Calls of Note Part 2
- Goldman Sachs is adding FormFactor (NASDAQ:FORM) to the Americas Investment Conviction List, as they see the recent pull back in the stock as an opportunity for relative and
absolute return investors to initiate long/overweight positions in the name. Firm believes the stock's recent underperformance has been driven by concerns regarding a slowdown in the DDR2 transition in Taiwan, which the market expects will have a negative impact on FormFactor's fundamentals in the near-term. They view the market's reaction as overly negative and continue to see 20% upside to $50 price target, as: 1) the end of the DDR2 transition was fully expected, and (2) they believe there are several factors that are continuing to drive positive business momentum for the company over the next several quarters, which are currently being overlooked by the market.
Firm expects FormFactor's upcoming earnings report to serve as a positive catalyst for the stock. While the Street currently expects 3QCY2006 results and/or 4QCY2006 guidance to be negatively impacted by the slowdown in DDR2 demand in Taiwan, they expect 3QCY2006 results to be in-line with expectations (estimates $95 mn in 3QCY2006 sales and $0.33 in EPS, including ESOs) and for 4QCY2006 guidance to be solid.
Notablecalls: Actionable call! FORM will see buy interest today. I see around 2 pts of upside by minimum
absolute return investors to initiate long/overweight positions in the name. Firm believes the stock's recent underperformance has been driven by concerns regarding a slowdown in the DDR2 transition in Taiwan, which the market expects will have a negative impact on FormFactor's fundamentals in the near-term. They view the market's reaction as overly negative and continue to see 20% upside to $50 price target, as: 1) the end of the DDR2 transition was fully expected, and (2) they believe there are several factors that are continuing to drive positive business momentum for the company over the next several quarters, which are currently being overlooked by the market.
Firm expects FormFactor's upcoming earnings report to serve as a positive catalyst for the stock. While the Street currently expects 3QCY2006 results and/or 4QCY2006 guidance to be negatively impacted by the slowdown in DDR2 demand in Taiwan, they expect 3QCY2006 results to be in-line with expectations (estimates $95 mn in 3QCY2006 sales and $0.33 in EPS, including ESOs) and for 4QCY2006 guidance to be solid.
Notablecalls: Actionable call! FORM will see buy interest today. I see around 2 pts of upside by minimum
Calls of Note Part 1
- Deutsche Bank notes that fundamentals at Kos Pharma (NASDAQ:KOSP) continue to appear lackluster. And while they remain hopeful for a turnaround given the company's unique product portfolio, the outlook remains murky. It is well documented, but Rxs remain sluggish with flagship drug Niaspan growing just 2%, Advicor just 4%, and Azmacort declining 9% Y/Y. Only Cardizem LA Rxs have improved, with NRxs up 12% after declining 1% last May. And with the Takeda copromote ending soon, Kos will have roughly 15% less "share of voice" in 2007.
Several long-standing officers of the company have departed in the past month. They include, most importantly, the head of sales and marketing, and the two R&D leaders of the inhalation program. In tandem with historically high turnover in the sales force, these changes could potentially foreshadow execution issues or pipeline delays.
The most noteworthy of which is Richard King, who was Kos' executive Vice President of commercial operations for the past five years. Besides leading Kos' sales effort and helping grow the company's revenue base from approximately $91M in 2001 to well over $800M currently, Mr. King was responsible for 800+ professionals (over half of all employees). Given his major role within the company, the firm is not sure why his resignation was not announced. In addition, two vice presidents who lead the company's inhalation R&D and biomedical engineering development programs have also recently resigned.
Much has been made of the potential competition from Merck (MK-0524) and Pfizer (torcetrapib) later this decade. At this point the jury is still out and may well be so for some time. That said, they believe '07 consensus EPS ($2.63) is too high and even firm's $2.43 may well be unachievable per the aforementioned issues. 12-month price target is $43, based on 17.5x '07 EPS est. Key risks to this target primarily relate to Rx trends and patent challenges to the company's core promoted products.
Notablecalls: Ouch! This one's not pretty! Deutsche has done some quality work here and this will put pressure on the shares. The only problem with this trade is that it may already be somewhat crowded. If a guy of Mr. King's reputation leaves a company, people will soon know. So, there may be some people already short the common. Also, Deutsche has some of the most powerful in-house trading operations on the Street.
Several long-standing officers of the company have departed in the past month. They include, most importantly, the head of sales and marketing, and the two R&D leaders of the inhalation program. In tandem with historically high turnover in the sales force, these changes could potentially foreshadow execution issues or pipeline delays.
The most noteworthy of which is Richard King, who was Kos' executive Vice President of commercial operations for the past five years. Besides leading Kos' sales effort and helping grow the company's revenue base from approximately $91M in 2001 to well over $800M currently, Mr. King was responsible for 800+ professionals (over half of all employees). Given his major role within the company, the firm is not sure why his resignation was not announced. In addition, two vice presidents who lead the company's inhalation R&D and biomedical engineering development programs have also recently resigned.
Much has been made of the potential competition from Merck (MK-0524) and Pfizer (torcetrapib) later this decade. At this point the jury is still out and may well be so for some time. That said, they believe '07 consensus EPS ($2.63) is too high and even firm's $2.43 may well be unachievable per the aforementioned issues. 12-month price target is $43, based on 17.5x '07 EPS est. Key risks to this target primarily relate to Rx trends and patent challenges to the company's core promoted products.
Notablecalls: Ouch! This one's not pretty! Deutsche has done some quality work here and this will put pressure on the shares. The only problem with this trade is that it may already be somewhat crowded. If a guy of Mr. King's reputation leaves a company, people will soon know. So, there may be some people already short the common. Also, Deutsche has some of the most powerful in-house trading operations on the Street.
Color on warning: Advanced Medical Optics (NYSE:EYE)
- Several firms are commenting on Advanced Medical Optics (NYSE:EYE) after the co revised its guidance last night:
- Wachovia notes that for the third straight year, AMO management dropped a "surprise" on the street by pre-announcing a soft Q3 revenue result ($255M) at and lowering its 2nd half revenue and EPS guidance citing, in order of importance: 1) Slower market development of the PIOL market esp. internationally, 2) weaker than expected domestic LVC volumes (mgmt. stated they had expected procedure growth of 3-5% for 2006, given H1:05 was ~flat Y/Y, this
suggested a meaningful acceleration of growth in H2:06 which didn't materialize and now mgmt. is looking for a ~flat 2006 in procedure growth), and 3) intl. reimbursement challenges and EU physician strikes. While these were the challenges cited by management relevant to some of their internal parameters, the firm notes they had largely anticipated the first two (and largely confirmed these thoughts coming out of the most recent ESCRS meeting) and the third point strikes as a bit odd given the surgeon strikes were largely over by August and were not cited as factors when they were ongoing in Q1 and Q2. Meanwhile, reimbursement challenges are hardly new and they do not believe there were any material "new" events in Q3 relative to the previously cited challenges by management on the Q2 conference call or from the reimbursement changes made in Japan this past March.
Firm's read through the pre-announcement (~$255MM in Q3 revenue, 20% LVC, 32% vision care and 48% cataract) suggest more is going on than delineated in management's explanation and that in fact AMO's base cataract business (phaco, visco, disposables and monofocal IOLs, or some combination thereof) continues to lose share to Alcon. As they have noted in previous notes they believe the most recent financial update suggests the company is struggling (apparently unsuccessfully) to move up the value chain in the cataract implant business
segment as it "rationalizes" older generation products.
Even at a reduced price the firm is inclined to stay on the sidelines and reiterate their Market Perform rating. While mgmt. has finally faced near-term reality of the PIOL and domestic LVC market, they believe the company's new 2007 guidance has the distinct potential of continuing the trend of over promising and under delivering. Firm maintains their preference for ACL and believes AMO's preview reflects the realities of ACL's dominant, premier global ophthalmic franchise and ACL's ability to continue to capture market share.
- Merrill Lynch suspects Advanced Medical Optics will remain under pressure today following downwardly revised sales and EPS targets for 2006 and 2007. Despite the reduced outlook, they continue to believe AMO is an attractive investment and view the weakness as an opportunity to either establish or build upon a position in the stock at a compelling valuation. As such, they reiterate Buy rating.
After reducing their price objective to $54 from $57, AMO still offers a potential gain of nearly 20% from current levels, while incorporating a discounted multiple to compensate for additional risk. Indeed, they view AMO's valuation as particularly attractive, with its PE at a significant discount to three of its four comps, while providing a healthy EPS CAGR of 15%. As such, AMO remains one of firm's favorite mid cap stocks and represents good growth at a reasonable price, despite the tempered outlook.
Bear thesis lacks vision; AMO a story worth sticking with Admittedly, AMO has struggled while trying to reposition itself for future growth, providing detractors with seemingly greater credibility. But bears seem to miss the point that AMO is undergoing a strategically smart transformation that should enable the company to achieve greater success over the long term. Thus, despite some unexpected disappointments along the way, they continue to believe AMO will reward investors who are willing to stay the course.
Notablecalls: EYE will surely get hit today. Would not be looking to play a bounce until the stock crosses the -10% level.
- Wachovia notes that for the third straight year, AMO management dropped a "surprise" on the street by pre-announcing a soft Q3 revenue result ($255M) at and lowering its 2nd half revenue and EPS guidance citing, in order of importance: 1) Slower market development of the PIOL market esp. internationally, 2) weaker than expected domestic LVC volumes (mgmt. stated they had expected procedure growth of 3-5% for 2006, given H1:05 was ~flat Y/Y, this
suggested a meaningful acceleration of growth in H2:06 which didn't materialize and now mgmt. is looking for a ~flat 2006 in procedure growth), and 3) intl. reimbursement challenges and EU physician strikes. While these were the challenges cited by management relevant to some of their internal parameters, the firm notes they had largely anticipated the first two (and largely confirmed these thoughts coming out of the most recent ESCRS meeting) and the third point strikes as a bit odd given the surgeon strikes were largely over by August and were not cited as factors when they were ongoing in Q1 and Q2. Meanwhile, reimbursement challenges are hardly new and they do not believe there were any material "new" events in Q3 relative to the previously cited challenges by management on the Q2 conference call or from the reimbursement changes made in Japan this past March.
Firm's read through the pre-announcement (~$255MM in Q3 revenue, 20% LVC, 32% vision care and 48% cataract) suggest more is going on than delineated in management's explanation and that in fact AMO's base cataract business (phaco, visco, disposables and monofocal IOLs, or some combination thereof) continues to lose share to Alcon. As they have noted in previous notes they believe the most recent financial update suggests the company is struggling (apparently unsuccessfully) to move up the value chain in the cataract implant business
segment as it "rationalizes" older generation products.
Even at a reduced price the firm is inclined to stay on the sidelines and reiterate their Market Perform rating. While mgmt. has finally faced near-term reality of the PIOL and domestic LVC market, they believe the company's new 2007 guidance has the distinct potential of continuing the trend of over promising and under delivering. Firm maintains their preference for ACL and believes AMO's preview reflects the realities of ACL's dominant, premier global ophthalmic franchise and ACL's ability to continue to capture market share.
- Merrill Lynch suspects Advanced Medical Optics will remain under pressure today following downwardly revised sales and EPS targets for 2006 and 2007. Despite the reduced outlook, they continue to believe AMO is an attractive investment and view the weakness as an opportunity to either establish or build upon a position in the stock at a compelling valuation. As such, they reiterate Buy rating.
After reducing their price objective to $54 from $57, AMO still offers a potential gain of nearly 20% from current levels, while incorporating a discounted multiple to compensate for additional risk. Indeed, they view AMO's valuation as particularly attractive, with its PE at a significant discount to three of its four comps, while providing a healthy EPS CAGR of 15%. As such, AMO remains one of firm's favorite mid cap stocks and represents good growth at a reasonable price, despite the tempered outlook.
Bear thesis lacks vision; AMO a story worth sticking with Admittedly, AMO has struggled while trying to reposition itself for future growth, providing detractors with seemingly greater credibility. But bears seem to miss the point that AMO is undergoing a strategically smart transformation that should enable the company to achieve greater success over the long term. Thus, despite some unexpected disappointments along the way, they continue to believe AMO will reward investors who are willing to stay the course.
Notablecalls: EYE will surely get hit today. Would not be looking to play a bounce until the stock crosses the -10% level.
Paperstand
According to the WSJ's "Heard on the Street" column, a change in the govt of Sweden could uncork one of the liquor industry's hottest brands: Absolut vodka. The center-right opposition party defeated Sweden's ruling Social Democrats, and in its first week in office, it is talking about selling off and privatizing many state-owned co's, the crown jewel of which is Vin & Sprit, owner of Absolut. The vodka brand would be one of the biggest trophies to come on the mkt in the liquor industry. Absolut is the world's 3rd-largest premium liquor by volume, after Smirnoff vodka and Bacardi rum. Vin & Sprit could be valued at $5.5bn, analysts say. Liquor-industry execs are talking about potential buyers. Pernod Ricards' CEO, Pierre Pringuet, said the world's No. 2 liquor maker by volume could be a possible bidder. "You would be surprised if I were to say that there was no interest on our part in such a brand," he said. "If the privatization of V&S is started, there is no doubt that all of the industry will be there." Absolut would help Pernod expand in the US, where it is currently the No. 4 competitor by volume, and just 1/3 the size of mkt leader Diageo (DEO). Other possible bidders could include Constellation Brands (STZ), Fortune Brands (FO), Brown-Forman (BFA) and Bacardi. "We look at all opportunities in the beverage alcohol space," said a spokesman for Constellation.
Barron's Online "Inside Scoop" section reports that Drew Industries (DW) may have hit another bump on the road to recovery. With shares of the co already dragged down by a slowing economy, insiders have been taking profits off the table. So far this month, L. Douglas Lippert, Chmn of the Lippert division, and two of his sons have sold 146K Drew shares in the open mkt for $3.88m.
Barron's Online "Inside Scoop" section reports that Drew Industries (DW) may have hit another bump on the road to recovery. With shares of the co already dragged down by a slowing economy, insiders have been taking profits off the table. So far this month, L. Douglas Lippert, Chmn of the Lippert division, and two of his sons have sold 146K Drew shares in the open mkt for $3.88m.
Monday, September 25, 2006
Calls of Note Part 7
- BMO Capital Markets are raising their 4Q estimates on Broadcom (NASDAQ:BRCM) to a 5% sequential increase from an earlier 2% sequential increase, which puts them in line with Street estimates.
Why the change? According to the firm, they did not believe management when it gave the original guidance, and their own checks at the time had indicated that business stayed very weak for 3Q. However, recently, per our industry checks, firm's sense is that Broadcom's own visibility has improved going into 4Q: specifically, the company's 12-week rolling forecast has stabilized. The areas helping 4Q are 1) ramp of the Wii game console platform, 2) 802.11n in new PC customers, such as Hewlett Packard, and Apple, 3) increasing handset shipments in 3G, potentially besides Samsung, 4) ramps at Bluetooth, and FM tuner in new customers, and 5) recovery in the DSL business, a little faster than anticipated recently, owing to ramp in sockets won against competitors. They believe these areas should offset weakness in areas such as enterprise that theybelieve remain soft.
Recommendation
They expect BRCM to OUTPERFORM the market.
Notablecalls: I've been hearing good things about BRCM over the past weeks. Would not be surprised to see some upside in the shares.
Why the change? According to the firm, they did not believe management when it gave the original guidance, and their own checks at the time had indicated that business stayed very weak for 3Q. However, recently, per our industry checks, firm's sense is that Broadcom's own visibility has improved going into 4Q: specifically, the company's 12-week rolling forecast has stabilized. The areas helping 4Q are 1) ramp of the Wii game console platform, 2) 802.11n in new PC customers, such as Hewlett Packard, and Apple, 3) increasing handset shipments in 3G, potentially besides Samsung, 4) ramps at Bluetooth, and FM tuner in new customers, and 5) recovery in the DSL business, a little faster than anticipated recently, owing to ramp in sockets won against competitors. They believe these areas should offset weakness in areas such as enterprise that theybelieve remain soft.
Recommendation
They expect BRCM to OUTPERFORM the market.
Notablecalls: I've been hearing good things about BRCM over the past weeks. Would not be surprised to see some upside in the shares.
Calls of Note Part 6
- Goldman Sachas comments on Research In Motion Ltd. (NASDAQ:RIMM) ahead of results sayingthey expect in-line revenues/EPS (ex- ESO) of $644mm/$0.72 on an operating margin of 27.0%. Consensus estimates are for Revenue of $645mn and EPS of $0.71. Firm's estimates are supported by expectations for 1.3mn device unit shipments and 687K new subscriber additions yielding total subscribers of 6.3mn at the end of 2QFY07.
With shares up 30%-plus since July, November quarter subscriber guidance and commentary around new device launches will be a key determinant of near-term stock performance. The firm believes that Street expectations for November subscriber growth are for 750-780k in new subscriber additions. Further, while they do not expect Management to issue February new subscriber guidance on Thursday's call, they believe expectations are forming for 13-15% in sequential growth in 4Q07.
The firm believes that Management will choose to remain conservative in its near-term guidance as they see little incentive to issue aggressive guidance at this early stage of the product cycle. As a result, guidance could disappoint as they believe that expectations have recently increased on the back of the Pearl product launch. Firm would use any near-term weakness in the shares as a buying opportunity given that the long term fundamental outlook remains strong.
Maintains Buy and ups tgt to $110 from $96.
Notablecalls: Goldman is hedging their bets smartly ahead of results. They saw the s*itty guidance coming from Palm (NASDAQ:PALM) and knew they needed to cover their a*ses. Even if RIMM misses, these comments set it up for a bounce.
With shares up 30%-plus since July, November quarter subscriber guidance and commentary around new device launches will be a key determinant of near-term stock performance. The firm believes that Street expectations for November subscriber growth are for 750-780k in new subscriber additions. Further, while they do not expect Management to issue February new subscriber guidance on Thursday's call, they believe expectations are forming for 13-15% in sequential growth in 4Q07.
The firm believes that Management will choose to remain conservative in its near-term guidance as they see little incentive to issue aggressive guidance at this early stage of the product cycle. As a result, guidance could disappoint as they believe that expectations have recently increased on the back of the Pearl product launch. Firm would use any near-term weakness in the shares as a buying opportunity given that the long term fundamental outlook remains strong.
Maintains Buy and ups tgt to $110 from $96.
Notablecalls: Goldman is hedging their bets smartly ahead of results. They saw the s*itty guidance coming from Palm (NASDAQ:PALM) and knew they needed to cover their a*ses. Even if RIMM misses, these comments set it up for a bounce.
Calls of Note Part 5
- Goldman Sachs is recommending a 3-6 month long global DRAM/short Micron (NYSE:MU) pair trade. Firm's recommendation is driven by: 1) their view that global DRAM makers will continue to benefit from strong DRAM fundamentals through CY1Q2007, and 2) belief that Micron is unlikely to benefit from the current strength in DRAM to the same extent as its global peers. As a result, while strong DRAM fundamentals have driven Micron's stock to increase along with its global peers in recent months, the firm would expect the stock to begin a downward trend in the coming quarters
Regarding the DRAM market environment, the firm believe sthat the recent strength in DRAM fundamentals has been driven by: 1) Production issues at several DRAM makers (trench producers), as well as Micron's reduced bit shipments into the DRAM market, both of which have contributed to the recent DRAM capacity tightness, and in turn an increase in DRAM pricing, and 2) DRAM content per box growth being pulled forward into 2006 to meet Vista specifications. While Goldman's global team does expect DRAM fundamentals to pause beginning in CY1Q2007, they recommend that investors go long the global DRAM stocks (specifically ProMOS, Powerchip, and Elpida) against Micron given current strong fundamentals in DRAM and attractive valuations, as the Asian DRAM stocks are much more attractively valued than Micron and are fully benefiting from the strength in the commodity.
Micron continues to trade at 1.7X price to book value and 2.3X price to sales versus its Asian DRAM peers that are trading at 0.7X to 1.5X price to book value and at 1.1X to 1.8X price to sales. Firm continues to expect ~30% downside to their 12-month price target on MU of $12.00, which is based on a very aggressive 30X multiple applied to estimated normalized EPS of $0.40.
Notablecalls: Check out my comments on MU two weeks ago. The trade is working out nicely. Would not be surprised to see the shares produce a bounce over the next 2-3 days. That's what usually happens after a tier-1 firms comes out with a rec like this one. But overall, this one will continue to work.
Regarding the DRAM market environment, the firm believe sthat the recent strength in DRAM fundamentals has been driven by: 1) Production issues at several DRAM makers (trench producers), as well as Micron's reduced bit shipments into the DRAM market, both of which have contributed to the recent DRAM capacity tightness, and in turn an increase in DRAM pricing, and 2) DRAM content per box growth being pulled forward into 2006 to meet Vista specifications. While Goldman's global team does expect DRAM fundamentals to pause beginning in CY1Q2007, they recommend that investors go long the global DRAM stocks (specifically ProMOS, Powerchip, and Elpida) against Micron given current strong fundamentals in DRAM and attractive valuations, as the Asian DRAM stocks are much more attractively valued than Micron and are fully benefiting from the strength in the commodity.
Micron continues to trade at 1.7X price to book value and 2.3X price to sales versus its Asian DRAM peers that are trading at 0.7X to 1.5X price to book value and at 1.1X to 1.8X price to sales. Firm continues to expect ~30% downside to their 12-month price target on MU of $12.00, which is based on a very aggressive 30X multiple applied to estimated normalized EPS of $0.40.
Notablecalls: Check out my comments on MU two weeks ago. The trade is working out nicely. Would not be surprised to see the shares produce a bounce over the next 2-3 days. That's what usually happens after a tier-1 firms comes out with a rec like this one. But overall, this one will continue to work.
Calls of Note Part 4
- Citigroup comments on FormFactor (NASDAQ:FORM) saying they believe recent competitor commentary echoes firm's downgrade ~2 weeks ago. As a reminder, their work suggests a ~1-3Q "pause" in fundamentals due to moderating demand for DRAM probe cards and heightened execution risk in ramping new pdcts (ex. recent NAND snafus at MU/IMFT).
While the firm acknowledges a recent order from Hynix, their work suggests it is no more than $5MM and is not fully incremental due to some lost business (MU).
Further, while FORM's competitive position remains strong, checks suggest MJC is now qualified for DRAM at Elpida + Powerchip (together ~1/3 of FORM revs in CQ2:06). While MJC remains capacity constrained, work suggests it plans to ramp capacity ~3X in the next 6mos.
They see these issues conspiring to, at the very least, break the string of + est revisions (they recently cut C2007 EPS) meaning this story goes from great to simply good for the next few Qs. Maintaisns Hold, will get more positive in mid-high $30's.
Notablecalls: Not actionable but good to know category.
While the firm acknowledges a recent order from Hynix, their work suggests it is no more than $5MM and is not fully incremental due to some lost business (MU).
Further, while FORM's competitive position remains strong, checks suggest MJC is now qualified for DRAM at Elpida + Powerchip (together ~1/3 of FORM revs in CQ2:06). While MJC remains capacity constrained, work suggests it plans to ramp capacity ~3X in the next 6mos.
They see these issues conspiring to, at the very least, break the string of + est revisions (they recently cut C2007 EPS) meaning this story goes from great to simply good for the next few Qs. Maintaisns Hold, will get more positive in mid-high $30's.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 3
- UBS comments on Harley Davidson (NYSE:HOG) saying that according to otheir industry contacts, +6% in July, +14% in Aug. This outperformed overall industry sales, +5%-7% for July-Aug. YTD HOG 7-8% growth has slightly underperformed industry's 9.0% YOY. Harley helped by new engine and earlier model year, though strength is not just Harley - industry
sales also strong.
The firm has noted for some time long-term demand levels are below mgmt's long-term unit growth guidance of +5-9% and so mgmt may address on Oct 12th call. But given the strong retail performance so far this yr, Harley may not significantly alter long-term guidance at this point.
Maintains Neutral.
Notablecalls: With the weakening consumer, HOG remains a core short. Although I must say I'm surprised by the resilience of the co.
- Merrill Lynch comments on Polaris (NYSE:PII) saying their dealership checks indicate a relatively busy retail environment in the traditional ATV market driven by the upcoming hunting season and promotions. While inventory levels moderated slightly, the firm expects dealerships to be cautious in the near-term when ordering new ATVs owing to the difficult conditions of the last 15 months with weaker-than-expected sales and high inventory levels as well as the more conservative outlook for the overall US economy.
They estimate that Polaris's traditional ATV shipments (44% of total sales) will be down 12.5% and 4.0% in 2006 and 2007, respectively. However, as we move through next year, easier comparisons should provide a more favorable growth environment. Furthermore, they continue to hear continued strength in Ranger utility vehicle and Victory motorcycle sales, which should grow close to 20% in 2007 and offset the weakness in traditional ATVs.
Trading at approximately 11.4x 2007 EPS estimate, Polaris stock is below its 5-year and 10-year averages of 13.9x and 12.2x, respectively. Despite the mixed ATV outlook, they believe that most of the bad news is priced in the stock at this point in time and there could be increasing interest in consumer discretionary stocks especially if the Fed starts cutting rates next year. They are maintaining Buy rating but reducing tgt from $55 to $48.
Notablecalls: Not actionable but good to know category.
sales also strong.
The firm has noted for some time long-term demand levels are below mgmt's long-term unit growth guidance of +5-9% and so mgmt may address on Oct 12th call. But given the strong retail performance so far this yr, Harley may not significantly alter long-term guidance at this point.
Maintains Neutral.
Notablecalls: With the weakening consumer, HOG remains a core short. Although I must say I'm surprised by the resilience of the co.
- Merrill Lynch comments on Polaris (NYSE:PII) saying their dealership checks indicate a relatively busy retail environment in the traditional ATV market driven by the upcoming hunting season and promotions. While inventory levels moderated slightly, the firm expects dealerships to be cautious in the near-term when ordering new ATVs owing to the difficult conditions of the last 15 months with weaker-than-expected sales and high inventory levels as well as the more conservative outlook for the overall US economy.
They estimate that Polaris's traditional ATV shipments (44% of total sales) will be down 12.5% and 4.0% in 2006 and 2007, respectively. However, as we move through next year, easier comparisons should provide a more favorable growth environment. Furthermore, they continue to hear continued strength in Ranger utility vehicle and Victory motorcycle sales, which should grow close to 20% in 2007 and offset the weakness in traditional ATVs.
Trading at approximately 11.4x 2007 EPS estimate, Polaris stock is below its 5-year and 10-year averages of 13.9x and 12.2x, respectively. Despite the mixed ATV outlook, they believe that most of the bad news is priced in the stock at this point in time and there could be increasing interest in consumer discretionary stocks especially if the Fed starts cutting rates next year. They are maintaining Buy rating but reducing tgt from $55 to $48.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 2
- Jefferies notes that based upon recent checks, they believe Cingular is expected to launch its own location-based services offering very soon. Investors have been waiting for this for some time as it is a big first step for SiRF Tech (NASDAQ:SIRF) to begin to tap into the significant wireless opportunity.
They believe the service will only be available on select handsets to start - Motorola RAZR V3i, Motorola SLVR L7, Palm Treo 650, and Cingular 8125 - bu expect additional handsets will be added including those with integrated GPS chipsets. Firm believes that Cingular will be rolling out this service nationwide with the GlobalSat BT-338 GPS Receiver (using SiRFstarIII)
lthough the fundamental impact will not be significant yet, the Cingular announcement represents a strong validation for LBS. They do not expect the rollout of LBS by Cingular to have a material impact to revenue in 2H:06, but do believe it paves the way for significant revenue contribution in 2007. T- Mobile will not be far behind in launching its own LBS offering in the U.S.
Concerns regarding Q4 revenue growth will likely be eased as investors will begin to look to 2007.
Reits Buy and $31 tgt.
Notabelcalls: Expect to see some buy interest in SIRF following the note.
They believe the service will only be available on select handsets to start - Motorola RAZR V3i, Motorola SLVR L7, Palm Treo 650, and Cingular 8125 - bu expect additional handsets will be added including those with integrated GPS chipsets. Firm believes that Cingular will be rolling out this service nationwide with the GlobalSat BT-338 GPS Receiver (using SiRFstarIII)
lthough the fundamental impact will not be significant yet, the Cingular announcement represents a strong validation for LBS. They do not expect the rollout of LBS by Cingular to have a material impact to revenue in 2H:06, but do believe it paves the way for significant revenue contribution in 2007. T- Mobile will not be far behind in launching its own LBS offering in the U.S.
Concerns regarding Q4 revenue growth will likely be eased as investors will begin to look to 2007.
Reits Buy and $31 tgt.
Notabelcalls: Expect to see some buy interest in SIRF following the note.
Calls of Note Part 1
- ThinkEquity believes significant catalysts on the horizon will boost revenue trajectory, enhance earnings power, and expand Apple Computer's (NASDAQ:AAPL) valuation multiple. These catalysts include: 1) additional accelerated back-to-school CPU share gains; 2) retail Store traffic and Beyond-the-Box unit shipment momentum through springtime; 3) software-related revenue and earnings upside surprises in CY1H07; and 4) a move into the enterprise in CY2H07. The firm believes investors will assign higher earnings multiples to AAPL shares as their thesis germinates. They are raising price target to $100 (from $90). This target reflects a 34x multiple on firm's CY08 EPS estimate of $2.94.
Firm's checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season. They believe Leopard and iLife software refreshes and the launch of iTV in early CY07 and success in the enterprise later in '07 will boost revenues, increase earnings power, and expand valuation multiples.
The Leopard OS (Mac OS X version 10.6) launch is scheduled for spring 2007. Thefirm believes recent improvements in iTunes and the impending iTV set-top box product launch will serve as catalysts for Mac OS X users to upgrade, in their opinion. They are forecasting Apple CPU unit shipments to increase 28% y/y in calendar 2007-a rate which is over 2x the current projected PC market unit shipment growth rate of 12% according to International Data Corporation (IDC). At Apple's Leopard preview event, management stated that the active Mac OS X user base is around 19 million large. Firm's analysis suggests that there is potential for up to $400 million (or over $0.40 per share) in contribution profits from Leopard in the 12 months after its release. However, they expect Apple to invest much of this financial bounty into marketing and R&D to drive additional PC share gains and accelerate the BtB product roadmap.
Never in the history of the PC, has a company been better positioned than Apple is at this time, to both gain share and improve profitability, in firm's opinion. They encourage investors to focus their 'Look At The Core' as they believe Apple's software holds the key to additional share gains and margin expansion. Reiterates BUY rating.
Notablecalls: Well, it's good to know BTS was healthy for AAPL. Yet, I don't see this coming as a surprise to anyone. Would not be surprised to see some interest in AAPL following the note but that's about it.
Firm's checks indicate Apple's Back-To-School (BTS) season was healthy. Moreover, the new Beyond-the-Box (BtB) devices are expected to hit the shelves in time to drive increased visitor traffic through Apple's retail stores during the holiday selling season. They believe Leopard and iLife software refreshes and the launch of iTV in early CY07 and success in the enterprise later in '07 will boost revenues, increase earnings power, and expand valuation multiples.
The Leopard OS (Mac OS X version 10.6) launch is scheduled for spring 2007. Thefirm believes recent improvements in iTunes and the impending iTV set-top box product launch will serve as catalysts for Mac OS X users to upgrade, in their opinion. They are forecasting Apple CPU unit shipments to increase 28% y/y in calendar 2007-a rate which is over 2x the current projected PC market unit shipment growth rate of 12% according to International Data Corporation (IDC). At Apple's Leopard preview event, management stated that the active Mac OS X user base is around 19 million large. Firm's analysis suggests that there is potential for up to $400 million (or over $0.40 per share) in contribution profits from Leopard in the 12 months after its release. However, they expect Apple to invest much of this financial bounty into marketing and R&D to drive additional PC share gains and accelerate the BtB product roadmap.
Never in the history of the PC, has a company been better positioned than Apple is at this time, to both gain share and improve profitability, in firm's opinion. They encourage investors to focus their 'Look At The Core' as they believe Apple's software holds the key to additional share gains and margin expansion. Reiterates BUY rating.
Notablecalls: Well, it's good to know BTS was healthy for AAPL. Yet, I don't see this coming as a surprise to anyone. Would not be surprised to see some interest in AAPL following the note but that's about it.
Paperstand
According to the WSJ's "Heard on the Street"column prisons are shaping up to be a growth business. Crowded jails, stretched state budgets, mandatory sentencing and a border crackdown have put the profit and shares of the nation's biggest private-prison operator, Corrections Corp. of America (CXW), on a jailbreak. The stock price of the co is up 45% since Jan. 1. Shares in private-prison co's were popular in the mid-90s, before tumbling on financial woes. And bulls admit that it is unrealistic to expect Corrections Corp.'s shares to keep up this pace qrtr after qrtr. But they add that the co, manager of more than 60 state and federal detention centers in 19 states and DC, is well-positioned in a little-understood and fast-growing corner of the economy: outsourced incarceration. "They're riding a great wave right now in the industry," says Anton Hie, of Jefferies, who rates the stock a Buy. "We've had a lot of new shareholders coming into the stock, with a shift from value investors to growth investors." The upshot for investors now: The current excitement seems justified, but it will likely ramp up near-term volatility. Those interested in owning a share of the prison business should be thinking long term and bracing for inevitable bumps.
The NY Post reports that Jane Pratt, the founder and former editor-in-chief of Jane magazine, has finally landed her own radio show on the Sirius Satellite Radio (SIRI). Sirius is expected to announce today that she will be chatting it up once a week in a live, 3-hour show called Jane Radio that will feature music, rants, and plenty of call-ins.
The NY Post reports that Jane Pratt, the founder and former editor-in-chief of Jane magazine, has finally landed her own radio show on the Sirius Satellite Radio (SIRI). Sirius is expected to announce today that she will be chatting it up once a week in a live, 3-hour show called Jane Radio that will feature music, rants, and plenty of call-ins.
Sunday, September 24, 2006
Barron's Summary
An interview with Credit Suisse senior equity-research analyst highlighted in Barron's. Analyst picks include Harman Intl. (HAR) and Magna Intl. (MGA). Analyst has heard reports that Valeo is considering purchasing Visteon (VC).
According to the Barron's, Charles Schwab and Morgan Keegan dominated Barron's semi-annual ranking of brokerages' top share recommendations (Focus List). In 6 mo period, MK picks are up 21.15%; in 1 year period, MK picks are up 35.35%; in a 3y period, CS picks are up 68.56%; and in a 5y period, CS picks are up 74.03%. Morgan Keegan's Focus List, put together by research director Elkan Scheidt, profited from positions in the consumer-discretionary, energy and industrial sectors, as well as a healthy dollop of small- and mid-cap names, he says. Many of the them aren't closely tracked by big Wall Street brokerages. Lately, Scheidt has lightened up on energy, removing UPL, ESV, and HP from the list. He's also added railroad Genesee & Wyoming (GWR), after it fell, and Phillips-Van Heusen (PVH).
Near 80, Deere (DE) shares are off more than 11 points from May's high. The stock could hit $105, in a year and $134 in two, as rising corn prices put more cash in farmers' pockets.
At $17.8, Nidec (NJ) trades for a rich 30 times earnings. But the stock could climb 15% to 20% as the company's growth rate increases. One fan says it should be a "core stock."
"The Trader" column highlights potential LBO list, including: ADP, FISV, LXK and CHKP. The article also highlights Goldman Sachs "most overvalued" list, including: WEN, MHP, SLE, KMI, LTR and MEL. One unlikely buyout is APCC.
According to the Barrons' "Technology Trader" section shares of NeuStar (NSR) were jostled Fri by a fierce debate. In the morning the shares of NeuStar fell 4 bucks, or about 14%, to $25, b/c NeuStar said it had agreed to a 10% cut in the fees it gets from US phone co's for operating the country's call-routing database. But by the end of a day of nearly 10x its normal volume of trading, NeuStar stock closed back at 28.34, down just 2% for the day. It's fair to say that there's a divergence of opinion about what NeuStar's price cut augurs. NeuStar's growth spurred investors to send its shares as high as 37.73 by May of this year, a climb of 70% from its Jun'05 IPO. NeuStar's May price represented a mkt value of $3bn, or 9x the $330m in revs that analysts anticipated for '06, and 40x the consensus est for $0.93 in EPS. That invited the scrutiny of skeptical investors who, as of May, had shorted about 13m shares on the advice of analysts like Mark Roberts and his team at Off Wall Street Consulting Group. Mark Roberts is glumly sticking to his view that NeuStar shares could drop to $18. "The fact they had to renegotiate this contract that still had 5 years left shows they are not in a very strong position," he grumbled. "They are making a silk purse out of a cow's ear."
Barron's interviewed Symantec (SYMC) CEO John W. Thompson. It just so happens that the big security-software vendor's products account for 45% of the sales of Digital River (DRIV). Since Nov'05, Digital River's shares have more than doubled, to about $50. That's raised the co's valuation to 7x trailing 12 months' sales and 17x trailing cash flow and probably tortured the skeptics who'd sold short about 8m shares as of August. One of the persistent short stories about Digital River is that its big customer Symantec will go away. According to the story, Symantec would take its online sales in-house, cutting out the middle man Digital River. So Barron's asked Symantec CEO Thompson if that was the plan. "Digital River will continue to manage our online storefronts," Thompson said. Digital River's computer systems are connected to Symantec's, and Symantec would need meaningful resources to replicate the Digital River system. Article suggests that it doesn't sound like Digital River is on Symantec's chopping block.
"Plugged In" section discusses CDW (CDWC), saying nothing new. Hewlett-Packard accounts 28% of the co's revenue and it main competitor is Dell. "Generally speaking, we can do things more quickly than Dell," CEO John Edwardson says. So, "if we do what we do very well, we can continue to take mkt share," he adds. In short, selling the right stuff faster than the next guy at a competitive price is CDW's edge. What would Dell need to do to dull that edge? "They would have to invest a lot more in training and employing people," Edwardson said.
Friday, September 22, 2006
Calls of Note Part 5
Merrill Lynch notes that Boston Scientific (NYSE:BSX), Angiotech's (NASDAQ:ANPI) partner, pre-announced TAXUS sales for Q3/06 (affects ANPI's Q4/06), projecting a range of $550 mm to $580 mm, below their estimate of $610 mm. Firm estimates a negative impact of $0.02 to their EPS estimate of $0.16. TAXUS royalties represent 39% of their revenue est. for Q4.
The preliminary results of BSX's Q3/06 suggest sequential declines in revenues in both the US and in Europe/RoW. BSX indicates a slowdown in growth of DES penetration in Europe, and declines in the US market. Other potential causes for the shortfall could be a) typical summer slowdown, especially in Europe; b) increased publicity regarding concerns of late thrombosis (firm would prefer to see Johnson & Johnson's sales of Cypher to verify); and c) an increase in market shares for Medtronic and/or Conor Medsystems in Europe.
Firm says the shares are trading at a large discount to our price objective, discounting a significant decline in the TAXUS franchise. The shares are likely to remain weak given the lower TAXUS sales, but firm retains their Buy rating due to upcoming milestones including: (a) evidence of successful integration of AMIH and realization of synergies; (b) details on product launches including the Contour threads and coated biopsy needles; (c) rulings in the litigation with CONR and Biosensors; (d) BSX's response to the FDA Corporate Warning Letter, and the launch of the TAXUS Libert stent expected in Q2/07; (e) clinical data and early European launch information for competing stents; and (f) additional acquisitions/in-licensing deals.
Notablecalls: TAXUS weakness doesn't come as a surprise, but the magnitude of shortfall is bigger than expected. Expect ANPI to see some weakness today.
The preliminary results of BSX's Q3/06 suggest sequential declines in revenues in both the US and in Europe/RoW. BSX indicates a slowdown in growth of DES penetration in Europe, and declines in the US market. Other potential causes for the shortfall could be a) typical summer slowdown, especially in Europe; b) increased publicity regarding concerns of late thrombosis (firm would prefer to see Johnson & Johnson's sales of Cypher to verify); and c) an increase in market shares for Medtronic and/or Conor Medsystems in Europe.
Firm says the shares are trading at a large discount to our price objective, discounting a significant decline in the TAXUS franchise. The shares are likely to remain weak given the lower TAXUS sales, but firm retains their Buy rating due to upcoming milestones including: (a) evidence of successful integration of AMIH and realization of synergies; (b) details on product launches including the Contour threads and coated biopsy needles; (c) rulings in the litigation with CONR and Biosensors; (d) BSX's response to the FDA Corporate Warning Letter, and the launch of the TAXUS Libert stent expected in Q2/07; (e) clinical data and early European launch information for competing stents; and (f) additional acquisitions/in-licensing deals.
Notablecalls: TAXUS weakness doesn't come as a surprise, but the magnitude of shortfall is bigger than expected. Expect ANPI to see some weakness today.
Calls of Note Part 4
Cowen notes that last night competitors of Dyax (NASDAQ:DYAX), Jerini and Kos announced mixed results from 2 Phase 3 trials of Icatibant in HAE. While one of the trials succeeded, the other missed its primary endpoint. The FDA has been pretty clear that Dyax and Genzyme need to submit two randomized, positive, blinded Phase III studies for DX-88. Should the same standard apply to Icatibant, Jerini and Kos would need to conduct another trial, presumably pushing out Icatibant's launch to H2:08, in line with DX-88's timing. Although this is not assured - Kos and Jerini continue to expect to file for U.S. and EU approval by YE:06 - last night's news is a positive for Dyax. With a <$100MM enterprise value and a product that has solid
proof-of-concept data, firm believes that downside to DYAX is limited and that the stock is positioned to outperform over the next 12-18 months as DX-88 makes progress in completing its clinical trial program.
Notablecalls: May see mild interest in DYAX today, but wouldn't count on it. Rather take it as an educational note in case of further news from Jerini/KOSP.
proof-of-concept data, firm believes that downside to DYAX is limited and that the stock is positioned to outperform over the next 12-18 months as DX-88 makes progress in completing its clinical trial program.
Notablecalls: May see mild interest in DYAX today, but wouldn't count on it. Rather take it as an educational note in case of further news from Jerini/KOSP.
Color on results: Nike (NYSE:NKE)
While Nike exceeded the consensus estimates proving critics wrong, analyst community is remaining a bit cautious.
Citigroup notes that Nike's top line grew 8.6%.Global futures were up 6.0%, slightly higher than they were expecting. U.S. futures were stronger than expected at 8%.
However, gross margins contracted by 120 basis points due to higher raw materials and mix shifts. Inventories increased another 15% during the quarter, which was significantly above revenues and futures.
Overall, despite concerns in the market, Nike's overall business appears to be healthy. Firm thinks Nike's innovation on both the performance and fashion side will drive growth in footwear and apparel growth will continue to be strong.
Firm thinks the gross margin pressure and higher inventories could be for the short term, especially if Europe and Japan continue to improve.
Merrill Lynch believes the stock is up because US futures were strong and gross margins for August were within management's expectations (versus a recent trend of missing expectations). They think a $5 move in the aftermarket is a little much however, recognizing NKE has been an underperforming name in consumer discretionary.
Firm notes that GMs are now seen flat or below F06 levels, offset by share repurchase. NKE bought back over 2% of its share base, pacing shares down over 5% for the year. Margin pressure is in footwear (oil and labor input cost inflation, higher discounts in the UK and Japan, and product and regional mix shifts). Marketing spend for August was $50mm below firm's estimates, and mgmt expects SG&A up mid teens for November, putting firm's EPS 4c below consensus at $1.14.
Susquehanna says they are becoming increasingly concerned about the inventory build at Nike. 1Q07 marked the third consecutive quarter where the company posted double-digit growth in its inventory position (up 15%), but only a single-digit gain in sales (+7% in constant dollars). While firm believes there are some justifications for the higher inventory levels the company is currently running at, which management noted was partially due to focusing more of its sales efforts on increasing its "at once" business versus the brand's historical reliance on "futures," they believe there is considerable risk the company might be compelled at some period in FY07 to bring its inventory levels more in balance with its sales performance. If this occurs, the resulting promotional activity could have a significant negative impact on the company's gross margin and operating results.
Notablecalls: While Nike did better than expected, it is not enough to silence the critics. Have to agree with both Merrill and Susquehanna: $5 move looks excessive and inventory build is bizarre. Expecting the stock to settle down below the yesterday's afterhours prices today.
Citigroup notes that Nike's top line grew 8.6%.Global futures were up 6.0%, slightly higher than they were expecting. U.S. futures were stronger than expected at 8%.
However, gross margins contracted by 120 basis points due to higher raw materials and mix shifts. Inventories increased another 15% during the quarter, which was significantly above revenues and futures.
Overall, despite concerns in the market, Nike's overall business appears to be healthy. Firm thinks Nike's innovation on both the performance and fashion side will drive growth in footwear and apparel growth will continue to be strong.
Firm thinks the gross margin pressure and higher inventories could be for the short term, especially if Europe and Japan continue to improve.
Merrill Lynch believes the stock is up because US futures were strong and gross margins for August were within management's expectations (versus a recent trend of missing expectations). They think a $5 move in the aftermarket is a little much however, recognizing NKE has been an underperforming name in consumer discretionary.
Firm notes that GMs are now seen flat or below F06 levels, offset by share repurchase. NKE bought back over 2% of its share base, pacing shares down over 5% for the year. Margin pressure is in footwear (oil and labor input cost inflation, higher discounts in the UK and Japan, and product and regional mix shifts). Marketing spend for August was $50mm below firm's estimates, and mgmt expects SG&A up mid teens for November, putting firm's EPS 4c below consensus at $1.14.
Susquehanna says they are becoming increasingly concerned about the inventory build at Nike. 1Q07 marked the third consecutive quarter where the company posted double-digit growth in its inventory position (up 15%), but only a single-digit gain in sales (+7% in constant dollars). While firm believes there are some justifications for the higher inventory levels the company is currently running at, which management noted was partially due to focusing more of its sales efforts on increasing its "at once" business versus the brand's historical reliance on "futures," they believe there is considerable risk the company might be compelled at some period in FY07 to bring its inventory levels more in balance with its sales performance. If this occurs, the resulting promotional activity could have a significant negative impact on the company's gross margin and operating results.
Notablecalls: While Nike did better than expected, it is not enough to silence the critics. Have to agree with both Merrill and Susquehanna: $5 move looks excessive and inventory build is bizarre. Expecting the stock to settle down below the yesterday's afterhours prices today.
Calls of Note Part 3
Goldman Sachs out on defence of FormFactor (NASDAQ:FORM) following yesterday's weakness, saying that most of the concern about near-term pause in fundamentals centers around the view that DDR2 driven demand will be weaker than expected for FORM driven by a slowdown in the DDR2 transition, particularly in Taiwan.
Firm continues to believe that these negative views are overemphasizing one isolated issue and ignoring the many positive factors that are more than offsetting the end of the DDR2 transition that was fully expected. Over the near-term, they see several drivers of continued positive business momentum, including:
(1) Their checks during a recent trip to Asia indicate that several DRAM makers in Taiwan intend to add significant capacity in CY2Q2007. This capacity needs to be tested and therefore will require significant probe card orders over the next several quarters. These orders will be made by the very same customers that the market is concerned about slowing orders because of the end of the DDR2 transition. FORM has multiple revenue drivers and in this case customers are reordering for capacity even as this one technology driver is slowing.
(2) While all of the negative calls are focused on Taiwan, firm believes FormFactor won a significant order from Hynix (in Korea) in early September. They believe the Hynix win increased the company's visibility into CY4Q2006. They believe the market is ignoring the strength in Korea in order to focus on an isolated negative issue in Taiwan.
(3) The market is focusing only on isolated negatives in the DRAM market while ignoring the strong growth in the NAND and wafer level testing segments which are the expected drivers of incremental growth in CY4Q2006.
Notablecalls: Expect a bounce in FORM shares today.
Firm continues to believe that these negative views are overemphasizing one isolated issue and ignoring the many positive factors that are more than offsetting the end of the DDR2 transition that was fully expected. Over the near-term, they see several drivers of continued positive business momentum, including:
(1) Their checks during a recent trip to Asia indicate that several DRAM makers in Taiwan intend to add significant capacity in CY2Q2007. This capacity needs to be tested and therefore will require significant probe card orders over the next several quarters. These orders will be made by the very same customers that the market is concerned about slowing orders because of the end of the DDR2 transition. FORM has multiple revenue drivers and in this case customers are reordering for capacity even as this one technology driver is slowing.
(2) While all of the negative calls are focused on Taiwan, firm believes FormFactor won a significant order from Hynix (in Korea) in early September. They believe the Hynix win increased the company's visibility into CY4Q2006. They believe the market is ignoring the strength in Korea in order to focus on an isolated negative issue in Taiwan.
(3) The market is focusing only on isolated negatives in the DRAM market while ignoring the strong growth in the NAND and wafer level testing segments which are the expected drivers of incremental growth in CY4Q2006.
Notablecalls: Expect a bounce in FORM shares today.
Calls of Note Part 2
Goldman Sacks notes that Nielsen's monthly survey, our best source of mid-quarter data for the pet retail sector, shows that sales growth continued at the strongest rate in the past year, even with the prior month, and yielding the best trailing three-month period for industry sales. Weighted average growth in the four categories surveyed by Nielsen for the period of August 12 - September 9 tracked at 4.4%, even with the prior month. Over the past three months, sales increased 4.0%, versus a 3.6% increase in the prior three month period.
This showing reinforces firm's confidence in PetsMart's (NASDAQ:PETM) sales momentum. Of late, the company is having a hard time converting solid sales to profit growth, and is ramping up discretionary investment, further pressuring the earnings outlook. The company addressed these issues effectively at firm's recent Conference, and should tackle them further at its upcoming analyst meeting (9/28).
Notablecalls: Not actionable but good to know category.
This showing reinforces firm's confidence in PetsMart's (NASDAQ:PETM) sales momentum. Of late, the company is having a hard time converting solid sales to profit growth, and is ramping up discretionary investment, further pressuring the earnings outlook. The company addressed these issues effectively at firm's recent Conference, and should tackle them further at its upcoming analyst meeting (9/28).
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
Merrill out on Advanced Micro Devices (NYSE:AMD) following visiting with AMD and a variety of related PC supply chain companies in both Austin and Taiwan over the last two weeks. The usual near-term chatter about a seasonal uptick in PC shipments has been predictable enough, but a number of more interesting points have emerged from their conversations as well.
Firm continues to be neutral on the stock - there's share gain potential for the long term, but also several intermediate-term challenges that they don't think the market fully appreciates. With that in mind firm offers four predictions:
Prediction 1: AMD's share gain in server processors will continue unabated, with Intel's Woodcrest/Blackford product having only a minimal competitive impact. Firm thinks AMD could get close to 40% of the server processor business by the end of next year.
Prediction 2: AMD won't get past 15% of the mobile processor market in 2007. Firm's meetings indicate that AMD's optimized mobile architecture isn't coming until the fourth quarter of next year, which is too late to have much of an impact on 2007 numbers. The updated 65nm version of the existing Turion product is coming sooner, but they don't think that will have much of an impact.
Prediction 3: Dell will give AMD less business than the bulls hope for the near term, but more than even the biggest bulls hope for over the long term. Firm thinks AMD will see 1.5 million to 2 million units at Dell this year, which isn't much, but they think that AMD should annual volume of 14 to 15 million units at Dell by 2008.
Prediction 4: AMD will allow ATI's discrete GPU business to slowly die on the vine, although management will never be willing to admit it. Firm thinks the 60% of ATI's business that is discrete GPU will show negative revenue growth for the next several years.
ThinkEquity out on Intel (NASDAQ:INTC), saying that they believe the price war may be over. They have heard from several well-placed sources in Asia that Intel has slowed the magnitude of its pricing cuts. This is largely unexpected in the channel. Much of this is occurring through more bundling of higher-end units with lower-end sales. This is radically different that what investors believe, in firm's opinion.
Intel still plans two pricing cuts-October and January. January will likely see Pentium D pricing down 15%-18%. Pentium 4 should see cuts of 10%-20% in January, and Napa declines of 20% (not Napa Refresh). They appear to be holding Merom prices stable beyond January.
Intel is essentially coming to terms with its share loss to AMD. If AMD was gaining share on pricing alone, Intel may be able to win back some of this share with pricing cuts. Firm has heard Intel has come to the conclusion that it will not gain share on pricing, so it should stop cutting pricing as fast as it has.
Intel pricing cuts are more likely at the low end, due to pricing elasticity. It appears that Intel is cutting prices more on the low end, where it really is not competing with AMD. However, it is still planning to lower prices, so the question is: Why? Several sources close to the decision-making process have told ThinkEquity that Intel is primarily interested in driving increased pricing elasticity, rather than competitive pricing cuts.
Firm has heard AMD is in the driver's seat with respect to ASPs. They have heard that AMD has orders above capacity, and it can cherry-pick customers according to margins. While they believe this is not immediately intuitively good for Intel, it removed pressure to cut (and the reward from cutting) prices.
Notablecalls: Two interesting notes on the Intel/AMD situation. Not actionable but good to know category.
Firm continues to be neutral on the stock - there's share gain potential for the long term, but also several intermediate-term challenges that they don't think the market fully appreciates. With that in mind firm offers four predictions:
Prediction 1: AMD's share gain in server processors will continue unabated, with Intel's Woodcrest/Blackford product having only a minimal competitive impact. Firm thinks AMD could get close to 40% of the server processor business by the end of next year.
Prediction 2: AMD won't get past 15% of the mobile processor market in 2007. Firm's meetings indicate that AMD's optimized mobile architecture isn't coming until the fourth quarter of next year, which is too late to have much of an impact on 2007 numbers. The updated 65nm version of the existing Turion product is coming sooner, but they don't think that will have much of an impact.
Prediction 3: Dell will give AMD less business than the bulls hope for the near term, but more than even the biggest bulls hope for over the long term. Firm thinks AMD will see 1.5 million to 2 million units at Dell this year, which isn't much, but they think that AMD should annual volume of 14 to 15 million units at Dell by 2008.
Prediction 4: AMD will allow ATI's discrete GPU business to slowly die on the vine, although management will never be willing to admit it. Firm thinks the 60% of ATI's business that is discrete GPU will show negative revenue growth for the next several years.
ThinkEquity out on Intel (NASDAQ:INTC), saying that they believe the price war may be over. They have heard from several well-placed sources in Asia that Intel has slowed the magnitude of its pricing cuts. This is largely unexpected in the channel. Much of this is occurring through more bundling of higher-end units with lower-end sales. This is radically different that what investors believe, in firm's opinion.
Intel still plans two pricing cuts-October and January. January will likely see Pentium D pricing down 15%-18%. Pentium 4 should see cuts of 10%-20% in January, and Napa declines of 20% (not Napa Refresh). They appear to be holding Merom prices stable beyond January.
Intel is essentially coming to terms with its share loss to AMD. If AMD was gaining share on pricing alone, Intel may be able to win back some of this share with pricing cuts. Firm has heard Intel has come to the conclusion that it will not gain share on pricing, so it should stop cutting pricing as fast as it has.
Intel pricing cuts are more likely at the low end, due to pricing elasticity. It appears that Intel is cutting prices more on the low end, where it really is not competing with AMD. However, it is still planning to lower prices, so the question is: Why? Several sources close to the decision-making process have told ThinkEquity that Intel is primarily interested in driving increased pricing elasticity, rather than competitive pricing cuts.
Firm has heard AMD is in the driver's seat with respect to ASPs. They have heard that AMD has orders above capacity, and it can cherry-pick customers according to margins. While they believe this is not immediately intuitively good for Intel, it removed pressure to cut (and the reward from cutting) prices.
Notablecalls: Two interesting notes on the Intel/AMD situation. Not actionable but good to know category.
Thursday, September 21, 2006
Calls of Note Part 4
- Citigroup notes that DHS is expected to announce the award for the Secure Border Initiative contract to the Boeing team, which includes infrared suppliers DRS and Kollsman. This is a multi-year $2 billion contract. 2007 impact should be over $100 million.
The award is a potential negative for FLIR Systems (NASDAQ:FLIR), which dominates the border security market. SBINet should enable DRS and Kollsman to gain share. The firm had observed that given its incumbent position, FLIR had more downside than upside in SBINet.
They expect disappointments to continue (particularly in Q4) and reiterate Sell rating.
Notablecalls: Not sure this is news. But still, I'd watch FLIR in case it starts rolling over.
- Friedman, Billings, Ramsey is transitioning coverage of Broadcom (NASDAQ:BRCM) with an Outperform rating. In addition, they are adding BRCM to the FBR Top Picks list and establishing a $38 price target. In firm's view, most of BRCM's recent top-line disappointment is related to excess inventory as opposed to long-term market growth or BRCM's competitive positioning. They believe that 2007 consensus estimates are likely too conservative. With the stock trading at 19x pro forma FY07 EPS (compared with a trough of 18x in 2004), they believe downside is limited, with multiple expansion likely once growth resumes.
Firm notes that BRCM has grown in excess of 11% in each year of its existence, except 2001. Their bottoms-up forecast analyzes BRCM's prospects by market segment. Believes their above-consensus estimates (17.6% top-line growth, $1.50 EPS) are reasonable given the markets to which BRCM is exposed.
Firm's estimates assume 43% growth in WLAN (due to 802.11n penetration), 45% growth
in Bluetooth (achievable through only a 10% increase in handset penetration), and 13% growth in set top/DTV (on growth in HD, DVR, and new DTV market). They assume only 6% growth in handheld, with Samsung volume offsetting a possible loss of the video iPod; however, upside exists since achieving even a small 1% share would add 4%-5% to BRCM's top line.
Notablecalls: Gutsy call from FBR. I like that. Expect to see some buy interest in BRCM today.
The award is a potential negative for FLIR Systems (NASDAQ:FLIR), which dominates the border security market. SBINet should enable DRS and Kollsman to gain share. The firm had observed that given its incumbent position, FLIR had more downside than upside in SBINet.
They expect disappointments to continue (particularly in Q4) and reiterate Sell rating.
Notablecalls: Not sure this is news. But still, I'd watch FLIR in case it starts rolling over.
- Friedman, Billings, Ramsey is transitioning coverage of Broadcom (NASDAQ:BRCM) with an Outperform rating. In addition, they are adding BRCM to the FBR Top Picks list and establishing a $38 price target. In firm's view, most of BRCM's recent top-line disappointment is related to excess inventory as opposed to long-term market growth or BRCM's competitive positioning. They believe that 2007 consensus estimates are likely too conservative. With the stock trading at 19x pro forma FY07 EPS (compared with a trough of 18x in 2004), they believe downside is limited, with multiple expansion likely once growth resumes.
Firm notes that BRCM has grown in excess of 11% in each year of its existence, except 2001. Their bottoms-up forecast analyzes BRCM's prospects by market segment. Believes their above-consensus estimates (17.6% top-line growth, $1.50 EPS) are reasonable given the markets to which BRCM is exposed.
Firm's estimates assume 43% growth in WLAN (due to 802.11n penetration), 45% growth
in Bluetooth (achievable through only a 10% increase in handset penetration), and 13% growth in set top/DTV (on growth in HD, DVR, and new DTV market). They assume only 6% growth in handheld, with Samsung volume offsetting a possible loss of the video iPod; however, upside exists since achieving even a small 1% share would add 4%-5% to BRCM's top line.
Notablecalls: Gutsy call from FBR. I like that. Expect to see some buy interest in BRCM today.
Calls of Note Part 3
- Citigroup notes that after disappointing CQ4:06 guidance from Xyratex (NASDAQ:XRTX) together w/recent Hitachi commentary (2H:06 hard drive (HDD) units revised down ~14%), they highlight near-term risk to Veeco Instruments' (NASDAQ:VECO) data storage orders.
While VECO's 2H:06 order guidance embeds a typically weak seasonal order scenario for storage (down ~30% 2H/1H), recent data points + channel checks suggest industry storage orders tracking below this typical pattern.
While unlikely VECO misses low-end of CQ3:06 order guide ($115-130MM), the issue is more CQ4 (as suggested by XRTX) such that CQ1:07 consensus revenue/EPS appears at risk (firm remains ~15% below consensus for CQ1:07).
While stock has underperformed the tech rally since mid-July (+5% vs +10%) and this is a prime candidate for M&A (AMAT, for example) and/or strategic buyers, they continue to wait for a reset of C2007 expectations to get more positive and see stock range-bound (at best) meantime. Maintains Hold.
Notablecalls: Not actionable but good to know category. I don't think it will get hit much following XRTX's guidance.
- Merrill Lynch notes that with Silicon Labs' (NASDAQ:SLAB) negative preannouncement yesterday, they're becoming increasingly cautious on Skyworks' (NASDAQ:SWKS) Sep-06Q. Silicon Labs, a supplier of GPRS transceivers, noted significant weakness at China OEMs and in the Taiwan ODM market. Skyworks also has significant exposure to these customers for both transceivers and power amplifiers (they estimate about 20% of sales). For the Sep-06Q, they're currently modeling for revenues of $198mn (1% Q/Q growth) and non-GAAP EPS of $0.05, which is inline with consensus.
While the firm believes LG's chocolate phone, which contains SWKS CDMA transmitter and
receiver silicon, is ramping strongly; Skyworks' share loss at Nokia continues to be a concern. Going forward, Nokia will source its CDMA phones through contract manufacturers such as Pantech and Curitel.
With shares up over 40% from their recent low amidst reports that inventory levels are normalizing in Asia, they believe the stock is pricing in an optimistic scenario. Clearly, Skyworks was somewhat oversold following 2Q earnings, but the company now trades at a premium to its primary competitor RFMD on CY07 EPS and is now inline with its four year average NTM P/E of 28x. Given share loss risk at Nokia, weak demand out of the China and Taiwan markets, lack of margin progress, and balance sheet problems (DSOs, inventory), they see limited upside from current levels. Neutral rating stands.
Notablecalls: Expect to see some pressure in SWKS in the coming couple of days.
While VECO's 2H:06 order guidance embeds a typically weak seasonal order scenario for storage (down ~30% 2H/1H), recent data points + channel checks suggest industry storage orders tracking below this typical pattern.
While unlikely VECO misses low-end of CQ3:06 order guide ($115-130MM), the issue is more CQ4 (as suggested by XRTX) such that CQ1:07 consensus revenue/EPS appears at risk (firm remains ~15% below consensus for CQ1:07).
While stock has underperformed the tech rally since mid-July (+5% vs +10%) and this is a prime candidate for M&A (AMAT, for example) and/or strategic buyers, they continue to wait for a reset of C2007 expectations to get more positive and see stock range-bound (at best) meantime. Maintains Hold.
Notablecalls: Not actionable but good to know category. I don't think it will get hit much following XRTX's guidance.
- Merrill Lynch notes that with Silicon Labs' (NASDAQ:SLAB) negative preannouncement yesterday, they're becoming increasingly cautious on Skyworks' (NASDAQ:SWKS) Sep-06Q. Silicon Labs, a supplier of GPRS transceivers, noted significant weakness at China OEMs and in the Taiwan ODM market. Skyworks also has significant exposure to these customers for both transceivers and power amplifiers (they estimate about 20% of sales). For the Sep-06Q, they're currently modeling for revenues of $198mn (1% Q/Q growth) and non-GAAP EPS of $0.05, which is inline with consensus.
While the firm believes LG's chocolate phone, which contains SWKS CDMA transmitter and
receiver silicon, is ramping strongly; Skyworks' share loss at Nokia continues to be a concern. Going forward, Nokia will source its CDMA phones through contract manufacturers such as Pantech and Curitel.
With shares up over 40% from their recent low amidst reports that inventory levels are normalizing in Asia, they believe the stock is pricing in an optimistic scenario. Clearly, Skyworks was somewhat oversold following 2Q earnings, but the company now trades at a premium to its primary competitor RFMD on CY07 EPS and is now inline with its four year average NTM P/E of 28x. Given share loss risk at Nokia, weak demand out of the China and Taiwan markets, lack of margin progress, and balance sheet problems (DSOs, inventory), they see limited upside from current levels. Neutral rating stands.
Notablecalls: Expect to see some pressure in SWKS in the coming couple of days.
Calls of Note Part 2
- JP Morgan notes they spent the last week in Asia visiting several companies to assess PC,
wireless, and overall semiconductor supply chain health. Most companies in the PC food chain appear to expect growth during 3Q06. However, a majority of the companies they visited expect sub-seasonal sequential growth Q3 and have limited visibility into Q4.
Many companies noted share gains by Intel in the channel, consistent with checks. However, firm's checks also indicate AMD (NYSE:AMD) is gaining share at OEMs, which should offset Intel's share gains in the channel since the OEM end market is larger and exhibits higher pricing and margins than the channel.
Checks indicate AMD's sales and margins are ahead of plan during 3Q06 due to robust demand for its processors (96% of 2Q06 sales). They believe the strong demand is being driven by share gains at key OEMs such as HP and Dell and is resulting in upside to both previous revenue and gross margin estimates.
As a result of the higher sales and margins, the firm is raising their C06 revenue and EPS estimates from $5.1 billion and $0.91 to $5.4 billion and $1.19. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Prudential notes that Disney (NYSE:DIS) management indicated yesterday in a meeting with Prudential Entertainment Analyst Katherine Styponias that it expects to make more of their video content on-line to take advantage of the high expected growth rate in online display advertising.
Firm sees this as a positive for streaming media and web content delivery service provider Akamai (NASDAQ:AKAM). They believe a number of Disney media properties including ABC and ESPN are Akamai customers.
Firm continues to see no sign either from Akamai or from industry of any deceleration in demand for web content distribution, with video one of the primary growth drivers. They are currently modeling 46% organic y/y revenue growth for AKAM in 2H06, in line with 2Q06.
On top of the underlying growth in video delivery over the Internet, they believe Akamai is taking an increasing "share of wallet" at most of its major media customers.
Reiterates Overweight rating and $51 price target on AKAM.
Notablecalls: AKAM sure looks like it wants to move higher from here. Prudential may just have given a reason for a run.
wireless, and overall semiconductor supply chain health. Most companies in the PC food chain appear to expect growth during 3Q06. However, a majority of the companies they visited expect sub-seasonal sequential growth Q3 and have limited visibility into Q4.
Many companies noted share gains by Intel in the channel, consistent with checks. However, firm's checks also indicate AMD (NYSE:AMD) is gaining share at OEMs, which should offset Intel's share gains in the channel since the OEM end market is larger and exhibits higher pricing and margins than the channel.
Checks indicate AMD's sales and margins are ahead of plan during 3Q06 due to robust demand for its processors (96% of 2Q06 sales). They believe the strong demand is being driven by share gains at key OEMs such as HP and Dell and is resulting in upside to both previous revenue and gross margin estimates.
As a result of the higher sales and margins, the firm is raising their C06 revenue and EPS estimates from $5.1 billion and $0.91 to $5.4 billion and $1.19. Maintains Neutral.
Notablecalls: Not actionable but good to know category.
- Prudential notes that Disney (NYSE:DIS) management indicated yesterday in a meeting with Prudential Entertainment Analyst Katherine Styponias that it expects to make more of their video content on-line to take advantage of the high expected growth rate in online display advertising.
Firm sees this as a positive for streaming media and web content delivery service provider Akamai (NASDAQ:AKAM). They believe a number of Disney media properties including ABC and ESPN are Akamai customers.
Firm continues to see no sign either from Akamai or from industry of any deceleration in demand for web content distribution, with video one of the primary growth drivers. They are currently modeling 46% organic y/y revenue growth for AKAM in 2H06, in line with 2Q06.
On top of the underlying growth in video delivery over the Internet, they believe Akamai is taking an increasing "share of wallet" at most of its major media customers.
Reiterates Overweight rating and $51 price target on AKAM.
Notablecalls: AKAM sure looks like it wants to move higher from here. Prudential may just have given a reason for a run.
Calls of Note Part 1
- Jefferies & Co notes that over the past couple of days, they've been checking in with industry contacts for an update on Cingular's capex spending activity. Of course, Cingular is a major buyer of telecom equipment. The operator, this year, is expected to make up roughly 15% of overall capex spending and roughly 30% of wireless capex spending in North America.
Firm's industry checks indicate that Cingular is still rather slow in terms of spending activity. They recall that their checks in Q1 and Q2 indicated that Cingular's wireless spending levels in 1H'06 were softer-than-anticipated. Back then, contacts were suggesting that business within Cingular was slower-than- expected during the first half of the year. Many contacts " at that point -- had expected that Cingular would rebound in terms of spending activity during Q3. Looking back, that was wishful thinking. Now " most of the way through Q3 " they're hearing that the operator's business trends are still quite slow. Many contacts suggested that Q3 activity levels are slower-than-expected albeit not that different from 1H spending levels.
Cingular is deferring/slowing deployment of infrastructure on a number of specific projects
including deployment of new base stations and, in certain markets, the timing of UMTS market launches. Cingular is currently meeting with various consultants regarding significant operating and capital expense reductions planned for the business next year.
Vendors with meaningful exposure to Cingular include: Carrier Access (CACS), Sonus (SONS), Tekelec (TKLC), Tellabs (TLAB), Powerwave (PWAV), and Andrew (ANDW).
Notablecalls: To see how serious Cingular is about cutting costs just take a look at the InfoSpace (NASDAQ:INSP) news last night (scroll down). Add this to the Yahoo (NASDAQ:YHOO) warning. Canaries in a coal mine... Tough times ahead.
Firm's industry checks indicate that Cingular is still rather slow in terms of spending activity. They recall that their checks in Q1 and Q2 indicated that Cingular's wireless spending levels in 1H'06 were softer-than-anticipated. Back then, contacts were suggesting that business within Cingular was slower-than- expected during the first half of the year. Many contacts " at that point -- had expected that Cingular would rebound in terms of spending activity during Q3. Looking back, that was wishful thinking. Now " most of the way through Q3 " they're hearing that the operator's business trends are still quite slow. Many contacts suggested that Q3 activity levels are slower-than-expected albeit not that different from 1H spending levels.
Cingular is deferring/slowing deployment of infrastructure on a number of specific projects
including deployment of new base stations and, in certain markets, the timing of UMTS market launches. Cingular is currently meeting with various consultants regarding significant operating and capital expense reductions planned for the business next year.
Vendors with meaningful exposure to Cingular include: Carrier Access (CACS), Sonus (SONS), Tekelec (TKLC), Tellabs (TLAB), Powerwave (PWAV), and Andrew (ANDW).
Notablecalls: To see how serious Cingular is about cutting costs just take a look at the InfoSpace (NASDAQ:INSP) news last night (scroll down). Add this to the Yahoo (NASDAQ:YHOO) warning. Canaries in a coal mine... Tough times ahead.
Color on Cingular news: InfoSpace (NASDAQ:INSP)
- Several firms are commenting on InfoSpace (NASDAQ:INSP) today after the co announced a loss of a major carrier customer for label tones:
* Piper Jaffray believes the customer was Cingular. Firm notes that year to date, InfoSpace's mobile revenues were $89.6M (48% of total revenue) of which label tone sales accounted for approximately $55M (61% of mobile revenue). Tey believe that Cingular accounted for the vast majority (likely in the 75-80% range) of label tone sales. Firm expects Cingular to continue to use InfoSpace for portal services, games and graphics.
They currently estimate $221M in 2007 wireless revenue. Of the $221M in revenues in 2007, they believe approximately half of that was for Cingular label tones. As such, they expect to significantly reduce their estimates. Also, wireless margins, which have been declining over the last 18 months, should further decline as a result of declining economies of scale in the wireless business.
The loss of a major carrier partner for label tones is a huge setback for InfoSpace. The firm believes shares will likely bottom in the $17-18 range (essentially 0.5x revenues plus $12/share in cash). They note that shares were trading at $18.40 after hours. While they expect shares to bottom near $17-18, they do not see any near term catalysts and thus would continue to remain on the sidelines. Maintains Market Perform rating.
* JP Morgan believes other carriers could potentially follow suit and develop similar relationships with record labels. As such, this announcement makes the firm question the longer term viability of INSP's Mobile business.
However, the company's Search business is driving significantly higher gross profit dollars than its Mobile business (reported 2Q gross profit for Search was 64% vs. 34% for Mobile segment) and the company has ~$13 cash per share. INSP announced it would detail a cost reduction plan within the next month - they believe necessary headcount reduction charges will put downward pressure on INSP's cash balance of $405M as of 2Q-end.
Firm's updated estimates are based on an 80% reduction in INSP's Label Tone business in F'07. They have reduced their estimates as follows: F'06 and F'07 Mobile revenues of $178M (from $186M) and $72.9M (from $218M) respectively. F'06 and F'07 total revenues of $377M (from $385M) and $278M (from $423M).
Notablecalls: Expect to see several downgrades today. I believe the shares may sink even lower than the $17-$18 suggested by Piper.
* Piper Jaffray believes the customer was Cingular. Firm notes that year to date, InfoSpace's mobile revenues were $89.6M (48% of total revenue) of which label tone sales accounted for approximately $55M (61% of mobile revenue). Tey believe that Cingular accounted for the vast majority (likely in the 75-80% range) of label tone sales. Firm expects Cingular to continue to use InfoSpace for portal services, games and graphics.
They currently estimate $221M in 2007 wireless revenue. Of the $221M in revenues in 2007, they believe approximately half of that was for Cingular label tones. As such, they expect to significantly reduce their estimates. Also, wireless margins, which have been declining over the last 18 months, should further decline as a result of declining economies of scale in the wireless business.
The loss of a major carrier partner for label tones is a huge setback for InfoSpace. The firm believes shares will likely bottom in the $17-18 range (essentially 0.5x revenues plus $12/share in cash). They note that shares were trading at $18.40 after hours. While they expect shares to bottom near $17-18, they do not see any near term catalysts and thus would continue to remain on the sidelines. Maintains Market Perform rating.
* JP Morgan believes other carriers could potentially follow suit and develop similar relationships with record labels. As such, this announcement makes the firm question the longer term viability of INSP's Mobile business.
However, the company's Search business is driving significantly higher gross profit dollars than its Mobile business (reported 2Q gross profit for Search was 64% vs. 34% for Mobile segment) and the company has ~$13 cash per share. INSP announced it would detail a cost reduction plan within the next month - they believe necessary headcount reduction charges will put downward pressure on INSP's cash balance of $405M as of 2Q-end.
Firm's updated estimates are based on an 80% reduction in INSP's Label Tone business in F'07. They have reduced their estimates as follows: F'06 and F'07 Mobile revenues of $178M (from $186M) and $72.9M (from $218M) respectively. F'06 and F'07 total revenues of $377M (from $385M) and $278M (from $423M).
Notablecalls: Expect to see several downgrades today. I believe the shares may sink even lower than the $17-$18 suggested by Piper.
Paperstand
Barron's Online highlights Time Warner (TWX), saying that the co's stock is up only 5.7% over the past 2 years, making it the very definition of dead money. The shares have lagged all their big media peers: News Corp. is up 20.2%, while Disney and CBS are each up 30.8% and 8.6%, respectively in the same time period. At $17.60, Time Warner shares are cheaper than many peers. As a multiple of its operating earnings, a popular measure with media investors, Time Warner trades at just 7.3x next year's expected results, vs an industry average of 9x. Most of the bad news about America Online, a ball and chain around the co for years, may be fully discounted in the stock at this point. And other parts of the co's business could see some meaningful improvements next year. And the introduction next year of a separate stock for Time Warner Cable, could be a boon. That unit may be worth $50bn on its own, according to analysts, but Comcast, its bigger rival, has seen its shares rise 33% this year while Time Warner shares haven't risen at all. All that could help Time Warner shares rise 20% or more to the low $20s a share, with or without dramatic synergies."We like Time Warner b/c it is selling at a discount to pure distribution co's, like Comcast, when in fact most content co's, such as Disney, traditionally should get a premium," says Bill Nygren, a portfolio manager for the Oakmark Fund and Oakmark Select Fund. "I don't think that the content assets at Time Warner are worth less than the assets of the other media co's, and on top of that, you're getting an option on improved performance at America Online," says Nygren.
"Inside Scoop" section reports that shares of Eagle Materials (EXP) have tumbled 14% over the last year, but the Chmn Laurence Hirsch of the co has recently bought $14.1m in shares. Despite his 20-year involvement with the co, Hirsch's $14m investment is the first open-mkt purchase he has made of Eagle shares, notes Ben Silverman, of InsiderScore.com. "[Hirsch] is certainly somebody who has a pretty good idea of how the home-building and materials cycle rolls," Silverman says. "I think considering where the stock was back in April, and the earnings and guidance [Eagle] put out, he really felt that the stock was just oversold."
"Inside Scoop" section reports that shares of Eagle Materials (EXP) have tumbled 14% over the last year, but the Chmn Laurence Hirsch of the co has recently bought $14.1m in shares. Despite his 20-year involvement with the co, Hirsch's $14m investment is the first open-mkt purchase he has made of Eagle shares, notes Ben Silverman, of InsiderScore.com. "[Hirsch] is certainly somebody who has a pretty good idea of how the home-building and materials cycle rolls," Silverman says. "I think considering where the stock was back in April, and the earnings and guidance [Eagle] put out, he really felt that the stock was just oversold."
Wednesday, September 20, 2006
Calls of Note Part 4
- ThinkEquity's Eddie Cheung and Eric Ross are commenting on Dell (NASDAQ:DELL) saying that while in Asia, they have heard from several members of the PC supply chain that Dell's (DELL) PC units and profitability are declining rapidly below expectations. They believe it may be possible that DELL will preannounce negatively again, likely in mid-October. Firm also believes Intel will effectively remove its marketing subsidies to Dell. They continue to believe that Dell represents the best short play in firm's Universe. Reiterates Sell rating and lowers price target from $18 to $17.
Firm expects Intel to drastically lower its marketing budget to DELL to essentially zero. Sources have suggested that Intel is in the process of reducing its marketing budget with Dell from several hundred million dollars per quarter to essentially zero. This will likely negatively impact Dell's operating margins as these marketing expenses will no longer be offset (and should improve Intel's operating expenses).
They believe it will be very difficult to make up the declines seen thus far in the October quarter. Firm would expect DELL to preannounce lower expectations in mid-October-if the company follows its past actions, it will attempt to bury its preannouncement in earnings season. Although this may seem counter-intuitive (given it provided no guidance), they note it has preannounced both of the past two quarters (without giving guidance).
Rev estimates: 3QCY06 from $14.5 billion to $14.0 billion; CY06 from $58.41 billion to $57.31 billion; CY07 from $61.5 billion to $59.5 billion.
EPS: 3QCY06 from $0.23 to $0.18; CY06 from $1.10 to $0.99; CY07 from $1.20 to $1.05.
Notablecalls: Again, nice work guys! Looks like DELL may have another couple of points of downside in it. No quick fixes here.
Firm expects Intel to drastically lower its marketing budget to DELL to essentially zero. Sources have suggested that Intel is in the process of reducing its marketing budget with Dell from several hundred million dollars per quarter to essentially zero. This will likely negatively impact Dell's operating margins as these marketing expenses will no longer be offset (and should improve Intel's operating expenses).
They believe it will be very difficult to make up the declines seen thus far in the October quarter. Firm would expect DELL to preannounce lower expectations in mid-October-if the company follows its past actions, it will attempt to bury its preannouncement in earnings season. Although this may seem counter-intuitive (given it provided no guidance), they note it has preannounced both of the past two quarters (without giving guidance).
Rev estimates: 3QCY06 from $14.5 billion to $14.0 billion; CY06 from $58.41 billion to $57.31 billion; CY07 from $61.5 billion to $59.5 billion.
EPS: 3QCY06 from $0.23 to $0.18; CY06 from $1.10 to $0.99; CY07 from $1.20 to $1.05.
Notablecalls: Again, nice work guys! Looks like DELL may have another couple of points of downside in it. No quick fixes here.
Calls of Note Part 3
- Thomas Weisel Partners is positive on Trident Micro (NASDAQ:TRID) saying that based on multiple checks throughout the supply chain, they are confident that TRID's 3Q is tracking well above the high end of the company's 20% sequential revenue guidance range, driven in large part by core customers Sony (33%) and Samsung (36%).
Following recent round of checks in Asia, they have better visibility into Trident's 2007 design-win activity. Based on feedback from the channel, the firm estimates that roughly 80-90% of major design wins for 2007 have been decided, and while some of these wins could vary in coming months, they believe they have captured the majority of design activity with Trident's key customers Sony, Sharp and Samsung. In summary, the firm is most concerned
regarding potential share losses at Samsung, where Trident enjoys more than 70% share. They believe, however, that Trident has retained the majority of its sockets with Sony and Sharp and anticipate only modest share erosion, in part, owing to the introduction of new lower-end product lines.
Believes shares are relatively fairly valued at current levels, selling at 22x CY07 EPS
estimates.
Notablecalls: May see some interest today.
- Thomas Weisel Partners is also positive on Genesis Microchip (NASDAQ:GNSS) modestly raising theirSeptember quarter estimates toward the upper end of management's guidance
range ($67mn to $72mn, up 20% to 29% q/q) following broad supply chain checks, including key panel makers, distributors, ODMs/OEMs and chip competitors. Firm is are raising their September quarter estimates to reflect our more optimistic LCD-monitor expectation and a slightly higher TV unit forecast.
Following checks with multiple sources during Asia trip last week, they have confirmed that GNSS 1) will retain Sony's U-series business in 2007, which is expected to ramp into more meaningful volumes as it continues to expand into the Asia region, including a new 40" design, and 2) won new 20" and possibly additional sizes up to 32"on lower-end Sony LCD-TV designs expected to launch next year. These new models could collectively contribute more than 1mn incremental units in 2007, helping to offset potential share erosion at Philips and LG.
Maintains Outperform as they believe shares are attractive, selling at 19x CY07 EPS estimate (and 13x backing out $5.00 per share in cash).
Notablecalls: GNSS may see a bounce over the next couple of days.
Following recent round of checks in Asia, they have better visibility into Trident's 2007 design-win activity. Based on feedback from the channel, the firm estimates that roughly 80-90% of major design wins for 2007 have been decided, and while some of these wins could vary in coming months, they believe they have captured the majority of design activity with Trident's key customers Sony, Sharp and Samsung. In summary, the firm is most concerned
regarding potential share losses at Samsung, where Trident enjoys more than 70% share. They believe, however, that Trident has retained the majority of its sockets with Sony and Sharp and anticipate only modest share erosion, in part, owing to the introduction of new lower-end product lines.
Believes shares are relatively fairly valued at current levels, selling at 22x CY07 EPS
estimates.
Notablecalls: May see some interest today.
- Thomas Weisel Partners is also positive on Genesis Microchip (NASDAQ:GNSS) modestly raising theirSeptember quarter estimates toward the upper end of management's guidance
range ($67mn to $72mn, up 20% to 29% q/q) following broad supply chain checks, including key panel makers, distributors, ODMs/OEMs and chip competitors. Firm is are raising their September quarter estimates to reflect our more optimistic LCD-monitor expectation and a slightly higher TV unit forecast.
Following checks with multiple sources during Asia trip last week, they have confirmed that GNSS 1) will retain Sony's U-series business in 2007, which is expected to ramp into more meaningful volumes as it continues to expand into the Asia region, including a new 40" design, and 2) won new 20" and possibly additional sizes up to 32"on lower-end Sony LCD-TV designs expected to launch next year. These new models could collectively contribute more than 1mn incremental units in 2007, helping to offset potential share erosion at Philips and LG.
Maintains Outperform as they believe shares are attractive, selling at 19x CY07 EPS estimate (and 13x backing out $5.00 per share in cash).
Notablecalls: GNSS may see a bounce over the next couple of days.
Calls of Note Part 2
- Goldman Sachs notes that while they maintain a positive long-term view on Microchip (NASDAQ:MCHP), they are more cautious on the near-term, given three recent data points.
1) The firm recently met with a top-3 competitor of Microchip in the microcontroller (MCU) space, who commented on more aggressive pricing in 8-bit microcontrollers, including by Microchip. In particular, this competitor noted that aggregate pricing in 2H2006 has been down 10%, compared to the normal 2-5% decline, largely due to pricing pressure in 4/8-bit MCUs.
2) The automotive end market, which drives around 18% of Microchip's sales, has recently deteriorated, as evidenced by production cuts at the big 3 US automakers and Yahoo's comments on Tuesday on weakness in automotive-related advertising in 3QCY06. While Microchip's sales are more driven by the secular trend of increasing electronics content in cars rather than unit shipments, they do think auto weakness may have some limited impact.
3) There have been softening data points in the consumer end market, which drives around 35% of Microchip's sales.
Firm is trimming FY2007 (Mar) and FY2008 estimates for Microchip to $1.43 and $1.62 from $1.46 and $1.67, respectively. Retains Neutral rating.
Notablecalls: I don't think MCHP will get hit much. It never does.
1) The firm recently met with a top-3 competitor of Microchip in the microcontroller (MCU) space, who commented on more aggressive pricing in 8-bit microcontrollers, including by Microchip. In particular, this competitor noted that aggregate pricing in 2H2006 has been down 10%, compared to the normal 2-5% decline, largely due to pricing pressure in 4/8-bit MCUs.
2) The automotive end market, which drives around 18% of Microchip's sales, has recently deteriorated, as evidenced by production cuts at the big 3 US automakers and Yahoo's comments on Tuesday on weakness in automotive-related advertising in 3QCY06. While Microchip's sales are more driven by the secular trend of increasing electronics content in cars rather than unit shipments, they do think auto weakness may have some limited impact.
3) There have been softening data points in the consumer end market, which drives around 35% of Microchip's sales.
Firm is trimming FY2007 (Mar) and FY2008 estimates for Microchip to $1.43 and $1.62 from $1.46 and $1.67, respectively. Retains Neutral rating.
Notablecalls: I don't think MCHP will get hit much. It never does.
Calls of Note Part 1
- Merrill Lynch comments on Juniper (NASDAQ:JNPR) saying the co operates in generally robust markets, where market share dynamics are the key driver for the stock. Firm's note examines trends in Juniper's key segments and highlights EPS and share price sensitivity to market share assumptions. The analysis supports their buy thesis, suggesting 20%-80% upside potential from current Juniper share price levels using a 25x PE, and a 5% downside to 42% upside using a 20x PE, under various scenarios. Firm believes this is a favorable risk/reward ratio and reiterates Buy rating and $21.40 price objective.
They estimate Juniper's total addressable market of routing and security products can grow 13% annually in 2007 and 2008. While Merrill Lynch's telecom services team projects global carrier capex to decline 5% YoY in 2007, they believe spending will shift from legacy areas like voice to new areas like broadband/video upgrades and network security, which should benefit Juniper.
Management has been faulted for being slow and inflexible to adapt the edge routing portfolio, and for giving up crucial market share to Alcatel and Redback. Indeed, the firm shares in this criticism, yet also believes that Juniper has gone a long way to fix the problems. Juniper recently upgraded its edge router and they also expect to see an edge switch in the future, both of which could narrow the competitive gaps with Alcatel and Redback. It remains to be seen if management's acquisition strategy over the past two years eventually yields any tangible synergies with the traditional routing portfolio.
Notablecalls: Would not be surprised to see buy interest in JNPR over the next couple of days.
They estimate Juniper's total addressable market of routing and security products can grow 13% annually in 2007 and 2008. While Merrill Lynch's telecom services team projects global carrier capex to decline 5% YoY in 2007, they believe spending will shift from legacy areas like voice to new areas like broadband/video upgrades and network security, which should benefit Juniper.
Management has been faulted for being slow and inflexible to adapt the edge routing portfolio, and for giving up crucial market share to Alcatel and Redback. Indeed, the firm shares in this criticism, yet also believes that Juniper has gone a long way to fix the problems. Juniper recently upgraded its edge router and they also expect to see an edge switch in the future, both of which could narrow the competitive gaps with Alcatel and Redback. It remains to be seen if management's acquisition strategy over the past two years eventually yields any tangible synergies with the traditional routing portfolio.
Notablecalls: Would not be surprised to see buy interest in JNPR over the next couple of days.
Color on warning: Yahoo (NASDAQ:YHOO)
- Several firms are commenting on Yahoo (NASDAQ:YHOO) after the co warned yesterday that Q3 rev growth will be lower than expected:
* Goldman Sachs is lowering their estimates and 3-month price target to $32 from $40 given
Yahoo!'s 3Q2006 results will be below expectations due to slower ad spend in branded and search from economically sensitive categories - notably finance and autos. Firm's new 3Q2006 revenue and EBITDA estimates are $1,137 mn (+22% yoy) and $460 mn (+19% yoy; 40.5% margin) versus $1,170 mn (+ 26% yoy) and $475 mn (+23% yoy; 40.6% margin). They have taken a conservative stance by also reducing 4Q2006E and 2007E revenue and EBITDA by
approximately 5%-6%.
Firm notes they have aggressively cut estimates and long-term growth rate to ensure that there is still reasonable appreciation potential in the stock to justify Buy rating. After these reductions, they still see 25%-plus appreciation potential and believe new estimates are cut to the point that there is a significantly higher probability of upside to results over the next 12 to 24 months than downside. Firm has lowered growth rate to the point where it can be exceeded if either Panama or pay per call work. Thinks the stock has support at $25 but will trade in the mid-to-high twenties until: 1) estimates across the street are set lower; 2) there is clarity on growth trends; and 3) there are positive data points on Project Panama.
* Merrill Lynch notes Yahoo! pre-announced 3Q revenue at the lower half of previous guidance, indicating unexpected weakness in auto and financial services advertising (which contribute 22% of total Online advertising, per IAB). An economic slowdown is a risk to overall Internet advertising (both branded and search), but Yahoo! comments likely to be indicative of more company-specific issues such as slowing branded ad share growth, affiliate weakness and weaker traffic to vertical sites such as Yahoo! finance. In 2Q06 Yahoo missed revenue estimate on affiliate weakness, while Google beat slightly.
Slowdown in Internet commerce activity (fewer queries) and weakness in specific verticals (i.e. UK travel in 4Q) is a risk, however they believe Google's 3Q remains on track. ComScore query data and channel checks have been consistent with solid quarter, although meaningful upside potential seems less likely.
While they are maintaining Neutral rating on YHOO and continue to prefer Google, they believe 10x EBITDA will represent a reasonable support level for the stock. Adjusting for Yahoo!'s other assets, Yahoo! is trading at 11x 2007 EV/EBITDA, compared to Google at 18x, Amazon at 14x and eBay at 12x.
* Bear Stearns notes they are reducing their estimates toward the lower end of company guidance for Q3 and Q4 given the likelihood that this weakness may persist for the balance of the year. Channel checks suggest GM is spending less aggressively and not expected to pick up meaningfully in Q4. Guidance for Q4 seemed aggressive to begin with and now with lower Q3 expectations, they believe management may reduce Q4 expectations on the Q3 earnings call. Firm hase lowered 2006 and 2007 EPS estimates by $0.04 to $0.48 and $0.63, respectively.
They do not see any near-term positive catalysts for the remainder of 2006 given this slight pullback in spending and limits to search revenue growth from poor monetization. However, the firm feels 2007 provides potential good news for Yahoo, with significant revenue growth opportunities from Panama, some revenue from the joint venture with eBay, and projected robust industry-wide internet ad growth. CEO Terry Semel said Panama remains on track for full roll out by Q1. Channel checks suggest online ad growth remains healthy and is still likely to reach 25% in 2006 and 20% in 2007.
Firm recommends YHOO shares to the long-term risk tolerant investor as they believe yesterday's disappointment provided a good entry point to a rare double-digit growth story on the winning end of the secular trends impacting media. At 11x EBITDA, they believe the stock presents good value given growth prospects at the bottom end of guidance still suggest a healthy 24% increase in revenue in 2006. Tgt $37.
Notablecalls: Advertising expenditures are the canary in the coal mine as these are among the first to get the axe if things start slowing down. That's what happening here. I continue to maintain my bearish view toward 2007. What to do with YHOO stock? Think you can catch a quick bounce off the $25 level. Sure, YHOO is currently trading 11x EBITDA but this multiple will expand as the EBITDA part will continue to decrease.
* Goldman Sachs is lowering their estimates and 3-month price target to $32 from $40 given
Yahoo!'s 3Q2006 results will be below expectations due to slower ad spend in branded and search from economically sensitive categories - notably finance and autos. Firm's new 3Q2006 revenue and EBITDA estimates are $1,137 mn (+22% yoy) and $460 mn (+19% yoy; 40.5% margin) versus $1,170 mn (+ 26% yoy) and $475 mn (+23% yoy; 40.6% margin). They have taken a conservative stance by also reducing 4Q2006E and 2007E revenue and EBITDA by
approximately 5%-6%.
Firm notes they have aggressively cut estimates and long-term growth rate to ensure that there is still reasonable appreciation potential in the stock to justify Buy rating. After these reductions, they still see 25%-plus appreciation potential and believe new estimates are cut to the point that there is a significantly higher probability of upside to results over the next 12 to 24 months than downside. Firm has lowered growth rate to the point where it can be exceeded if either Panama or pay per call work. Thinks the stock has support at $25 but will trade in the mid-to-high twenties until: 1) estimates across the street are set lower; 2) there is clarity on growth trends; and 3) there are positive data points on Project Panama.
* Merrill Lynch notes Yahoo! pre-announced 3Q revenue at the lower half of previous guidance, indicating unexpected weakness in auto and financial services advertising (which contribute 22% of total Online advertising, per IAB). An economic slowdown is a risk to overall Internet advertising (both branded and search), but Yahoo! comments likely to be indicative of more company-specific issues such as slowing branded ad share growth, affiliate weakness and weaker traffic to vertical sites such as Yahoo! finance. In 2Q06 Yahoo missed revenue estimate on affiliate weakness, while Google beat slightly.
Slowdown in Internet commerce activity (fewer queries) and weakness in specific verticals (i.e. UK travel in 4Q) is a risk, however they believe Google's 3Q remains on track. ComScore query data and channel checks have been consistent with solid quarter, although meaningful upside potential seems less likely.
While they are maintaining Neutral rating on YHOO and continue to prefer Google, they believe 10x EBITDA will represent a reasonable support level for the stock. Adjusting for Yahoo!'s other assets, Yahoo! is trading at 11x 2007 EV/EBITDA, compared to Google at 18x, Amazon at 14x and eBay at 12x.
* Bear Stearns notes they are reducing their estimates toward the lower end of company guidance for Q3 and Q4 given the likelihood that this weakness may persist for the balance of the year. Channel checks suggest GM is spending less aggressively and not expected to pick up meaningfully in Q4. Guidance for Q4 seemed aggressive to begin with and now with lower Q3 expectations, they believe management may reduce Q4 expectations on the Q3 earnings call. Firm hase lowered 2006 and 2007 EPS estimates by $0.04 to $0.48 and $0.63, respectively.
They do not see any near-term positive catalysts for the remainder of 2006 given this slight pullback in spending and limits to search revenue growth from poor monetization. However, the firm feels 2007 provides potential good news for Yahoo, with significant revenue growth opportunities from Panama, some revenue from the joint venture with eBay, and projected robust industry-wide internet ad growth. CEO Terry Semel said Panama remains on track for full roll out by Q1. Channel checks suggest online ad growth remains healthy and is still likely to reach 25% in 2006 and 20% in 2007.
Firm recommends YHOO shares to the long-term risk tolerant investor as they believe yesterday's disappointment provided a good entry point to a rare double-digit growth story on the winning end of the secular trends impacting media. At 11x EBITDA, they believe the stock presents good value given growth prospects at the bottom end of guidance still suggest a healthy 24% increase in revenue in 2006. Tgt $37.
Notablecalls: Advertising expenditures are the canary in the coal mine as these are among the first to get the axe if things start slowing down. That's what happening here. I continue to maintain my bearish view toward 2007. What to do with YHOO stock? Think you can catch a quick bounce off the $25 level. Sure, YHOO is currently trading 11x EBITDA but this multiple will expand as the EBITDA part will continue to decrease.
Paperstand
According to the WSJ's "Heard on the Street" column, after shunning potential suitors for much of the past 2 years, Marsh&McLennan (MMC) has begun soliciting offers for its struggling money-mgmt unit, Putnam Investments. But a sale is far from a sure thing b/c the co is keeping its options open. Marsh could decide to spin off the unit to shareholders, which would save it a big tax bill. Or it could hang on to the purveyor of Putnam mutual funds if bids are underwhelming. A sale could raise $3-4bn, according to previous analyst ests and ppl close to the situation.
Barron's Online suggests that the storm that has blown energy prices back from their recent peak has created a new opportunity in the oil-field-services sector. Crude-oil prices have tumbled about 20% from their mid-July high to near $62 per barrel. The result scared away some speculative energy investors, but the earnings cycle has not ended for large services-and-drilling co's with long-term, deepwater projects that continue even if oil prices fall below $50. Among them are driller Transocean (RIG), whose shares have fallen 8% since mid-July, and big equipment-and-services provider Weatherford Intl. (WFT), whose stock has fallen more than 17% in that period. These co's are being paid by major international explorers to get oil and gas out of the ground. And those projects are budgeted to be profitable with oil prices well below the 6-month $65 avg projected by the futures mkt. Unlike oil and gas producers, "the service names don't own reserves so they are priced on capital spending in the business, which is trending up even if commodity prices are coming down," says John Segner, manager of the AIM Energy Fund. Behavioral finance strategist Woody Dorsey summed up the current unpopularity of the oil-services stocks in his latest Market Semiotics newsletter: "They loved them in May, but no one wants them now. What, has winter been called off?"
According to the WSJ's "Insider Track" section and Barron's Online "Inside Scoop" section, inexpensive clothes aren't the only things flying off the shelves at TJX (TJX) these days. Insiders at the co have sold more than $40m of stock this month. The stock sales are the largest by TJX insiders in any given month for at least the past 6 years, but analysts say the selling spree isn't a sufficient reason for investors to follow insiders' lead. "You periodically sell," Jefferies analyst Donald Trott said, regarding insiders. "And the best time, if you're going to do it periodically, is after a spike. Now it's not to say that it can't go higher ... but it's not surprising that they would be selling some stock."
Barron's Online suggests that the storm that has blown energy prices back from their recent peak has created a new opportunity in the oil-field-services sector. Crude-oil prices have tumbled about 20% from their mid-July high to near $62 per barrel. The result scared away some speculative energy investors, but the earnings cycle has not ended for large services-and-drilling co's with long-term, deepwater projects that continue even if oil prices fall below $50. Among them are driller Transocean (RIG), whose shares have fallen 8% since mid-July, and big equipment-and-services provider Weatherford Intl. (WFT), whose stock has fallen more than 17% in that period. These co's are being paid by major international explorers to get oil and gas out of the ground. And those projects are budgeted to be profitable with oil prices well below the 6-month $65 avg projected by the futures mkt. Unlike oil and gas producers, "the service names don't own reserves so they are priced on capital spending in the business, which is trending up even if commodity prices are coming down," says John Segner, manager of the AIM Energy Fund. Behavioral finance strategist Woody Dorsey summed up the current unpopularity of the oil-services stocks in his latest Market Semiotics newsletter: "They loved them in May, but no one wants them now. What, has winter been called off?"
According to the WSJ's "Insider Track" section and Barron's Online "Inside Scoop" section, inexpensive clothes aren't the only things flying off the shelves at TJX (TJX) these days. Insiders at the co have sold more than $40m of stock this month. The stock sales are the largest by TJX insiders in any given month for at least the past 6 years, but analysts say the selling spree isn't a sufficient reason for investors to follow insiders' lead. "You periodically sell," Jefferies analyst Donald Trott said, regarding insiders. "And the best time, if you're going to do it periodically, is after a spike. Now it's not to say that it can't go higher ... but it's not surprising that they would be selling some stock."
Tuesday, September 19, 2006
Calls of Note Part 8
- Raymond James notes that this morning Investools (IEDU) announced the acquisition of
Chicago-based options broker Thinkorswim for $351 million in cash and stock. Investools, an online options and trading seminar education provider, believes that once its clients are educated, they will seek a broker to begin trading. Previously, Investools directed clients to open accounts at optionsXpress (NASDAQ:OXPS) and Schwab's (SCHW) CyberTrader, among others, but those agreements will now be terminated.
optionsXpress has never indicated how many OXPS accounts have come from Investools, but commentary within Investools' release this morning indicates that it anticipates opening at least 15,000 new accounts for Thinkorswim post-deal. Using that as a baseline, the firm believes a reasonable guess is that Investools generated 5,000-7,000 new accounts annually for optionsXpress. Although this figure is only an educated guess on their part, the firm believes it is realistic. Assuming it is correct, it represents about 10% of optionsXpress' annual new accounts.
At this time, they are maintaining thei Strong Buy rating on OXPS shares. The company's growth outlook remains robust beyond this transaction, and given the company's returns on equity and ongoing growth prospects, it deserves to trade at a premium to the group. $35 price target equals 24x 2007 EPS estimate.
Notablecalls: Expect OXPS shares to trade down on the news.
Chicago-based options broker Thinkorswim for $351 million in cash and stock. Investools, an online options and trading seminar education provider, believes that once its clients are educated, they will seek a broker to begin trading. Previously, Investools directed clients to open accounts at optionsXpress (NASDAQ:OXPS) and Schwab's (SCHW) CyberTrader, among others, but those agreements will now be terminated.
optionsXpress has never indicated how many OXPS accounts have come from Investools, but commentary within Investools' release this morning indicates that it anticipates opening at least 15,000 new accounts for Thinkorswim post-deal. Using that as a baseline, the firm believes a reasonable guess is that Investools generated 5,000-7,000 new accounts annually for optionsXpress. Although this figure is only an educated guess on their part, the firm believes it is realistic. Assuming it is correct, it represents about 10% of optionsXpress' annual new accounts.
At this time, they are maintaining thei Strong Buy rating on OXPS shares. The company's growth outlook remains robust beyond this transaction, and given the company's returns on equity and ongoing growth prospects, it deserves to trade at a premium to the group. $35 price target equals 24x 2007 EPS estimate.
Notablecalls: Expect OXPS shares to trade down on the news.
Calls of Note Part 7
- Lazard comments on Smith Micro (NASDAQ:SMSI) saying that for the past quarter, Verizon
Wireless has focused its marketing efforts on several VCAST Music handsets including the Verizon-exclusive Chocolate phone. Several of these promotions have included Smith Micro's Music Essentials Kit (MEK) in a packaged deal, including one that even subsidized the entire cost of the MEK. Firm believes that this heavy promotion bodes well for sell-through (and subsequent reorders) of the MEK.
And add healthy PC card sales with a Stuffit renewal cycle...and 3Q looks promising. As per recent bullish comments by the PC card vendors, they expect revenue from QuickLink Mobile to contribute positively to 3Q. Combined with the start of a renewal cycle for Smith Micro's Allume consume software products, it will result in strong revenue growth and favorable gross margins, in our opinion.
Last night, the company filed a shelf offering with the SEC, which will allow it to raise capital more quickly if it decides to do so in the future. Lazard believes that investors should take advantage of any pullback as a result of the announcement.
Reiterates BUY and one-year price target of $24.
Notablecalls: Still looking for that entry point.
Wireless has focused its marketing efforts on several VCAST Music handsets including the Verizon-exclusive Chocolate phone. Several of these promotions have included Smith Micro's Music Essentials Kit (MEK) in a packaged deal, including one that even subsidized the entire cost of the MEK. Firm believes that this heavy promotion bodes well for sell-through (and subsequent reorders) of the MEK.
And add healthy PC card sales with a Stuffit renewal cycle...and 3Q looks promising. As per recent bullish comments by the PC card vendors, they expect revenue from QuickLink Mobile to contribute positively to 3Q. Combined with the start of a renewal cycle for Smith Micro's Allume consume software products, it will result in strong revenue growth and favorable gross margins, in our opinion.
Last night, the company filed a shelf offering with the SEC, which will allow it to raise capital more quickly if it decides to do so in the future. Lazard believes that investors should take advantage of any pullback as a result of the announcement.
Reiterates BUY and one-year price target of $24.
Notablecalls: Still looking for that entry point.
Calls of Note Part 6
- Goldman Sachs has added Performance Food Group (NASDAQ:PFGC) to the Americas Conviction Buy List, expecting a 25% return potential over the next year. Management's
top/bottom line initiatives combined with a significantly enhanced infrastructure better equips the company than ever before to capitalize on its huge EBIT margin expansion opportunity. As 2H operating momentum accelerates and new CEO Steve Spinner's visibility increases, sentiment and valuation should continue to improve. In addition, although the shares have bounced back somewhat since their low in late August, they are still massively underperforming peer Sysco and customers by 25%. If the shares merely recapture half of this gap, a 12% plus return would be realized. Firm's 12-month price target is $33.96.
Firm believes five potential near-term catalysts could spur share price improvement. 1) 2H operating momentum should strengthen as healthy Street sales growth leverages expenses and last year's labor investments and "Hurricane Katrina" are cycled. At the Goldman Sachs Global Retail Conference in early September, PFGC management noted that top-line trends had already begun to improve. 2) The increased visibility of new CEO Steve Spinner should inspire greater investor confidence in the turnaround. 3) The unveiling of a share repurchase authorization. 4) New Customized business. Management has indicated that proactive discussions with new accounts continue to occur. Something could be announced before year-end. (5) A Broadline acquisition. While the timing and magnitude is always hard to predict, management consistently notes that its balance sheet is under-levered and that it intends to eventually resume acquisition activity.
Notablecalls: Expect to see some interest in PFGC shares today.
top/bottom line initiatives combined with a significantly enhanced infrastructure better equips the company than ever before to capitalize on its huge EBIT margin expansion opportunity. As 2H operating momentum accelerates and new CEO Steve Spinner's visibility increases, sentiment and valuation should continue to improve. In addition, although the shares have bounced back somewhat since their low in late August, they are still massively underperforming peer Sysco and customers by 25%. If the shares merely recapture half of this gap, a 12% plus return would be realized. Firm's 12-month price target is $33.96.
Firm believes five potential near-term catalysts could spur share price improvement. 1) 2H operating momentum should strengthen as healthy Street sales growth leverages expenses and last year's labor investments and "Hurricane Katrina" are cycled. At the Goldman Sachs Global Retail Conference in early September, PFGC management noted that top-line trends had already begun to improve. 2) The increased visibility of new CEO Steve Spinner should inspire greater investor confidence in the turnaround. 3) The unveiling of a share repurchase authorization. 4) New Customized business. Management has indicated that proactive discussions with new accounts continue to occur. Something could be announced before year-end. (5) A Broadline acquisition. While the timing and magnitude is always hard to predict, management consistently notes that its balance sheet is under-levered and that it intends to eventually resume acquisition activity.
Notablecalls: Expect to see some interest in PFGC shares today.
Calls of Note Part 5
- SunTrust Robinson Humphrey downgrades Trex Co (NYSE:TWP) to Neutral from Buy saying they have picked up multiple points of commentary in the composite decking industry regarding a deceleration in business, starting roughly in August and continuing into September. Overall volume has fallen substantially in recent weeks after a strong 2Q06 and has led to price cutting among manufacturers. While some end of year discounting is normally seen during this period, the current trend is much more serious than in years past. As a result, they have cut both revenue and margin assumptions for TWP, resulting in a 2006 EPS of $0.89 versus management guidance of $0.95-$1.05 and mean of $0.98.
Firm's new estimate places the stock at a roughly 22x 2007 P/E representing an upper end multiple on TWP's historic trading pattern. They see little upside in the name and substantial risk given lower expected manufacturing utilization.
Notablecalls: While I don't like highlighting rating changes on this page, I think this note has broader implications on the sector. Would not be surprised to see TWP's competitor Beacon Roofing (NASDAQ:BECN) see some pressure following SunTrust commentary regarding deceleration in business, starting roughly in August and continuing into September.
Firm's new estimate places the stock at a roughly 22x 2007 P/E representing an upper end multiple on TWP's historic trading pattern. They see little upside in the name and substantial risk given lower expected manufacturing utilization.
Notablecalls: While I don't like highlighting rating changes on this page, I think this note has broader implications on the sector. Would not be surprised to see TWP's competitor Beacon Roofing (NASDAQ:BECN) see some pressure following SunTrust commentary regarding deceleration in business, starting roughly in August and continuing into September.
Calls of Note Part 4
Merrill Lynch comments on Maxim Integrated (NASDAQ:MXIM) following last night's warning saying business was still slow entering the third quarter for all of the analog companies in their coverage, and Maxim had been banking on seasonally normal pickup over the course of the quarter. The firm is currently visiting companies in Taiwan at the moment and it's clear that a pickup has occurred, especially in the computing and display markets, but it's a case of too little too late for Maxim. Other analog companies should be seeing similar issues, and in particular they think there could be some slight risk to the Q3 numbers atIntersil (ISIL).
From an investment standpoint, the case that the firm articulated in July for owning
semiconductor stocks continues to make sense. Companies like Maxim and National (NSM) are missing numbers, but the stocks have already declined and the trajectory of business through the quarter has been favorable. Firm notes that we saw National's stock trade up following that company's August quarter pre-announcement. They're not sure what Maxim will do tomorrow, but over the next few months they do expect the stock price appreciation that began in the summer to continue. At 18.8x 2007E GAAP earnings the stock looks attractively
valued.
Mainaints Buy.
Notablecalls: My gut is telling me MXIM won't finish up today.
From an investment standpoint, the case that the firm articulated in July for owning
semiconductor stocks continues to make sense. Companies like Maxim and National (NSM) are missing numbers, but the stocks have already declined and the trajectory of business through the quarter has been favorable. Firm notes that we saw National's stock trade up following that company's August quarter pre-announcement. They're not sure what Maxim will do tomorrow, but over the next few months they do expect the stock price appreciation that began in the summer to continue. At 18.8x 2007E GAAP earnings the stock looks attractively
valued.
Mainaints Buy.
Notablecalls: My gut is telling me MXIM won't finish up today.
Calls of Note Part 3
- Goldman Sachs notes Focus Media (NASDAQ:FMCN) issued a 424B2 filing on September 18 confirming a secondary placement of 2.46 mn ADSs, or 4.6% of its outstanding ADSs, after hours on Sep 18. Selling shareholders include: 1) Target Media (David Yu, Co-CEO of Focus, ex-CEO of Target) selling 1.5 mn ADS; 2) Carlyle (Target's venture capital investor) selling 0.5 mn ADS; and remaining smaller shareholders in aggregate selling 0.46 mn ADS.
Firm believes Focus stock has been weak despite strong fundamentals because of fear of Target Media and Carlyle selling their shares after 50% or ~3.9 mn of the ADSs unlocked on September 13, 2006. They view this placement as a positive for Focus in easing shares sale overhang. Post this placement; firm does not expect any more blocks available for sale at least until January 7, 2007.
They believe Focus' valuation is very attractive at this level relative to its fundamentals. Focus is trading at 20X 2007 non-GAAP diluted EPADS and 15X 2008, growing non-GAAP EPADS 150% in 2006, and 60% in 2007; at 3.7X 2007E book versus 16% ROE, or 7.5X 2007E tangible book versus 34% return on tangible equity. Firm has a Conviction Buy rating on Focus with a 12-month price target of US$78 based on 28X 2007 non-GAAP diluted EPADS.
Notablecalls: Expect the filing create some buy interest in the name.
Firm believes Focus stock has been weak despite strong fundamentals because of fear of Target Media and Carlyle selling their shares after 50% or ~3.9 mn of the ADSs unlocked on September 13, 2006. They view this placement as a positive for Focus in easing shares sale overhang. Post this placement; firm does not expect any more blocks available for sale at least until January 7, 2007.
They believe Focus' valuation is very attractive at this level relative to its fundamentals. Focus is trading at 20X 2007 non-GAAP diluted EPADS and 15X 2008, growing non-GAAP EPADS 150% in 2006, and 60% in 2007; at 3.7X 2007E book versus 16% ROE, or 7.5X 2007E tangible book versus 34% return on tangible equity. Firm has a Conviction Buy rating on Focus with a 12-month price target of US$78 based on 28X 2007 non-GAAP diluted EPADS.
Notablecalls: Expect the filing create some buy interest in the name.
Calls of Note Part 2
- Bear Stearns believes Flextronics' (NASDAQ:FLEX) large backlog of new business, the performance of its key customers, and beatable expectations all bode well for its 2H performance. They also find FLEX's valuation attractive at 12x CY07, near trough levels, and below its 5 yr historical avg forward P/E of 17.5x. Firm's $15 target represents 21% upside.
FLEX has transformed itself from a company managed by geographic regions to one managed by customer end-market segments. We believe this change was very well received internally as well as by customers who now see FLEX as a more focused, responsive, "can-do " supplier which they believe has been a big reason for its recent bookings and top-line growth.
FLEX's pipeline of new business wins includes large programs like Kodak, Motorola (new handsets), Sun, Nortel, as well as smaller programs like Juniper, Nokia (ODM phones), Psion, Parata Systems, AgfaPhoto, and Verigy.
They believe FLEX's two largest customers, Sony Ericsson (10-15% of sales, W810, K800, etc) and HP (10%+, primarily inkjets), have continued to gain market share in the Sept qtr and that both are poised to have a strong end of the yr.
The firm is increasing their Sept qtr rev and pre-option EPS ests to $0.21 and $4.9B from $0.20 and $4.78B based on strong customer momentum and new wins. They are now above FC of $0.20 and $4.79B.
Notablecalls: FLEX may see SOME upside on the call. Would not risk more that $20c.
FLEX has transformed itself from a company managed by geographic regions to one managed by customer end-market segments. We believe this change was very well received internally as well as by customers who now see FLEX as a more focused, responsive, "can-do " supplier which they believe has been a big reason for its recent bookings and top-line growth.
FLEX's pipeline of new business wins includes large programs like Kodak, Motorola (new handsets), Sun, Nortel, as well as smaller programs like Juniper, Nokia (ODM phones), Psion, Parata Systems, AgfaPhoto, and Verigy.
They believe FLEX's two largest customers, Sony Ericsson (10-15% of sales, W810, K800, etc) and HP (10%+, primarily inkjets), have continued to gain market share in the Sept qtr and that both are poised to have a strong end of the yr.
The firm is increasing their Sept qtr rev and pre-option EPS ests to $0.21 and $4.9B from $0.20 and $4.78B based on strong customer momentum and new wins. They are now above FC of $0.20 and $4.79B.
Notablecalls: FLEX may see SOME upside on the call. Would not risk more that $20c.
Color on court action: Imclone (IMCL)
- Several firms are commenting on Imclone (NASDAQ:IMCL) after Judge Buchwald in the New York District Court invalidated ImClone's ownership of the Schlessinger ('866) patent (anti-EGFR antibody + chemotherapy to treat cancer), assigning complete inventorship to three Weizmann Institute scientists represented by Yeda.
* Morgan Stanley thinks the loss of the Schlessinger patent is clearly negative for ImClone. While an appeal will likely push any final resolution well into 2008, they believe that ultimately Yeda will end up with 3-4% royalties on both Erbitux and panitumumab. Amgen's lack of anti-EGFR + chemotherapy IP might have given ImClone some competitive advantage by complicating panitumumab reimbursement. Yesterday's decision flattens the playing field on this score and thus ImClone's first mover advantage now looms larger. Bigger picture, the costs of litigation, potential back royalty settlements and future royalties could limit ImClone's strategic flexibility as the company attempts to establish a long-term plan as an independent concern.
* Goldman Sachs notes the final resolution on the litigation may take years to come. Meanwhile, Imclone and Yeda may negotiate a settlement. If Yeda were to eventually win,
the firm could envision 3 scenarios: 1) Yeda can seek to terminate Imclone's license. However, they do not believe that is Yeda's intent as doing so could reduce royalties to Yeda. It is also highly unlikely that the courts will allow termination due to potential interruption in patient care. 2) Yeda can license the patent to others such as Amgen. Amgen has previously indicated that the '866 patent is not valid. In their model, the firm has already assumed that Imclone cannot block Amgen nor collect royalties from Amgen. 3) The most likely case in firm's view is for Imclone to pay a higher royalty rate. They estimate the current rate to be 2%-3%.
Goldman estimates the intrinsic value for Imclone to be $27/sh, down from previous level of $30, assuming 3% higher royalties. At the current share price of $30.50, the implied technology value of $3.5/sh covers 3 indications of Erbitux with Phase 3 data in the next 15 months (~$2B combined potential) and the pipeline (5 products in Phase 1 or 2). 12-month target price was reduced to $40 from $50.
* Citigroup notes they previously projected that each 1% additional royalty obligation to Yeda on top of the 2-3% estimated royalty currently paid to Aventis would impact ImClone's non GAAP EPS and valuation by ~$0.10 and 7%, respectively. In firm's view, investors are not fully appreciating the sensitivity of IMCL's P&L to these expenses. They expect the stock to sell off by ~10% on this news.
ImClone will most likely appeal this decision, and the firm anticipates that this verdict will be upheld in '08 when a final decision is rendered. Ultimately, they expect that ImClone will pay Yeda additional 2-3% royalties to sustain its exclusive rights to this patent. Firm reiterates Sell rating ahead of the potential approval of Amgen's Vectibix by the Sept. 28 PDUFA deadline.
Notablecalls: Expect the shares to trade down around 10% on the news. I think there may be a bounce in store over the next couple of days. Not a high conviction call.
* Morgan Stanley thinks the loss of the Schlessinger patent is clearly negative for ImClone. While an appeal will likely push any final resolution well into 2008, they believe that ultimately Yeda will end up with 3-4% royalties on both Erbitux and panitumumab. Amgen's lack of anti-EGFR + chemotherapy IP might have given ImClone some competitive advantage by complicating panitumumab reimbursement. Yesterday's decision flattens the playing field on this score and thus ImClone's first mover advantage now looms larger. Bigger picture, the costs of litigation, potential back royalty settlements and future royalties could limit ImClone's strategic flexibility as the company attempts to establish a long-term plan as an independent concern.
* Goldman Sachs notes the final resolution on the litigation may take years to come. Meanwhile, Imclone and Yeda may negotiate a settlement. If Yeda were to eventually win,
the firm could envision 3 scenarios: 1) Yeda can seek to terminate Imclone's license. However, they do not believe that is Yeda's intent as doing so could reduce royalties to Yeda. It is also highly unlikely that the courts will allow termination due to potential interruption in patient care. 2) Yeda can license the patent to others such as Amgen. Amgen has previously indicated that the '866 patent is not valid. In their model, the firm has already assumed that Imclone cannot block Amgen nor collect royalties from Amgen. 3) The most likely case in firm's view is for Imclone to pay a higher royalty rate. They estimate the current rate to be 2%-3%.
Goldman estimates the intrinsic value for Imclone to be $27/sh, down from previous level of $30, assuming 3% higher royalties. At the current share price of $30.50, the implied technology value of $3.5/sh covers 3 indications of Erbitux with Phase 3 data in the next 15 months (~$2B combined potential) and the pipeline (5 products in Phase 1 or 2). 12-month target price was reduced to $40 from $50.
* Citigroup notes they previously projected that each 1% additional royalty obligation to Yeda on top of the 2-3% estimated royalty currently paid to Aventis would impact ImClone's non GAAP EPS and valuation by ~$0.10 and 7%, respectively. In firm's view, investors are not fully appreciating the sensitivity of IMCL's P&L to these expenses. They expect the stock to sell off by ~10% on this news.
ImClone will most likely appeal this decision, and the firm anticipates that this verdict will be upheld in '08 when a final decision is rendered. Ultimately, they expect that ImClone will pay Yeda additional 2-3% royalties to sustain its exclusive rights to this patent. Firm reiterates Sell rating ahead of the potential approval of Amgen's Vectibix by the Sept. 28 PDUFA deadline.
Notablecalls: Expect the shares to trade down around 10% on the news. I think there may be a bounce in store over the next couple of days. Not a high conviction call.
Calls of Note Part 1
- Citigroup comments on August NAND Flash NPD Data saying industry's 16% card/drive/MP3 bit growth was the best in four yrs, fueled by an above-seasonal 68% mm increase in USB drive units. Revs increased 5%, outpacing norms by 200 bps. Data underpins field work suggesting solid QTD sales and lean retail finished goods inventories.
Sandisk (NASDAQ:SNDK) Sustains Momentum. 19% mm bit growth nearly 2x norms, fueled by MP3 and memory card unit share gains as well as an 8% average density increase. USB drive sales disappointed on market share (-900 bps) despite unit growth 5x SanDisk's August avg. Overall, data reinforce firm's conviction that SanDisk's 3Q06/4Q06 has more upside than downside risk to ests.
Looking ahead, investors should focus on product news flow at IDF (PCs) in late September (26th to 28th) and on takeaways from Citi's upcoming trip to Asia that same week.
Notablecalls: Not actionable but good to know category
Sandisk (NASDAQ:SNDK) Sustains Momentum. 19% mm bit growth nearly 2x norms, fueled by MP3 and memory card unit share gains as well as an 8% average density increase. USB drive sales disappointed on market share (-900 bps) despite unit growth 5x SanDisk's August avg. Overall, data reinforce firm's conviction that SanDisk's 3Q06/4Q06 has more upside than downside risk to ests.
Looking ahead, investors should focus on product news flow at IDF (PCs) in late September (26th to 28th) and on takeaways from Citi's upcoming trip to Asia that same week.
Notablecalls: Not actionable but good to know category
Paperstand
According to the WSJ's "Heard on the Street" column, Edward Lampert is sending clear signals that he is on the prowl for acquisitions now that Sears (SHLD) is on firmer footing. And that has Wall St. abuzz about potential tgts for Sears and Mr. Lampert's hedge fund, ESL Investments. Possible tgts being bandied about include Home Depot (HD) and Gap (GPS), among others. But Mr. Lampert has been trading shares of General Motors (GM) in the past year, well below the radar screen of most investors. It is a potential sign the hedge-fund honcho might want to play a role in the auto maker's future. "There are investors who figure something is coming," says Gary Balter, of Credit Suisse. "Wall St. is hoping that he buys a good franchise and a co that he can cut costs."
The WSJ's "Ahead of the Tape" highlights KFx (KFX), saying that lately, its shareholders might be feeling burned. On Sept. 1, KFx shares fell 5% after Pacific Growth analyst Michael Horwitz said he'd heard that one of KFx's industrial customers had rejected a delivery of coal b/c it didn't produce enough heat and its dust content was high and unsafe. The co fired back with a press release saying Mr. Horwitz's report was an "apparently malicious attempt to damage our stockholders" without "any attempt to verify the facts." The co said it had notified the SEC and that it would "seek appropriate remedies." Mr. Horwitz said in a research note he tried to contact KFx's mgmt prior to his comment. He wouldn't comment. In an email, KFx director of investor relations Karli Anderson says the co is "at a loss" to explain Mr. Horwitz's actions. Then last week, KFx's share prices fell even more after it announced a test run at a different customer, utility operator FirstEnergy. Investors felt the release was short on details, then in a follow-up, KFx said there had been excess dust in a delivery to FirstEnergy and that a few of the coal cars it shipped arrived with "elevated heat content." According to the article, short-sellers are smelling blood. One critic, Manuel Asensio, has posted videos and pictures on the Web purporting to document KFx problems. Right or not, it's a sign, perhaps, that the commodities boom is losing heat.
According to the Barrons' "Inside Scoop" section, analysts have encouraged investors to buy shares of ValueClick (VCLK) after the co issued an upbeat Q2 report, but its CEO James Zarley has seen the value in clicking the sell button on $5.4m worth of shares. Ben Silverman, of InsiderScore.com, says that "seeing a CEO sell near the end of the quarter at a co that's put together a couple pretty good quarters is something you want to keep an eye on," especially since expectations are high for ValueClick's Q3 performance.
The NY post reports that in a blow to ImClone (IMCL), a federal judge ruled yesterday that 3 scientists from Israel are the true inventors of a patent used for the co's blockbuster cancer drug, Erbitux, rather than 7 ppl whose names are now on it. Lawyers had predicted that the case could have significant effects on the future of Erbitux. In a '03 lawsuit, Yeda R&D sued ImClone, which has an exclusive license for the formula used in Erbitux to inhibit tumor cells, and its partner Aventis, claiming 3 of its researchers were the real inventors. During hearings this summer, plaintiffs' lawyer Nicholas Groombridge said ImClone could lose its exclusivity with the technique covered by the license if Yeda's scientists were credited. He said a ruling such as the judge's yesterday would free Yeda to license the patent to other drug co's, and ImClone would not have a license anymore.
The WSJ's "Ahead of the Tape" highlights KFx (KFX), saying that lately, its shareholders might be feeling burned. On Sept. 1, KFx shares fell 5% after Pacific Growth analyst Michael Horwitz said he'd heard that one of KFx's industrial customers had rejected a delivery of coal b/c it didn't produce enough heat and its dust content was high and unsafe. The co fired back with a press release saying Mr. Horwitz's report was an "apparently malicious attempt to damage our stockholders" without "any attempt to verify the facts." The co said it had notified the SEC and that it would "seek appropriate remedies." Mr. Horwitz said in a research note he tried to contact KFx's mgmt prior to his comment. He wouldn't comment. In an email, KFx director of investor relations Karli Anderson says the co is "at a loss" to explain Mr. Horwitz's actions. Then last week, KFx's share prices fell even more after it announced a test run at a different customer, utility operator FirstEnergy. Investors felt the release was short on details, then in a follow-up, KFx said there had been excess dust in a delivery to FirstEnergy and that a few of the coal cars it shipped arrived with "elevated heat content." According to the article, short-sellers are smelling blood. One critic, Manuel Asensio, has posted videos and pictures on the Web purporting to document KFx problems. Right or not, it's a sign, perhaps, that the commodities boom is losing heat.
According to the Barrons' "Inside Scoop" section, analysts have encouraged investors to buy shares of ValueClick (VCLK) after the co issued an upbeat Q2 report, but its CEO James Zarley has seen the value in clicking the sell button on $5.4m worth of shares. Ben Silverman, of InsiderScore.com, says that "seeing a CEO sell near the end of the quarter at a co that's put together a couple pretty good quarters is something you want to keep an eye on," especially since expectations are high for ValueClick's Q3 performance.
The NY post reports that in a blow to ImClone (IMCL), a federal judge ruled yesterday that 3 scientists from Israel are the true inventors of a patent used for the co's blockbuster cancer drug, Erbitux, rather than 7 ppl whose names are now on it. Lawyers had predicted that the case could have significant effects on the future of Erbitux. In a '03 lawsuit, Yeda R&D sued ImClone, which has an exclusive license for the formula used in Erbitux to inhibit tumor cells, and its partner Aventis, claiming 3 of its researchers were the real inventors. During hearings this summer, plaintiffs' lawyer Nicholas Groombridge said ImClone could lose its exclusivity with the technique covered by the license if Yeda's scientists were credited. He said a ruling such as the judge's yesterday would free Yeda to license the patent to other drug co's, and ImClone would not have a license anymore.
Monday, September 18, 2006
Calls of Note Part 8
Bear Stearns lowering estimates and price tgt for Tom Online (NASDAQ:TOMO) as they view newly published Ministry of Information Industry (M.I.I.) rules incrementally negative. Firm is revising their 2006E EPADS est. from $0.63 to $0.55 and 2007E EPADS from $0.56 to $0.43. They have also cut their 2006E and 2007E revenue ests by 3.5% and 18.7%, respectively and YE 2007 price target from $15.00/ADS to $14.00/ADS.
Firm says many of the MII's new directives (published Friday, Sept. 15) echo policies already adopted by China Mobile in July. While China Mobile's policies will likely have a greater impact, this new set of regulations from the MII will likely make marketing more difficult for SPs, leading them to expect a longer path to recovery.
Despite becoming more cautious on TOMO's prospects in 2006 and 2007, firm remains positive on longer-term prospects for the company and the industry as a whole. They expect that a clear, consistent set of policies by the MII applied across all operators will hasten industry consolidation and a shakeout of unscrupulous SPs, a positive development for TOMO.
Notablecalls: I feel that the today's upgrade by Brean Murray may provide a nice shorting oppty as it is at least partially based on dismissing the constant regulatory/China Mobile threat the WVAS are constantly facing. However, beware of the high short interest.
Firm says many of the MII's new directives (published Friday, Sept. 15) echo policies already adopted by China Mobile in July. While China Mobile's policies will likely have a greater impact, this new set of regulations from the MII will likely make marketing more difficult for SPs, leading them to expect a longer path to recovery.
Despite becoming more cautious on TOMO's prospects in 2006 and 2007, firm remains positive on longer-term prospects for the company and the industry as a whole. They expect that a clear, consistent set of policies by the MII applied across all operators will hasten industry consolidation and a shakeout of unscrupulous SPs, a positive development for TOMO.
Notablecalls: I feel that the today's upgrade by Brean Murray may provide a nice shorting oppty as it is at least partially based on dismissing the constant regulatory/China Mobile threat the WVAS are constantly facing. However, beware of the high short interest.
Calls of Note Part 7
RBC noting that their recent checks, underscored by Best Buy's commentary last week, indicate demand for consumer electronics is solid. Firm expects DSP Group (NASDAQ:DSPG) to report a good 3Q06, which is seasonally strongest. They believe DSPG continues to incrementally gain market share, mainly at the expense of Sitel. The buyout of Philips Semiconductor may also present opportunities down the road.
Firm sees ongoing industry interest in new cordless phone models that enable VoIP, WiFi or cellular calling. Many vendors gain PR points today launching phones with price-points at $250+ list prices, targeting very early adopters. They believe many of these products are yet to hit the mainstream and expect more mature products to appear in 2007 and beyond. Firm believes DSPG is well positioned with leading consumer electronics products that will target the mass market.
Firm notes DSPG shares have been under pressure, trading close to 52-week low as few major sellers came to the market, with no apparent fundamental trigger. With over half of valuation in net cash and ongoing buyback, they reiterate Outperform as shares seem undervalued, trading well below peers at 9x P/E FY06E ex. cash and 13x EV/NOPAT. Price tgt is $34.
Notablecalls: While this note contains no new information, RBC makes a solid case for the stock. Should be good for a bounce in the coming days w/ stop just below $22.
Firm sees ongoing industry interest in new cordless phone models that enable VoIP, WiFi or cellular calling. Many vendors gain PR points today launching phones with price-points at $250+ list prices, targeting very early adopters. They believe many of these products are yet to hit the mainstream and expect more mature products to appear in 2007 and beyond. Firm believes DSPG is well positioned with leading consumer electronics products that will target the mass market.
Firm notes DSPG shares have been under pressure, trading close to 52-week low as few major sellers came to the market, with no apparent fundamental trigger. With over half of valuation in net cash and ongoing buyback, they reiterate Outperform as shares seem undervalued, trading well below peers at 9x P/E FY06E ex. cash and 13x EV/NOPAT. Price tgt is $34.
Notablecalls: While this note contains no new information, RBC makes a solid case for the stock. Should be good for a bounce in the coming days w/ stop just below $22.
Calls of Note Part 6
Friedman, Billings, Ramsey out positive on Teletech (NASDAQ:TTEC), raising price tgt to $22 from $18 as they continue to believe TTEC will be one of the main beneficiaries to the positive secular trends in the customer care BPO industry. Firm believes the opportunity with the stock is due to the valuation discount versus that of its peers due to the Newgen unit. They believe greater clarity regarding the future of this unit over the coming quarters will relieve an overhang in the minds of investors.
Firm also believes consensus revenue estimates are likely too low, implying organic growth of less than 5% for 2H06 versus over 12% for the first two quarters, and are expecting strong results. As a result, the sell-side is significantly discounting the CY07 EPS guidance by a factor of 30% and, after reporting a few solid quarters and when Newgen's fate becomes certain, they would expect estimates to come up.
Firm believes TTEC is positioned to exceed CY07 consensus expectations given its recent deal signings and its pipeline, in addition to the growth in its existing customer base. TTEC has announced several large wins over the last few months, in addition to being more confident regarding the willingness of its clients to outsource more than ever before.
Notablecalls: The stock has had a nice run since mid-July. However, the guys from FBR seem to have enough conviction to extend the run for a few more days.
Firm also believes consensus revenue estimates are likely too low, implying organic growth of less than 5% for 2H06 versus over 12% for the first two quarters, and are expecting strong results. As a result, the sell-side is significantly discounting the CY07 EPS guidance by a factor of 30% and, after reporting a few solid quarters and when Newgen's fate becomes certain, they would expect estimates to come up.
Firm believes TTEC is positioned to exceed CY07 consensus expectations given its recent deal signings and its pipeline, in addition to the growth in its existing customer base. TTEC has announced several large wins over the last few months, in addition to being more confident regarding the willingness of its clients to outsource more than ever before.
Notablecalls: The stock has had a nice run since mid-July. However, the guys from FBR seem to have enough conviction to extend the run for a few more days.
Calls of Note Part 5
Goldman Sachs out with the results of IT survey, conducted in mid-August 2006, that suggest strong outlook for Cisco (NASDAQ:CSCO). The results are following:
(1) 67% of respondents, a new survey all-time high, expect to increase spending with Cisco over the next 12 months vs. 64% in June. It is also important to note that the percentage of respondents indicating that Cisco-specific spending will decrease, remains at low single digits. We believe CIOs must increasingly address network needs related to security, reliability, and capacity.
(2) 65% of respondents surveyed expect to increase their spending in networking over the next 12 months, compared with 76% in our last survey, and 64% in the survey before. Only 5% of respondents indicate a decrease, and another 30% indicate flat spending.
Two key points:
(A) The 11% drop in respondents increasing spending, and related shift to flat is a potential red flag that we will monitor, (B) Our Cisco specific question produced incrementally improved results, while the overall networking question was incrementally more cautious. We believe this discrepancy is explained by Cisco's breadth of high growth technologies that are not in its traditional routing and switching products, such as security and VoIP.
Notablecalls: Nothing really new as the time/results of the survey are about the same as Cisco's last earnings/guidance report that has acted as a catalyst for the stock. Good for the sentiment, though. Note that the recent mkt rally started just after CSCO's 4Q06 report.
(1) 67% of respondents, a new survey all-time high, expect to increase spending with Cisco over the next 12 months vs. 64% in June. It is also important to note that the percentage of respondents indicating that Cisco-specific spending will decrease, remains at low single digits. We believe CIOs must increasingly address network needs related to security, reliability, and capacity.
(2) 65% of respondents surveyed expect to increase their spending in networking over the next 12 months, compared with 76% in our last survey, and 64% in the survey before. Only 5% of respondents indicate a decrease, and another 30% indicate flat spending.
Two key points:
(A) The 11% drop in respondents increasing spending, and related shift to flat is a potential red flag that we will monitor, (B) Our Cisco specific question produced incrementally improved results, while the overall networking question was incrementally more cautious. We believe this discrepancy is explained by Cisco's breadth of high growth technologies that are not in its traditional routing and switching products, such as security and VoIP.
Notablecalls: Nothing really new as the time/results of the survey are about the same as Cisco's last earnings/guidance report that has acted as a catalyst for the stock. Good for the sentiment, though. Note that the recent mkt rally started just after CSCO's 4Q06 report.
Calls of Note Part 4
Merrill Lynch out positive on VeriSign (NASDAQ:VRSN), saying that based on discussions with sources familiar with the issues, they believe VeriSign's .NET and .COM registry agreement is likely to be ratified by the Department of Commerce following Senate hearings on ICANN this week. As per DOC request, the Department of Justice will have final word on the agreements but there is little indication so far of any substantive objections that would derail final approval.
The agreement offers significant long-term financial and strategic benefits to VeriSign, including increases in Domain Name pricing, presumptive renewal following 2012 expiration, policies for approving new registry services and arbitration for any disputes. By firm's estimate, compounded price increases could potentially generate up to $300mn in incremental annual revenues by
2012.
ICANN has proposed renewal contracts for .BIZ, .INFO and .ORG (not managed by VeriSign) that allow for similar renewal provisions and eliminate all restrictions on pricing increases. By contrast, VeriSign's stipulated price increases (7% for .COM and 10% for .ORG) are more restrictive, improving likelihood of approval.
DOC approval of the registry agreement could be a meaningful positive to allay any lingering concerns of linkage between VeriSign's ongoing inquiry into past option practices and the contract with ICANN. Firm thinks this could further improve sentiment lifted by the pending divestiture of 51% of Jamba. While they have not yet adjusted our model for the Jamba sale, the impact of .COM and .NET increases is not yet in their forecasts and could generate healthy long-term upside.
Notablecalls: Expect to see additional interest in VRSN in the coming days. The co is step-by-step coming out from the analyst/street doghouse it has been in for over a year now.
The agreement offers significant long-term financial and strategic benefits to VeriSign, including increases in Domain Name pricing, presumptive renewal following 2012 expiration, policies for approving new registry services and arbitration for any disputes. By firm's estimate, compounded price increases could potentially generate up to $300mn in incremental annual revenues by
2012.
ICANN has proposed renewal contracts for .BIZ, .INFO and .ORG (not managed by VeriSign) that allow for similar renewal provisions and eliminate all restrictions on pricing increases. By contrast, VeriSign's stipulated price increases (7% for .COM and 10% for .ORG) are more restrictive, improving likelihood of approval.
DOC approval of the registry agreement could be a meaningful positive to allay any lingering concerns of linkage between VeriSign's ongoing inquiry into past option practices and the contract with ICANN. Firm thinks this could further improve sentiment lifted by the pending divestiture of 51% of Jamba. While they have not yet adjusted our model for the Jamba sale, the impact of .COM and .NET increases is not yet in their forecasts and could generate healthy long-term upside.
Notablecalls: Expect to see additional interest in VRSN in the coming days. The co is step-by-step coming out from the analyst/street doghouse it has been in for over a year now.
Calls of Note Part 3
Morgan Stanley lowering price tgt for Aetna (NYSE:AET) to $46 from $51, saying that given industry-wide continued medical trend deceleration, evidence of a stabilizing pricing environment and Aetna's announcement that its 2Q cost trends are not as high as it initially thought, they see near term upside in AET shares to $46.
Medical cost trends at Aetna are not further worsening, and in fact, may be improving -- a source of relief for Aetna, as well as the managed care group. That said, it is somewhat curious that Aetna is already seeing favorable medical cost experience relative to 2Q results since the rise in 2Q medical trend was owing largely to catastrophic claims, which take time to mature. While there is some risk that Aetna may not have priced accounts entering 2007 in order to fully rightsize its negative price-cost spread, firm thinks the issue was identified early enough for Aetna to at least lessen its negotiations off initial rates and improve its spread in 2007.
Reiterates Overweight.
Notablecalls: Not actionable short-term, however like it as a swing trade on the long side. The stock has bounced nicely from the August lows and believe some upside is still there. Would not hold below SMA(100)/$38, though.
Medical cost trends at Aetna are not further worsening, and in fact, may be improving -- a source of relief for Aetna, as well as the managed care group. That said, it is somewhat curious that Aetna is already seeing favorable medical cost experience relative to 2Q results since the rise in 2Q medical trend was owing largely to catastrophic claims, which take time to mature. While there is some risk that Aetna may not have priced accounts entering 2007 in order to fully rightsize its negative price-cost spread, firm thinks the issue was identified early enough for Aetna to at least lessen its negotiations off initial rates and improve its spread in 2007.
Reiterates Overweight.
Notablecalls: Not actionable short-term, however like it as a swing trade on the long side. The stock has bounced nicely from the August lows and believe some upside is still there. Would not hold below SMA(100)/$38, though.
Calls of Note Part 2
Merrill Lynch doing scenario analysis for Cephalon's (NASDAQ:CEPH) Fentora, noting that the FDA action date for Fentora, CEPH's follow-on to Actiq for breakthrough cancer pain, is 9/25. We expect final approval and launch in early 4Q. The ability of Fentora to gain market share will have important implications for the stock, as Actiq (roughly 1/3 of revenue) is facing imminent generic competition.
Firm believes that CEPH's success at driving Fentora market share will depend in large part on how well the product is clinically differentiated relative to Actiq. They view the most significant potential advantages as the easier-to-use formulation (fast-dissolve tablet vs. lollipop stick) and favorable pharmacokinetics (Fentora achieves a higher plasma concentration in a shorter period of time), which could lead to more rapid onset of pain relief.
In their official model (Base case) firm assumes that Fentora is launched in 4Q06 and achieves peak market share of approximately 1.85% by 2010. For reference, Actiq previously achieved peak share of 3.4% (current share is 2.8%). Firm assumes that Fentora erodes share of Actiq (brand and generic) by roughly 25% over time. They believe that their Base case share assumptions are reasonable and potentially conservative based on what we know today.
For an Upside case, firm assumes Fentora peak share of 2.5% by 2010. They believe that Fentora will have to be favorably differentiated to achieve a share close to the current share for Actiq, given that the latter has never faced strong competition (from brands or generics). Note that Cephalon expects the label for Fentora to reflect its favorable pharmacokinetics (higher Cmax, shorter Tmax). This case does not factor in label expansion, so they do not view it as a
"Best" case.
The Downside case assumes that Fentora gains share more slowly relative to the Base case, in part due to the availability of cheaper generic Actiq and/or lack of significant differentiation. Also, they believe that Cephalon could have a more difficult time driving market share if the Fentora launch is delayed beyond 4Q.
To assess a Worst case scenario, firm removed Fentora from our model. They also reduced SG&A assumptions, as they would expect the company to rationalize expenses in this scenario. Firm believes that this scenario is unlikely.
Firm's base case yields a theoretical valuation of $68, while Upside and Downside cases would lead to theoretical fair values of $81 and $49, respectively. A Worst case in which Fentora never gets to market would lead to a theoretical fair value of $39.
Notablecalls: Not actionable but good to know category. Just as the mkt is starting to forget about Sparlon, CEPH is up for a new saga.
Firm believes that CEPH's success at driving Fentora market share will depend in large part on how well the product is clinically differentiated relative to Actiq. They view the most significant potential advantages as the easier-to-use formulation (fast-dissolve tablet vs. lollipop stick) and favorable pharmacokinetics (Fentora achieves a higher plasma concentration in a shorter period of time), which could lead to more rapid onset of pain relief.
In their official model (Base case) firm assumes that Fentora is launched in 4Q06 and achieves peak market share of approximately 1.85% by 2010. For reference, Actiq previously achieved peak share of 3.4% (current share is 2.8%). Firm assumes that Fentora erodes share of Actiq (brand and generic) by roughly 25% over time. They believe that their Base case share assumptions are reasonable and potentially conservative based on what we know today.
For an Upside case, firm assumes Fentora peak share of 2.5% by 2010. They believe that Fentora will have to be favorably differentiated to achieve a share close to the current share for Actiq, given that the latter has never faced strong competition (from brands or generics). Note that Cephalon expects the label for Fentora to reflect its favorable pharmacokinetics (higher Cmax, shorter Tmax). This case does not factor in label expansion, so they do not view it as a
"Best" case.
The Downside case assumes that Fentora gains share more slowly relative to the Base case, in part due to the availability of cheaper generic Actiq and/or lack of significant differentiation. Also, they believe that Cephalon could have a more difficult time driving market share if the Fentora launch is delayed beyond 4Q.
To assess a Worst case scenario, firm removed Fentora from our model. They also reduced SG&A assumptions, as they would expect the company to rationalize expenses in this scenario. Firm believes that this scenario is unlikely.
Firm's base case yields a theoretical valuation of $68, while Upside and Downside cases would lead to theoretical fair values of $81 and $49, respectively. A Worst case in which Fentora never gets to market would lead to a theoretical fair value of $39.
Notablecalls: Not actionable but good to know category. Just as the mkt is starting to forget about Sparlon, CEPH is up for a new saga.
Calls of Note Part 1
Citigroup notes SanDisk (NASDAQ:SNDK) enjoys near term catalysts. Declining fuel costs are removing consumer electronics spending doubts, while spot and contract pricing appears a tailwind through mid-4Q06. SNDK appears firm's highest-conviction 3Q/4Q results/outlook story, and past out-year estimate revision trends argue for a bump in 2007 estimates, exclusive of potential Hynix royalties.
Firm notes 3Q-to-date, SNDK shares are up 15% to $58.5, though prior five and three-year average 3Q appreciation of 27% and 65%, respectively would argue for a quarter ending share price of between $64 and $84. Looking further ahead, they note 4Q five-year share appreciation has averaged 23%, suggesting upside potential to $72 from current levels. Taking the average of the three prices suggests upside potential to $73, up 25%.
Reiterates Buy and $69 price tgt.
Notablecalls: This note should be good for a gap up, but wouldn't call it actionable. As for the "calculation" of stock's upside potential, looks like it is borrowed from some Yahoo! message board.
Firm notes 3Q-to-date, SNDK shares are up 15% to $58.5, though prior five and three-year average 3Q appreciation of 27% and 65%, respectively would argue for a quarter ending share price of between $64 and $84. Looking further ahead, they note 4Q five-year share appreciation has averaged 23%, suggesting upside potential to $72 from current levels. Taking the average of the three prices suggests upside potential to $73, up 25%.
Reiterates Buy and $69 price tgt.
Notablecalls: This note should be good for a gap up, but wouldn't call it actionable. As for the "calculation" of stock's upside potential, looks like it is borrowed from some Yahoo! message board.
Saturday, September 16, 2006
Barron's Summary
Barron's discusses Cleveland-Cliffs (CLF), saying that thanks to shrewd, low-cost acquisitions during the steel industry's downturn earlier in this decade, the co emerged as the top N-American producer of iron ore, just in time to benefit from the surge in steel and iron-ore prices in the past 2 years. At 36 a share, the co fetches 4x estd '06 pretax cash flow, but analysts value the co around 50. The big risk: a plunge in commodities prices.
According to the Barron's, a bullish investor, Paul Able of Kinetic's Mutual Funds, sees about 25% upside in Invitrogen (IVGN) shares b/c it should prosper along with the biotech business, and has begun to work out its most pressing recent problems. "We've guided that we will do earnings of between $3.60-3.90 this year and obviously we will do somewhere in the $4-plus range next year [Bullish analysts look for $4.35-plus.], says CEO Greg Lucier. Since the life-sciences industry trades on a multiple of, call it 20-22, our stock should be worth somewhere around 90 a share."
"The Trader" section highlights Interface (IFSIA), which makes modular carpeting. It's a smallish co, around $700m in mkt value with another $430m of debt. The stock is off its highs above 15 early in the year but has more than doubled from its Apr'05 low. In the 2Q Interface had 12% top-line growth, orders rose 13% and the backlog was 20% higher than a year earlier. The Street expects the co to earn 61c a share this year and 86c in '07. But Charles Kantor, a portfolio manager at Neuberger Berman, thinks next year's results will more likely be between 90c and $1 a share. Interface is paying down debt with free cash flow and recently sold a European fabrics unit. The pullback in oil prices is a positive, as the co is exposed to costs of petroleum-based materials. As a possible growth kicker, Interface struck a deal to develop Martha Stewart-branded carpet tiles for homes. The stock has typically enjoyed a P/E multiple over the past 10 years above 16, so applying such a multiple to potential '07 earnings near $1 a share implies possible upside above 20% in a year.
"Technology Trader" discusses OmniVision (OVTI), whose stock, at $15, looks absurdly cheap. There's plenty of demand for the image-sensor chips. The co has $7 a share in cash, and the typical Wall St. analyst expects it to earn at least $1.35 a share in the F'07. The co has enjoyed gross margins as high as 40% in some periods. But high margins in a growing semiconductor mkt are the sort of honey that brings competitors buzzing. "Micron (MU) came from nowhere to become the No. 1 CMOS image sensor supplier in the mobile phone mkt," says Tristan Gerra, of RW Baird who has followed OmniVision since it came public. Micron's chip factories gave it a cost advantage, whereas OmniVision had to allow some profit margin for its manufacturing partner Taiwan Semiconductor (TSM). Therefore the article concludes that no one on Wall St. really believes the earnings forecasts for OmniVision.
Fund top holdings include: WTNY, SPN, TTI, GEO, PLCE, CXW, WEBX, ITG, BID and LDG.
According to the Barron's, a bullish investor, Paul Able of Kinetic's Mutual Funds, sees about 25% upside in Invitrogen (IVGN) shares b/c it should prosper along with the biotech business, and has begun to work out its most pressing recent problems. "We've guided that we will do earnings of between $3.60-3.90 this year and obviously we will do somewhere in the $4-plus range next year [Bullish analysts look for $4.35-plus.], says CEO Greg Lucier. Since the life-sciences industry trades on a multiple of, call it 20-22, our stock should be worth somewhere around 90 a share."
"The Trader" section highlights Interface (IFSIA), which makes modular carpeting. It's a smallish co, around $700m in mkt value with another $430m of debt. The stock is off its highs above 15 early in the year but has more than doubled from its Apr'05 low. In the 2Q Interface had 12% top-line growth, orders rose 13% and the backlog was 20% higher than a year earlier. The Street expects the co to earn 61c a share this year and 86c in '07. But Charles Kantor, a portfolio manager at Neuberger Berman, thinks next year's results will more likely be between 90c and $1 a share. Interface is paying down debt with free cash flow and recently sold a European fabrics unit. The pullback in oil prices is a positive, as the co is exposed to costs of petroleum-based materials. As a possible growth kicker, Interface struck a deal to develop Martha Stewart-branded carpet tiles for homes. The stock has typically enjoyed a P/E multiple over the past 10 years above 16, so applying such a multiple to potential '07 earnings near $1 a share implies possible upside above 20% in a year.
"Technology Trader" discusses OmniVision (OVTI), whose stock, at $15, looks absurdly cheap. There's plenty of demand for the image-sensor chips. The co has $7 a share in cash, and the typical Wall St. analyst expects it to earn at least $1.35 a share in the F'07. The co has enjoyed gross margins as high as 40% in some periods. But high margins in a growing semiconductor mkt are the sort of honey that brings competitors buzzing. "Micron (MU) came from nowhere to become the No. 1 CMOS image sensor supplier in the mobile phone mkt," says Tristan Gerra, of RW Baird who has followed OmniVision since it came public. Micron's chip factories gave it a cost advantage, whereas OmniVision had to allow some profit margin for its manufacturing partner Taiwan Semiconductor (TSM). Therefore the article concludes that no one on Wall St. really believes the earnings forecasts for OmniVision.
Fund top holdings include: WTNY, SPN, TTI, GEO, PLCE, CXW, WEBX, ITG, BID and LDG.
Friday, September 15, 2006
Calls of Note Part 7
Several firms have positive comments on First Marblehead (NYSE:FMD) today after the co announced the estimated upfront advisory fee of $175M, or 12.6%, for its September securitization, owing to the retention of less residual.
* JP Morgan notes they view this as a positive for FMD because upfront fees are higher quality earnings than a residual. Firm's estimates likely need to be revised higher, but they are waiting for more details on the securitization terms due to the change in earnings composition.
* Friedman, Billings, Ramsey's notorious bears are upgrading their rating to Mkt Perform from Underperform. With First Marblehead's upcoming securitization significantly larger than expected and more importantly, the company now being able to monetize a portion of its noncash residuals into cash, they believe this helps address much of the near-term risk to the story. Although, firm's concerns regarding customer concentration, pricing pressure, and the impact of higher borrowing levels from the competing federal loan program all remain, they believe the fact the company is able to establish a secondary market for its residuals is meaningful.
* UBS notes that although the size of the pool securitized at $1.39B was well ahead oftheir
$800M estimate, it is difficult to assess loan volume growth because this is the first time FMD has completed a deal in its fiscal 1Q. Therefore, it is possible that loans they had earmarked for the 2Q securitization were securitized earlier in 1Q.
While they view higher upfront cash as a positive, particularly given their concerns with FMD's ability to grow cash flow near-term, the firm awaits the residual economics (which are likely to be lower than previous deals) to better assess the margins in this transaction. Nonetheless, an apples-to-apples comparison of margins with prior deals may still be difficult given all of the moving parts.
Maintains Reduce and $42 tgt.
Notablecalls: This certainly is a positive surprise for FMD shareholders. On the other hand, as much as I don't like saying it, UBS does have a point. We don't know what or how much FMD gave away in terms of residual income. Depending on how high the shares will gap, I suspect they will be chopped down later on. Heck! Capitulation of FBR must count for something!
* JP Morgan notes they view this as a positive for FMD because upfront fees are higher quality earnings than a residual. Firm's estimates likely need to be revised higher, but they are waiting for more details on the securitization terms due to the change in earnings composition.
* Friedman, Billings, Ramsey's notorious bears are upgrading their rating to Mkt Perform from Underperform. With First Marblehead's upcoming securitization significantly larger than expected and more importantly, the company now being able to monetize a portion of its noncash residuals into cash, they believe this helps address much of the near-term risk to the story. Although, firm's concerns regarding customer concentration, pricing pressure, and the impact of higher borrowing levels from the competing federal loan program all remain, they believe the fact the company is able to establish a secondary market for its residuals is meaningful.
* UBS notes that although the size of the pool securitized at $1.39B was well ahead oftheir
$800M estimate, it is difficult to assess loan volume growth because this is the first time FMD has completed a deal in its fiscal 1Q. Therefore, it is possible that loans they had earmarked for the 2Q securitization were securitized earlier in 1Q.
While they view higher upfront cash as a positive, particularly given their concerns with FMD's ability to grow cash flow near-term, the firm awaits the residual economics (which are likely to be lower than previous deals) to better assess the margins in this transaction. Nonetheless, an apples-to-apples comparison of margins with prior deals may still be difficult given all of the moving parts.
Maintains Reduce and $42 tgt.
Notablecalls: This certainly is a positive surprise for FMD shareholders. On the other hand, as much as I don't like saying it, UBS does have a point. We don't know what or how much FMD gave away in terms of residual income. Depending on how high the shares will gap, I suspect they will be chopped down later on. Heck! Capitulation of FBR must count for something!
Calls of Note Part 6
- Piper Jaffray believes Illumina (NASDAQ:ILMN) is maintaining the momentum built during the first half and will remain the leader in the fast growth genotyping market. This belief is based on firm's view that Illumina's BeadArray technology is superior to Affymetrix genotyping offering. Users have experienced higher call rates and reproducibility with Illumina's HumanHAP 550 array than Affymetrix' 500K genotyping array.
With the patent litigation suit versus Affymetrix pushed out until January 29, 2007, the firm believes investors can invest in Illumina through year-end based solely on the performance of its business. They have learned that deCODE has completed the installation of its genotyping center in Iceland and is ramping up production rapidly.
As a result, they are increasing their 3Q:06 revenue forecast to $48 million at the high-end of management's guidance. Firm now estimates Illumina will report pro forma EPS of $0.25, a penny better than guidance, and GAAP EPS of $0.17.
They now forecast Illumina will grow revenues 131% this year to $170 million.
Maintains Outperform and $50 tgt.
Notablecalls: Expect to see some interest in ILMN following the call. While there is little new information to be found in the note, ILMN's chart looks like it wants to move higher.
With the patent litigation suit versus Affymetrix pushed out until January 29, 2007, the firm believes investors can invest in Illumina through year-end based solely on the performance of its business. They have learned that deCODE has completed the installation of its genotyping center in Iceland and is ramping up production rapidly.
As a result, they are increasing their 3Q:06 revenue forecast to $48 million at the high-end of management's guidance. Firm now estimates Illumina will report pro forma EPS of $0.25, a penny better than guidance, and GAAP EPS of $0.17.
They now forecast Illumina will grow revenues 131% this year to $170 million.
Maintains Outperform and $50 tgt.
Notablecalls: Expect to see some interest in ILMN following the call. While there is little new information to be found in the note, ILMN's chart looks like it wants to move higher.
Calls of Note Part 5
- Several firms are commenting on American Eagle Outfitters' (NASDAQ:AEOS) Martin + Osa store concept:
* CIBC notes they attended a store tour of AEOS' new MARTIN+OSA store in Tyson's Corner, VA. Some have criticized Eagle for the time it took to launch a second concept, but the result, they think, is a highly differentiated brand in a unique setting and serving a grown-up AE customer.
While M+O will evolve, the firm likes what they see so far. The stunning store design is likely to draw traffic and the fusion of sport apparel with fashion sportswear is right on trend. Firm thinks M+O offers a distinct point of view for its 30-yr old target, a $1B 300-store opportunity for shareholders.
Opportunity still exists in core AE in higher store productivity goal of $550-600 from $467 and margin pot from planning/allocation and new store remodel.
AE is on a roll with strong response to fall and easy comp vs holiday 05 when sweaters were a miss. While AEOS shares have had a great run, with over $5 in cash and opp in 3 brands, they think there's still more flight left in this bird; thus, the firm is raising their tgt from $41 to $48 and reiterating SO.
* Prudential notes they liked the look and feel of the Martin + Osa store. They liked men's more than women's, and overall they thought pricing may be too high. The firm was less enthusiastic about the marketing themes such as "Big, Simple, True," which they thought seemed to be trying a little too hard.
Notablecalls: Not actionable but good to know category.
* CIBC notes they attended a store tour of AEOS' new MARTIN+OSA store in Tyson's Corner, VA. Some have criticized Eagle for the time it took to launch a second concept, but the result, they think, is a highly differentiated brand in a unique setting and serving a grown-up AE customer.
While M+O will evolve, the firm likes what they see so far. The stunning store design is likely to draw traffic and the fusion of sport apparel with fashion sportswear is right on trend. Firm thinks M+O offers a distinct point of view for its 30-yr old target, a $1B 300-store opportunity for shareholders.
Opportunity still exists in core AE in higher store productivity goal of $550-600 from $467 and margin pot from planning/allocation and new store remodel.
AE is on a roll with strong response to fall and easy comp vs holiday 05 when sweaters were a miss. While AEOS shares have had a great run, with over $5 in cash and opp in 3 brands, they think there's still more flight left in this bird; thus, the firm is raising their tgt from $41 to $48 and reiterating SO.
* Prudential notes they liked the look and feel of the Martin + Osa store. They liked men's more than women's, and overall they thought pricing may be too high. The firm was less enthusiastic about the marketing themes such as "Big, Simple, True," which they thought seemed to be trying a little too hard.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 4
- JP Morgan notes that while Nike's (NYSE:NKE) share price has come off recent lows, driven by a lift in the overall market and declining oil prices, they are cautious heading into the company's 1Q07 earnings announcement on September 21st. Overall athletic footwear sales in the U.S. appear to be slowing and recent retail commentary continues to suggest a slowdown in marquee product, particularly in the basketball category (units down double-digits YTD according to Sportscan).
In terms of current footwear trends, the firm believe that fusion/skate styles are driving back-to-school sales and according to channel checks, NKE's move into this highly competitive category has been met with mixed reviews. In firm's view, the target consumer does not specifically view NKE as a fashion brand and has already established a relationship with historically lifestyle brands (i.e. Puma, Skechers, Vans).
Finally, they note that the company recently canceled its analyst day scheduled for mid-October and rescheduled for early February 2007, leaving the stock without a potential catalyst beyond next week's earnings announcement. At 14.8 times FY07 estimate, NKE is trading below its five year historical average of roughly 18 times. While valuation is compelling, the firm remains on the sidelines for now as Nike operates on the wrong side of the current footwear trend with no compelling near term catalyst.
Notablecalls: I suggested NKE was a swing-short about a week ago. The stock blew through my stop 2 days later. I still believe it makes little sense being long this one heading into earnings. I trust that will create at least some intraday shorting opportunities in the coming days.
In terms of current footwear trends, the firm believe that fusion/skate styles are driving back-to-school sales and according to channel checks, NKE's move into this highly competitive category has been met with mixed reviews. In firm's view, the target consumer does not specifically view NKE as a fashion brand and has already established a relationship with historically lifestyle brands (i.e. Puma, Skechers, Vans).
Finally, they note that the company recently canceled its analyst day scheduled for mid-October and rescheduled for early February 2007, leaving the stock without a potential catalyst beyond next week's earnings announcement. At 14.8 times FY07 estimate, NKE is trading below its five year historical average of roughly 18 times. While valuation is compelling, the firm remains on the sidelines for now as Nike operates on the wrong side of the current footwear trend with no compelling near term catalyst.
Notablecalls: I suggested NKE was a swing-short about a week ago. The stock blew through my stop 2 days later. I still believe it makes little sense being long this one heading into earnings. I trust that will create at least some intraday shorting opportunities in the coming days.
Calls of Note Part 3
- RBC Capital notes UTStarcom's (NASDAQ:UTSI) shares have risen sharply in recent weeks amidst mixed fundamentals and they are maintaining Sector Perform rating and price target of $8. Firm believes most of the stock activity may be related to short covering. Short interest is now ~23% of the float.
Fundamentally, they estimate the quarter may be tracking between the low to mid range of the guidance of $590-$625M recognizing that the business remains very lumpy. RBC remains at consensus or $595M. And while up sequentially ~8% from the prior quarter, the core
businesses are still declining YoY.
The PAS market continues to decline and the firm is estimating a decrease of almost 30% sequentially in what is a seasonally weaker quarter for this segment. Revenues in the PCD (50%) segment may see some incremental growth and thus far the reception on UTStarcom's CDM 7000, CDM 7025 as well as the Sidekick 3 and the XV 6700 and the PPC 6700 PDAs remain favorable.
Longer-term, PAS revenues may decline by about 15% over the next several years. This decline may be offset by growth in broadband (9%) driven by IPTV and wireless (21%) driven by emerging market CDMA expansions. PCD (50%) is likely to display modest growth looking ahead and is likely to remain a large portion of overall revenues.
Notablecalls: I must say the note started out much stronger than it ended. Still, I'd keep UTSI on the radar today and on Monday as the stock may be continue rolling over.
Fundamentally, they estimate the quarter may be tracking between the low to mid range of the guidance of $590-$625M recognizing that the business remains very lumpy. RBC remains at consensus or $595M. And while up sequentially ~8% from the prior quarter, the core
businesses are still declining YoY.
The PAS market continues to decline and the firm is estimating a decrease of almost 30% sequentially in what is a seasonally weaker quarter for this segment. Revenues in the PCD (50%) segment may see some incremental growth and thus far the reception on UTStarcom's CDM 7000, CDM 7025 as well as the Sidekick 3 and the XV 6700 and the PPC 6700 PDAs remain favorable.
Longer-term, PAS revenues may decline by about 15% over the next several years. This decline may be offset by growth in broadband (9%) driven by IPTV and wireless (21%) driven by emerging market CDMA expansions. PCD (50%) is likely to display modest growth looking ahead and is likely to remain a large portion of overall revenues.
Notablecalls: I must say the note started out much stronger than it ended. Still, I'd keep UTSI on the radar today and on Monday as the stock may be continue rolling over.
Calls of Note Part 2
- Bear Stearns is raising their FY2H07 and FY08 estimates for NVIDIA (NASDAQ:NVDA). For the Oct-Q, they are raising revenues from $750M (+9% QoQ) to $757M (+10% QoQ), the high end of guidance of up 8-10%, based on better than expected trends in the notebook GPU and MCP businesses. Desktop GPU demand has also been tracking slightly above expectations due to an improvement in desktop builds. Firm's EPS goes from $0.36 to $0.37, above consensus of $0.34. They are also raising their Jan-Q EPS from $0.42 to $0.43, and FY08 EPS from $1.60 to $1.63.
The firm believes NVIDIA's share gain in notebook GPUs has considerable more room, and expect its share to approach 50% exiting CY06 (from 37% in 2Q). They believe there is a high likelihood that its share could increase to above 50% with Intel's upcoming Santa Rosa platform (to launch in 1H07), based on its initial feedback from customers, and given ATI being late with its next-generation products. In the near-term, better than expected overall notebook builds should also contribute to better NB GPU revenues.
Price tgt goes to $37 from $33 with Outperform reited.
Notablecalls: I believe the note will create some buy interest in NVDA today. However I expect it to be somewhat short-lived and won't move the stock more than $0.50.
The firm believes NVIDIA's share gain in notebook GPUs has considerable more room, and expect its share to approach 50% exiting CY06 (from 37% in 2Q). They believe there is a high likelihood that its share could increase to above 50% with Intel's upcoming Santa Rosa platform (to launch in 1H07), based on its initial feedback from customers, and given ATI being late with its next-generation products. In the near-term, better than expected overall notebook builds should also contribute to better NB GPU revenues.
Price tgt goes to $37 from $33 with Outperform reited.
Notablecalls: I believe the note will create some buy interest in NVDA today. However I expect it to be somewhat short-lived and won't move the stock more than $0.50.
Calls of Note Part 1
- Goldman Sachs is positive on Microsoft (NASDAQ:MSFT) increasing their price target to $33 from $30 as the stock should benefit from a rich flow of upcoming new products and share repurchase. Feedback on Windows Vista RC1 continues to be encouraging with the company maintaining a January 2007 release date. The firm has modeled a delay to March following the May release of Beta 2, but RC1 is a big improvement, and a second delay is looking less likely. Microsoft also raised its quarterly dividend by $0.01 to $0.10, in-line with their expectations, and currently a 1.5% yield. Finally, Microsoft announced its first Zune portable media player with 30 GB of capacity, wireless, FM tuner, and 3" screen for video.
For Zune, they view Microsoft's strategy encompassing community and social networks as appealing, but Apple's dominant market position and the stickiness of its iTunes service is likely a market share constraint. Xbox still looks like a winner versus Sony's PS3 and losses are narrowing rapidly and operations are expected to be profitable a year from now.
Microsoft stock trades at 16X calendar 2007 EPS estimate of $1.62, a slight premium to the S&P 500. Goldman believe a strong product cycle including Windows Vista and Office 2007 as well as Xbox 360 will continue to drive revenue and EPS growth.
Notablecalls: Expect the note to create some further interest in MSFT in the pre mkt. Overall however, I suspect Goldman is late to the party.
For Zune, they view Microsoft's strategy encompassing community and social networks as appealing, but Apple's dominant market position and the stickiness of its iTunes service is likely a market share constraint. Xbox still looks like a winner versus Sony's PS3 and losses are narrowing rapidly and operations are expected to be profitable a year from now.
Microsoft stock trades at 16X calendar 2007 EPS estimate of $1.62, a slight premium to the S&P 500. Goldman believe a strong product cycle including Windows Vista and Office 2007 as well as Xbox 360 will continue to drive revenue and EPS growth.
Notablecalls: Expect the note to create some further interest in MSFT in the pre mkt. Overall however, I suspect Goldman is late to the party.
Paperstand
According to the WSJ' "Ahead of the Tape" column investors are hoping the technology sector's recent troubles are behind it. But judging from the dust gathering on some tech co shelves, there might be more pain to come. When it issued results in August, Applied Materials (AMAT) gave a cautious forecast for its business and said it was hearing from chip makers that inventory was picking up in the PC mkt. Last week, National Semiconductor (NSM) reported a slowdown in orders and said it would bring down inventory levels. And this week, Best Buy (BBY) reported results that generally pleased Wall St., except for one detail: Inventories increased more than sales. A quarterly survey of CFOs released this week by Duke University and CFO Magazine suggests a wide swath of tech co's are seeing rising inventory levels. On avg, tech CFOs expect their inventory levels to be 2.6% higher in the next year than they were in the past year. Only construction co's, which have been getting hit hard by the slowdown in housing, expect a bigger increase in inventories, points out Duke professor John Graham. It's a sign that tech co's "are expecting corporate spending to slow and consumer demand to stay low," he says.
The WSJ's "Heard on the Street" column discusses Viacom (VIAB), whose stock has recovered 8% tumble, it saw after Chmn Sumner Redston booted CEO Tom Frestone. According to the article, there are signs Mr. Redstone's drastic action may have the effect it intended, to renew confidence in Viacom's prospects and jump-start a rally in Viacom stock. Many investors say Viacom is a buy. The stock is down 12% from where it started in January after Viacom was split from CBS. Some on Wall St. believe the arrival of new top mgmt promising a more aggressive Web strategy means the stock may be headed upward. "We're very confident holding on to the stock and will perhaps add to our position," says Kurt Funderburg, of Harris Associates, which had about 21.5m Viacom shares as of June 30.
Barron's Online says after 4 years on life support, Tenet Healthcare (THC) is finally showing signs of life. The same goes for its stock, which has dropped 84% since Oct'02, but has been rebounding in recent weeks. A former profit engine, Tenet, lost money in '04 and '05 as the entire hospital industry faced slowing admissions and more uninsured patients unable to pay their hospital bills. But at Tenet, the problem was exacerbated by govt probes and scandals that sullied the co's reputation and had doctors referring patients to rival facilities. Tenet's legal troubles are in the past since the co agreed in June to settle a massive Medicare fraud probe. So while the industry still faces troubles, Tenet is breathing life into its bottom line by filling empty beds and investing more money in operations. Despite a 42% jump since closing at a 5-year low of 5.81 a share on Aug. 1, the stock still looks cheap. "Tenet is a turnaround story," says Diane Jaffee, portfolio manager of the TCW Diversified Value Fund. "It's on track to return to profitability this year."
"Inside Scoop" section reports that mgmt changes at Viacom (VIAB) have spawned robust insider purchases of the co's limping stock. Amid this share-price weakness, newly named CEO Philippe Dauman and newly named Chief Administrative Officer Thomas Dooley wasted no time to collectively purchase $9m worth of shares in the open mkt, which they were required to do within 3 months of their Sept. 5 start date under their employee contracts. Both of their contracts expire in Dec 2011. Those purchases may not be as bullish as they seem on the face of it, since they were compulsory for compensation in stock units. Ben Silverman, of InsiderScore.com, says, "I think the point of the employment contract is to align these guys with shareholders…but this is a sweetheart deal."
According to the LA Times, Rupert Murdoch spent more than a decade trying to gain control of DirecTV (DTV). But the Chmn of News Corp. (NWS) appears willing to give that up for something he values even more: bulletproof control of his own co. Murdoch is negotiating to swap his 38% stake in DirecTV to cable pioneer John Malone for the 19% voting stake in News Corp. owned by Malone's Liberty Media, according to two ppl familiar with the negotiations. The trade would free Murdoch from fears that Liberty's chunk could fall into unfriendly hands and threaten his family's grip on News Corp. If he gains control of DirecTV, Malone eventually would pursue a merger with its sole rival, EchoStar Comm. (DISH), according to sources at News Corp.
Thursday, September 14, 2006
Calls of Note Part 5
- Couple of firms are positive on TXU Corp (NYSE:TXU):
* Goldman Sachs says they believe, for investors willing to withstand shoulder month weakness for gas prices, that the sell-off in TXU is unwarranted. Over 12% total return upside exists, even after decreasing DCF-based target price by $1 to $70 on slightly higher long-term cost assumptions. Firm continues to view TXU as one of the more attractive names in the sector given its strong near-term cash flows, attractive assets and leverage to commodity prices.
Upcoming catalysts over the next 3-6 months include 1) the announcement of a new share repurchase plan, as they forecast approximately $1.4 bn in buybacks for 2007/2008, 2) potential sales of equity stakes in TXU DevCo, thereby decreasing equity at risk in the proposed new generating plants, 3) strong 3Q2006 results following strong summer demand, 4) updates on hedging and 5) the resolution of permitting issues for the first new coal units.
* Wachovia notes TXU shares have fallen over 4% in the past week (vs. 1.3% gain for S&P 500) on tumbling natural gas prices, compounded in their view by resurgent concerns on the TX coal plant initiative, recent headlines about potential carbon legislation, possible credit rating pressure, and profit taking absent near term catalysts. Shares were trading at or near all time high levels when the firm initiated coverage with an Outperform rating earlier this month. In ther view, near term upside potential into the $70--$75 area can be driven by sustained strong margins in retail and power, lower than expected customer turnover, and potentially catalyzing events e.g. separating the utility and/or progress on the TX and PJM coal initiatives.
TXU trades at a discount to Exelon (on a P/E basis) and its IPP peers (on a P/E and EV/EBITDA basis), despite its margins being in firm's view well protected and the existence of several positive potential catalysts vs. overhangs (e.g. a stalled merger) in the case of EXC. Poor sentiment and a lack of near-term catalysts could sustain near term weakness, but it seems overdone and they'd add in the low $60's.
Notablecalls: Would not hold below $63.
* Goldman Sachs says they believe, for investors willing to withstand shoulder month weakness for gas prices, that the sell-off in TXU is unwarranted. Over 12% total return upside exists, even after decreasing DCF-based target price by $1 to $70 on slightly higher long-term cost assumptions. Firm continues to view TXU as one of the more attractive names in the sector given its strong near-term cash flows, attractive assets and leverage to commodity prices.
Upcoming catalysts over the next 3-6 months include 1) the announcement of a new share repurchase plan, as they forecast approximately $1.4 bn in buybacks for 2007/2008, 2) potential sales of equity stakes in TXU DevCo, thereby decreasing equity at risk in the proposed new generating plants, 3) strong 3Q2006 results following strong summer demand, 4) updates on hedging and 5) the resolution of permitting issues for the first new coal units.
* Wachovia notes TXU shares have fallen over 4% in the past week (vs. 1.3% gain for S&P 500) on tumbling natural gas prices, compounded in their view by resurgent concerns on the TX coal plant initiative, recent headlines about potential carbon legislation, possible credit rating pressure, and profit taking absent near term catalysts. Shares were trading at or near all time high levels when the firm initiated coverage with an Outperform rating earlier this month. In ther view, near term upside potential into the $70--$75 area can be driven by sustained strong margins in retail and power, lower than expected customer turnover, and potentially catalyzing events e.g. separating the utility and/or progress on the TX and PJM coal initiatives.
TXU trades at a discount to Exelon (on a P/E basis) and its IPP peers (on a P/E and EV/EBITDA basis), despite its margins being in firm's view well protected and the existence of several positive potential catalysts vs. overhangs (e.g. a stalled merger) in the case of EXC. Poor sentiment and a lack of near-term catalysts could sustain near term weakness, but it seems overdone and they'd add in the low $60's.
Notablecalls: Would not hold below $63.
Calls of Note Part 4
- Goldman Sachs notes that while there has been continued speculation regarding the magnitude of AMD's (NYSE:AMD) penetration of Dell (NASDAQ:DELL), they believe that Dell's initial rollout of AMD-based products suggests that expectations may have gotten ahead of reality, at least for the remainder of 2006. Dell's new Dimension products represent a very small percentage of its overall business. Further, while AMD's pending notebook relationship with Dell will drive incremental share gains, they believe that if the extent to which Dell is currently using AMD in desktops is similar to what the firm can expect in notebooks, AMD's market share is unlikely to increase as meaningfully as current expectations suggest. To that end, the firm is republishing their recent analysis which illustrates that AMD's share gains at Dell/IBM in 2006/2007 will likely be more than offset by Intel's gains at HP, the white box market, and the gaming enthusiast market. They continue to recommend that investors Buy Intel and remain Neutral on AMD given Intel's margin expansion opportunities in the coming quarters, driven by: 1) continued restructuring, including the reduction of marketing subsidies to Dell, 2) significantly lower capex, and 3) market share gains.
Goldman continues to expect 10% upside to $22 12-month price target on Intel based on a 20X multiple applied to normalized EPS estimate of $1.00, assuming a 10% overshoot. Regarding AMD, while the stock is down 11% YTD, it has increased about 55% since recent lows, driven by Dell expectations. While they had upgraded the stock to Neutral, fearing such a move, they believe it is overdone and investors shouldn't chase the stock. There is no change to 12-month price target of $19, which is based on a 15X multiple applied to normalized EPS estimate of $1.25.
Notablecalls: Read what the guys from ThinkEquity had to say about AMD couple of days ago. Conflicting views. Of course, Goldman's comments are going to pressure AMD today. But overall I continue to believe AMD is eating INTC's lunch.
Goldman continues to expect 10% upside to $22 12-month price target on Intel based on a 20X multiple applied to normalized EPS estimate of $1.00, assuming a 10% overshoot. Regarding AMD, while the stock is down 11% YTD, it has increased about 55% since recent lows, driven by Dell expectations. While they had upgraded the stock to Neutral, fearing such a move, they believe it is overdone and investors shouldn't chase the stock. There is no change to 12-month price target of $19, which is based on a 15X multiple applied to normalized EPS estimate of $1.25.
Notablecalls: Read what the guys from ThinkEquity had to say about AMD couple of days ago. Conflicting views. Of course, Goldman's comments are going to pressure AMD today. But overall I continue to believe AMD is eating INTC's lunch.
Calls of Note Part 3
- Jefferies is defending Neurometrix (NASDAQ:NURO) saying the stock weakness and market chatter absurd. Firm notes they would be aggressive buyers of the stock at current levels. They believe that recent chatter surrounding possible indictments and negative NC-stat data are unfounded, and that there is significant upside to 3Q estimates. NURO remains the highest quality small cap diagnostic company in firm's universe.
The stock traded down ~13% yesterday based on chatter that 1) NURO may be the subject of federal indictments and 2) that negative NC-stat data may be published in the near-term. Firm's channel checks indicate that the company is not the subject of any indictments, and they note that indictments are highly unlikely without the involvement of the DOJ and/or FBI (at this point there is merely an informal OIG inquiry and it is highly unlikely indictments could come about without a formal investigation). Furthermore, they do not expect the release of any negative NC-stat data, and note that there are ~37 positive publications on clinical data showing that the NC-stat is 95% equivalent to conventional neurological testing (including a recently published article in Diabetes Care).
Reits Buy and $41 tgt.
Notablecalls: Note that Jeffco was out on NURO just before the close, likely causing the 1 pt bounce. I do expect to see other firms come out in defense of NURO today. One to watch.
The stock traded down ~13% yesterday based on chatter that 1) NURO may be the subject of federal indictments and 2) that negative NC-stat data may be published in the near-term. Firm's channel checks indicate that the company is not the subject of any indictments, and they note that indictments are highly unlikely without the involvement of the DOJ and/or FBI (at this point there is merely an informal OIG inquiry and it is highly unlikely indictments could come about without a formal investigation). Furthermore, they do not expect the release of any negative NC-stat data, and note that there are ~37 positive publications on clinical data showing that the NC-stat is 95% equivalent to conventional neurological testing (including a recently published article in Diabetes Care).
Reits Buy and $41 tgt.
Notablecalls: Note that Jeffco was out on NURO just before the close, likely causing the 1 pt bounce. I do expect to see other firms come out in defense of NURO today. One to watch.
Calls of Note Part 2
- Piper Jaffray has some interesting comments on Apple (NASDAQ:AAPL):
Firm notes that late on Tuesday (9/12), MacShrine reported that the resource files in the new iTunes 7 has messages suggesting features for a mobile phone, features that Motorola's ROKR phone does not have. MacShrine reported finding the follow resource file message in iTunes 7.
"Some of the games in your iTunes library were not copied to the mobile phone (name) because you are not authorized to play them on this computer" and "iTunes cannot sync photos to the mobile phone (name) because your iPhoto Library needs updating. Open iPhoto to update your iPhoto Library".
This resource file message suggests there will be a phone that will be capable of synching with iTunes, and that the phone will support iTunes and photos. Firm believes this phone is most likely the iPhone, with an outside chance the message is in reference to an upcoming phone from a current phone manufacturer.
While the Street is widely anticipating the iPhone, when the phone is announced (we believe in 4-6 months) it should be a positive for shares of AAPL. Firm expects AAPL's multiple to increase as anticipation of the iPhone builds in the back half of 2006.
Maintains Outpeform and $99 tgt.
Notablecalls: Not actionable but good to know category. Soon we have to start working on who the possible suppliers of iPhone components are going to be. Any bright ideas?
Firm notes that late on Tuesday (9/12), MacShrine reported that the resource files in the new iTunes 7 has messages suggesting features for a mobile phone, features that Motorola's ROKR phone does not have. MacShrine reported finding the follow resource file message in iTunes 7.
"Some of the games in your iTunes library were not copied to the mobile phone (name) because you are not authorized to play them on this computer" and "iTunes cannot sync photos to the mobile phone (name) because your iPhoto Library needs updating. Open iPhoto to update your iPhoto Library".
This resource file message suggests there will be a phone that will be capable of synching with iTunes, and that the phone will support iTunes and photos. Firm believes this phone is most likely the iPhone, with an outside chance the message is in reference to an upcoming phone from a current phone manufacturer.
While the Street is widely anticipating the iPhone, when the phone is announced (we believe in 4-6 months) it should be a positive for shares of AAPL. Firm expects AAPL's multiple to increase as anticipation of the iPhone builds in the back half of 2006.
Maintains Outpeform and $99 tgt.
Notablecalls: Not actionable but good to know category. Soon we have to start working on who the possible suppliers of iPhone components are going to be. Any bright ideas?
Calls of Note Part 1
- Xilinx (NASDAQ:XLNX) used its mid-quarter update to lower September qtr revenue guidance. Several firms are commenting:
* Banc of America notes the outlook is below their prior est. of $472m (-2%) and cons of $473m (-1.8%) - but not a total surprise given firm's previewed expectations which had suggested a bias to the low-end of prior guidance. Further, the absence of GM commentary suggests that XLNX is still comfortable with its 61-62% GAAP GM target. They are however lowering their CY07 pro-forma EPS est. from $1.42 to $1.36 to reflect the lower sales outlook and revising tgt down from $32 to $30.
Firm believes that Xilinx's wireline and wireless sales were impacted by lower demand from APAC customers (inc. US OEMs with Asian subcons as well as local Asian OEMs). This weakness is largely attributable to disruptions stemming from the ongoing consolidation at some of Xilinx's customers.
They believe the weak outlook was widely anticipated, as investors were not pricing in much in terms of good news on the stock. Xilinx's weak outlook is more reflective of a typically challenging seasonality in Sept. (coupled with the aforementioned disruptions at customers) than a systemic issue with Xilinx's fundamentals. The good news is that comparisons post today's revised outlook become easier heading into the seasonally strong Dec-Mar period, and with a relatively lean inventory situation (both internally and distribution), they believe XLNX (at the very least) is poised to benefit from inventory replenishment in coming qtrs.
Maintains Buy.
* Merrill Lynch notes the revenue shortfall is largely attributed to the weakness in the communications end-market, with both wireless and wireline performing worse than expected. Given that Xilinx has much higher exposure to the wireless infrastructure market than Altera and that Altera did not revise its outlook, they believe wireless infrastructure is the main culprit. From a product standpoint, Virtex-II and Virtex-II Pro will be most impacted by this revenue shortfall, thus dragging down the growth rates of the new and mainstream product categories.
Xilinx was able to manage combined internal and distributor inventory days down to the corporate target of 90-120 days last quarter, but the firm expects this quarter's revenue shortfall will move inventory days back up to the 130 level. The company has not made adjustments to wafer starts as it believes orders for the December and March quarters are good. Even if the company decides to make any adjustment to wafer starts, they expect the impact will not show up on the company's balance sheet until the Mar-07 quarter.
Firm is lowering Xilinx's GAAP earnings estimate for the Sep-06Q from $0.25 to $0.23, and for the fiscal 2007 (March) from $1.00 to $0.96. Neutral rating on Xilinx stands.
* JP Morgan notes that despite the lowered guidance, they reiterate Overweight recommendation on Xilinx as firm's C07 EPS estimate is only lowered by $0.04 and Xilinx is about to enter its two seasonally strongest quarters. According to the analyst the stock has bottomed during the September quarter four out of the last five years.
Notablecalls: Not actionable but good to know category. Continue to be negative on Semi space.
* Banc of America notes the outlook is below their prior est. of $472m (-2%) and cons of $473m (-1.8%) - but not a total surprise given firm's previewed expectations which had suggested a bias to the low-end of prior guidance. Further, the absence of GM commentary suggests that XLNX is still comfortable with its 61-62% GAAP GM target. They are however lowering their CY07 pro-forma EPS est. from $1.42 to $1.36 to reflect the lower sales outlook and revising tgt down from $32 to $30.
Firm believes that Xilinx's wireline and wireless sales were impacted by lower demand from APAC customers (inc. US OEMs with Asian subcons as well as local Asian OEMs). This weakness is largely attributable to disruptions stemming from the ongoing consolidation at some of Xilinx's customers.
They believe the weak outlook was widely anticipated, as investors were not pricing in much in terms of good news on the stock. Xilinx's weak outlook is more reflective of a typically challenging seasonality in Sept. (coupled with the aforementioned disruptions at customers) than a systemic issue with Xilinx's fundamentals. The good news is that comparisons post today's revised outlook become easier heading into the seasonally strong Dec-Mar period, and with a relatively lean inventory situation (both internally and distribution), they believe XLNX (at the very least) is poised to benefit from inventory replenishment in coming qtrs.
Maintains Buy.
* Merrill Lynch notes the revenue shortfall is largely attributed to the weakness in the communications end-market, with both wireless and wireline performing worse than expected. Given that Xilinx has much higher exposure to the wireless infrastructure market than Altera and that Altera did not revise its outlook, they believe wireless infrastructure is the main culprit. From a product standpoint, Virtex-II and Virtex-II Pro will be most impacted by this revenue shortfall, thus dragging down the growth rates of the new and mainstream product categories.
Xilinx was able to manage combined internal and distributor inventory days down to the corporate target of 90-120 days last quarter, but the firm expects this quarter's revenue shortfall will move inventory days back up to the 130 level. The company has not made adjustments to wafer starts as it believes orders for the December and March quarters are good. Even if the company decides to make any adjustment to wafer starts, they expect the impact will not show up on the company's balance sheet until the Mar-07 quarter.
Firm is lowering Xilinx's GAAP earnings estimate for the Sep-06Q from $0.25 to $0.23, and for the fiscal 2007 (March) from $1.00 to $0.96. Neutral rating on Xilinx stands.
* JP Morgan notes that despite the lowered guidance, they reiterate Overweight recommendation on Xilinx as firm's C07 EPS estimate is only lowered by $0.04 and Xilinx is about to enter its two seasonally strongest quarters. According to the analyst the stock has bottomed during the September quarter four out of the last five years.
Notablecalls: Not actionable but good to know category. Continue to be negative on Semi space.
Paperstand
According to the WSJ's "Heard on the Street" column, now that energy and other commodities are down, the fortunes of a number of co's are looking up. The drop in commodity prices has spurred investors to search for stocks that might benefit. Airlines are obvious candidates. Major airlines around the globe continue to see strong passenger demand, so profits could climb if they are able to raise prices while their own costs drop, as fuel prices fall. A study of trading patterns during the past 3 years by Bianco Research points to airlines as the sector most inversely correlated to oil prices. Some investors, such as Appaloosa Mgmt, a $4bn hedge fund, bought airlines such as AMR (AMR), the parent of American Airlines, in recent days. Retailers also are likely to benefit if a drop in energy helps consumers deal with the impact of a housing downturn. Target (TGT) has been among the most sensitive to oil prices in recent years. Some traders say the recent surge in shares of Wal-Mart (WMT), Home Depot (HD) and Costco (COST) is a result of shorts, who now are scrambling to buy back shares. Other stocks mentioned include: APPB, GT, PG, DD, IP, GM and TMC.
According to the Barron's Online, it's too soon to presume that Americans, relieved of energy burdens, will buy pricey gadgets in droves this winter. A safer bet is that consumer gadgets will become more and more popular over the very long term, and that it pays to own the stocks of co's that have a time horizon of at least 2-3 years in which to exploit those trends. One such group is the chip-equipment makers such as Applied Materials (AMAT) and Cymer (CYMI), whose tools must be purchased by Intel (INTC) and other chip makers to keep their factories going whether or not the latest iPod sells well at Christmas. Chip-equipment stocks are up 6.3% on avg this year, slightly ahead of the S&P's 500 index's 5.2% rise. Bullish investors have started bidding up shares in order to get in on what could be a jump in equipment orders next year, writes JP Morgan chip-equipment analyst Jay Deahna in a note. But worries over consumer demand could yet cause chip makers to cancel equipment orders, which makes owning the stocks outright very tricky right now. A backup strategy is to sell put options on equipment makers, which yields a tidy premium upfront and positions investors to buy shares at prices below the current mkt price in the event the put is ever exercised. "We like to own co's that are dominant in the equipment mkt, regardless of what the chip sentiment is out there at the moment," says Kevin Landis, of Firsthand Funds. "Equipment stocks trade a lot on sentiment, but there's still a lot of unmet need for the technology they bring to chip makers."
"Inside Scoop" section reports that 3 execs at Thornburg Mortgage (TMA) have resumed building up their stakes after a nearly yearlong lull in insider buys at the co. Most notable is purchase by CEO Garrett Thornburg, who spent $2.2m for 93K shares. With his latest purchase Garrett Thornburg holds 1.3m shares, a 1.2% stake in the co. President and COO Larry A. Goldstone also bought 12K shares for $291K. The purchases by Garrett Thornburg and Goldstone are the largest in dollar value that either has made over the past 5 years, notes Jonathan Moreland, director of research at InsiderInsights.com, and bode well for the stock despite anxiety over the co's dividend warning. "I view the insider purchases as indicating that at the very least the double-digit indicated yield is sustainable," says Moreland.
According to the Barron's Online, it's too soon to presume that Americans, relieved of energy burdens, will buy pricey gadgets in droves this winter. A safer bet is that consumer gadgets will become more and more popular over the very long term, and that it pays to own the stocks of co's that have a time horizon of at least 2-3 years in which to exploit those trends. One such group is the chip-equipment makers such as Applied Materials (AMAT) and Cymer (CYMI), whose tools must be purchased by Intel (INTC) and other chip makers to keep their factories going whether or not the latest iPod sells well at Christmas. Chip-equipment stocks are up 6.3% on avg this year, slightly ahead of the S&P's 500 index's 5.2% rise. Bullish investors have started bidding up shares in order to get in on what could be a jump in equipment orders next year, writes JP Morgan chip-equipment analyst Jay Deahna in a note. But worries over consumer demand could yet cause chip makers to cancel equipment orders, which makes owning the stocks outright very tricky right now. A backup strategy is to sell put options on equipment makers, which yields a tidy premium upfront and positions investors to buy shares at prices below the current mkt price in the event the put is ever exercised. "We like to own co's that are dominant in the equipment mkt, regardless of what the chip sentiment is out there at the moment," says Kevin Landis, of Firsthand Funds. "Equipment stocks trade a lot on sentiment, but there's still a lot of unmet need for the technology they bring to chip makers."
"Inside Scoop" section reports that 3 execs at Thornburg Mortgage (TMA) have resumed building up their stakes after a nearly yearlong lull in insider buys at the co. Most notable is purchase by CEO Garrett Thornburg, who spent $2.2m for 93K shares. With his latest purchase Garrett Thornburg holds 1.3m shares, a 1.2% stake in the co. President and COO Larry A. Goldstone also bought 12K shares for $291K. The purchases by Garrett Thornburg and Goldstone are the largest in dollar value that either has made over the past 5 years, notes Jonathan Moreland, director of research at InsiderInsights.com, and bode well for the stock despite anxiety over the co's dividend warning. "I view the insider purchases as indicating that at the very least the double-digit indicated yield is sustainable," says Moreland.
Wednesday, September 13, 2006
Food for Thought: DreamWorks (NYSE:DWA)
Since DreamWorks Animation (DWA) came public in Oct'04, I have kept my eye on it. I have traded the stock couple of times (mostly being long), currently not holding, but planning to buy.
DreamWorks principally engages in developing and producing computer generated (CG) animated feature films. The co has theatrically released a total of 12 films. Most known, and successful, Shrek 2 and Madagascar were both the highest grossing animated films in the domestic box office in their respective years of release, and Shrek 2 remains the highest grossing animated film of all time in the domestic box office. The movie generated $556m in revs for DWA. DreamWorks is owned and run by entertainment heavyweights, including Steven Spielberg, Jeffrey Katzenberg and David Geffen. Also Jerry Seinfeldt is related, he wrote and stars in upcoming Bee Movie.
Unlike some of its competitors, the co has sustained a release slate of two CG films each year, with current schedule of: Flushed Away, Nov'06; Shrek 3, May'07; Bee Movie, Nov'07; Kung Fu Panda, May'08; Madagascar 2, 4Q08. In addition, the co has a number of projects in development that are expected to fill release schedule in '09 and beyond.
What's keeping shares down? Possible secondary offering by key shareholder Paul Allen, increased competition, inherent volatility of financial results, a lack of business diversification and general negativity among analysts, avg recommendation is Hold, with 14 analyst covering.
Investment thesis:
It seems like all negative is priced into the stock (down 25% since May'06) and expectations for upcoming movies are pretty low. Pixar's most recent movie called Cars was a disappointment at the box office, causing analyst cautiousness on Flushed Away. The Street expects Flushed Away to achieve at least $250-275m in revs at the box office, with some ests as low as $200m.
DreamWorks' mkt cap stands at 2,2bn, the co has $527m in cash as of June 30. The co could use this cash for a large buyback or issue a one time or yearly dividend. According to BofA, DWA could takeout most or all of Paul Allen's equity stake in DWA either through a negotiated transaction or an open mkt purchase. Thus offsetting "Paul Allen fear".
Consensus expects the co to achieve $1.78 EPS in '07. After offsetting debt (118M) and cash (527M), the mkt values co's operations at 1,8bn, or 9.2x '07 earnings. I believe that analysts will revisit their investment thesis before the release of Shrek 3 and will become more positive on the stock, causing a rally ahead release of the movie.
So, my recommendation is to buy the stock at current levels. Would sell the stock around $28 or just before release of Shrek 3.
DreamWorks principally engages in developing and producing computer generated (CG) animated feature films. The co has theatrically released a total of 12 films. Most known, and successful, Shrek 2 and Madagascar were both the highest grossing animated films in the domestic box office in their respective years of release, and Shrek 2 remains the highest grossing animated film of all time in the domestic box office. The movie generated $556m in revs for DWA. DreamWorks is owned and run by entertainment heavyweights, including Steven Spielberg, Jeffrey Katzenberg and David Geffen. Also Jerry Seinfeldt is related, he wrote and stars in upcoming Bee Movie.
Unlike some of its competitors, the co has sustained a release slate of two CG films each year, with current schedule of: Flushed Away, Nov'06; Shrek 3, May'07; Bee Movie, Nov'07; Kung Fu Panda, May'08; Madagascar 2, 4Q08. In addition, the co has a number of projects in development that are expected to fill release schedule in '09 and beyond.
What's keeping shares down? Possible secondary offering by key shareholder Paul Allen, increased competition, inherent volatility of financial results, a lack of business diversification and general negativity among analysts, avg recommendation is Hold, with 14 analyst covering.
Investment thesis:
It seems like all negative is priced into the stock (down 25% since May'06) and expectations for upcoming movies are pretty low. Pixar's most recent movie called Cars was a disappointment at the box office, causing analyst cautiousness on Flushed Away. The Street expects Flushed Away to achieve at least $250-275m in revs at the box office, with some ests as low as $200m.
DreamWorks' mkt cap stands at 2,2bn, the co has $527m in cash as of June 30. The co could use this cash for a large buyback or issue a one time or yearly dividend. According to BofA, DWA could takeout most or all of Paul Allen's equity stake in DWA either through a negotiated transaction or an open mkt purchase. Thus offsetting "Paul Allen fear".
Consensus expects the co to achieve $1.78 EPS in '07. After offsetting debt (118M) and cash (527M), the mkt values co's operations at 1,8bn, or 9.2x '07 earnings. I believe that analysts will revisit their investment thesis before the release of Shrek 3 and will become more positive on the stock, causing a rally ahead release of the movie.
So, my recommendation is to buy the stock at current levels. Would sell the stock around $28 or just before release of Shrek 3.
Calls of Note Part 6
- Goldman Sachs is out on Federated (NYSE:FD) telling investors to buy the stock ahead of a potentially big beat.
Firm estimates incremental advertising could add at least 50-150 basis points to comps in September. Federated's aggressive advertising campaign was rolled out last week to re-launch its Macy's brand. On September 9th, over 400 stores were converted to the Macy's nameplate from a whole host of regional May department stores. Across these converted doors, the firm estimates that May spent approximately $53 million in advertising in September 2005 - a conservative estimate for the incremental benefit accruing to Federated in the month.
They believe there is upside to management's raised 3Q same store sales guidance of 3-5% (from previous 2-4%) and especially to firm's 3% estimate based on the following. As a result, they see upside to their 3QFY2006E EPS of $0.22, above management's $0.15-$0.20 guidance.
Firm is maintaining otheir $48 one year price target based on their 3-tiered valuation framework (best/worst case, CROCI, DCF) which is equal to 12.8x fiscal 2008E EPS of $3.75.
Notablecalls: Nice conviction, guys! Too bad it's too late. Watch these comments set up a short sell oppy. The stock will shoot up and then the buy-side will cash in their chips. Btw, Mother Merrill was out on retailers late last night saying the sector is overbought.
Firm estimates incremental advertising could add at least 50-150 basis points to comps in September. Federated's aggressive advertising campaign was rolled out last week to re-launch its Macy's brand. On September 9th, over 400 stores were converted to the Macy's nameplate from a whole host of regional May department stores. Across these converted doors, the firm estimates that May spent approximately $53 million in advertising in September 2005 - a conservative estimate for the incremental benefit accruing to Federated in the month.
They believe there is upside to management's raised 3Q same store sales guidance of 3-5% (from previous 2-4%) and especially to firm's 3% estimate based on the following. As a result, they see upside to their 3QFY2006E EPS of $0.22, above management's $0.15-$0.20 guidance.
Firm is maintaining otheir $48 one year price target based on their 3-tiered valuation framework (best/worst case, CROCI, DCF) which is equal to 12.8x fiscal 2008E EPS of $3.75.
Notablecalls: Nice conviction, guys! Too bad it's too late. Watch these comments set up a short sell oppy. The stock will shoot up and then the buy-side will cash in their chips. Btw, Mother Merrill was out on retailers late last night saying the sector is overbought.
Calls of Note Part 5
- RBC Capital has come cautious comments on couple of recreational product stocks:
Firm notes they regard Winnebago (NYSE:WGO) as one of the best-managed companies in their coverage and the superior operator in the motorhome category. WGO offers relative stability when market conditions are challenging.
In the near term, however, they are concerned that business trends are weaker than Street estimates reflect. Analysts are forecasting a fairly strong recovery year in FY-07 (ends August), with EPS growth in the 30% range. This seems unlikely, in firm's view, as a turn in business is not expected until the second half of FY-07 at the earliest. Firm is fine-tuning their model, but leaving estimates unchanged. FY-07 estimate of $1.76, which is low on the Street and $0.15 below consensus, reflects an optimistic scenario. They also believe estimates for Winnebago's Q4 (ended August) could be on the aggressive side.
Because WGO shares have held up well during this downturn, shares appear relatively expensive on a valuation basis. The stock trades at above average multiple on both earnings and price-to-sales.
Tgt goes to $30 from $32. Maintains Sector Perform.
Brunswick Corporation (NYSE:BC) is one of firm's best long-term ideas and is well below its
intrinsic value. However, they question whether investors will recognize this value at this stage of the cycle. While a three-year investor can comfortably buy BC shares today, in firm's opinion, they believe investors with a 6-12 month time horizon should let the numbers shake out first. Given dealers' low appetite for inventory, they think Brunswick will need to maintain low levels of production into 2007. To better reflect this view, they are lowering 2007 estimate to $2.35 from $2.65. Firm's revised forecast compares to consensus of $2.51.
Maintains $33 tgt and Sector Perform rating.
Notablecalls: “Just when I thought I was out…they pulled me back in!” Both BC and WGO looked like they were forming a bottom. And now RBC comes out and kills the process. I'm not going to call this one actionable but it's going to cap the upside in these stocks.
Firm notes they regard Winnebago (NYSE:WGO) as one of the best-managed companies in their coverage and the superior operator in the motorhome category. WGO offers relative stability when market conditions are challenging.
In the near term, however, they are concerned that business trends are weaker than Street estimates reflect. Analysts are forecasting a fairly strong recovery year in FY-07 (ends August), with EPS growth in the 30% range. This seems unlikely, in firm's view, as a turn in business is not expected until the second half of FY-07 at the earliest. Firm is fine-tuning their model, but leaving estimates unchanged. FY-07 estimate of $1.76, which is low on the Street and $0.15 below consensus, reflects an optimistic scenario. They also believe estimates for Winnebago's Q4 (ended August) could be on the aggressive side.
Because WGO shares have held up well during this downturn, shares appear relatively expensive on a valuation basis. The stock trades at above average multiple on both earnings and price-to-sales.
Tgt goes to $30 from $32. Maintains Sector Perform.
Brunswick Corporation (NYSE:BC) is one of firm's best long-term ideas and is well below its
intrinsic value. However, they question whether investors will recognize this value at this stage of the cycle. While a three-year investor can comfortably buy BC shares today, in firm's opinion, they believe investors with a 6-12 month time horizon should let the numbers shake out first. Given dealers' low appetite for inventory, they think Brunswick will need to maintain low levels of production into 2007. To better reflect this view, they are lowering 2007 estimate to $2.35 from $2.65. Firm's revised forecast compares to consensus of $2.51.
Maintains $33 tgt and Sector Perform rating.
Notablecalls: “Just when I thought I was out…they pulled me back in!” Both BC and WGO looked like they were forming a bottom. And now RBC comes out and kills the process. I'm not going to call this one actionable but it's going to cap the upside in these stocks.
Paperstand 2
The NY Post reports that the New York Board of Trade is close to merging with the InterContinental Exchange (ICE) in a deal that could value the downtown commodities mkt at roughly $1bn. The deal would give Nybot's 967 seat-owners roughly $618K in cash and $412K worth of ICE's stock. One Nybot member who owns several seats on the exchange said the $1bn figure would probably not be enough to assuage seatholders. But with the commodities mkts in a downward spiral, Nybot has to act fast to secure a deal before buyers start getting cold feet, said several investment bankers. "They are selling right at the peak of the mkt, but that may not last for long," said one banker not involved in the deal.
Calls of Note Part 4
- UBS has some VERY interesting comments on Micron (NYSE:MU).
Firm notes they spoke with Micron Investor Relations yesterday and came away incrementally
less enthusiastic than they had been previously on the name. Firm's concerns surround the company downplaying flexibility and opportunity in DRAM product areas where pricing continues along its considerable strengthening trend. The company also sounded incrementally less upbeat on NAND prospects given the exaggerated levels of pricing declines seen over the course of the year. While it is not new that NAND pricing has been under pressure, the firm would have thought Micron's new capacity coming online would have made for a more favorable assessment of pending quarter prospects rather than the downplaying they received. Micron noted that DRAM strengthening came too late to have any meaningful impact on August quarter results (no conference call date set yet), and there has been little room to grow bit output given resource allocation shifts. Looking forward to the November quarter, 5-10% bit growth in DRAM with 10% plus ASP appreciation seems achievable. Net, these comments are driving no change to their model at present, and the firm finds themselves wondering how long the market will be willing to wait for Micron to start realizing some of the better growth potential inherent in its end markets.
Notablecalls: Actionable note alert! I found these comments buried deep in a note commenting on AAPL's new products. I have been a MU bull for the past couple of months and these comments coming from co's IR departement strike me as VERY surprising. The stock has been very strong on expectations of a strong quarter. Now that will change. MU just became a short.
Firm notes they spoke with Micron Investor Relations yesterday and came away incrementally
less enthusiastic than they had been previously on the name. Firm's concerns surround the company downplaying flexibility and opportunity in DRAM product areas where pricing continues along its considerable strengthening trend. The company also sounded incrementally less upbeat on NAND prospects given the exaggerated levels of pricing declines seen over the course of the year. While it is not new that NAND pricing has been under pressure, the firm would have thought Micron's new capacity coming online would have made for a more favorable assessment of pending quarter prospects rather than the downplaying they received. Micron noted that DRAM strengthening came too late to have any meaningful impact on August quarter results (no conference call date set yet), and there has been little room to grow bit output given resource allocation shifts. Looking forward to the November quarter, 5-10% bit growth in DRAM with 10% plus ASP appreciation seems achievable. Net, these comments are driving no change to their model at present, and the firm finds themselves wondering how long the market will be willing to wait for Micron to start realizing some of the better growth potential inherent in its end markets.
Notablecalls: Actionable note alert! I found these comments buried deep in a note commenting on AAPL's new products. I have been a MU bull for the past couple of months and these comments coming from co's IR departement strike me as VERY surprising. The stock has been very strong on expectations of a strong quarter. Now that will change. MU just became a short.
Calls of Note Part 3
- JP Morgan comments on Qualcomm (NASDAQ:QCOM) noting India reported August wireless sub numbers, finalized this week, with net additions rising for the fourth consecutive month driven both by strong CDMA and GSM adds. India added a record 5.903M total subs in August
(excluding CDMA additions for state-owned MTNL and BSNL, which do not report monthly CDMA nos), up 9.5% from 5.391M adds in July and 49.3% above 3.953M in Apr, the last month to register a sequential decline in net adds.
India August CDMA net adds rebounded 16.2% m/m to 1.698M - the highest month ever - from an 11.9% decline to 1.461M in July and 1.023M in the Apr trough. GSM August net adds climbed a healthy but lagging 7.0% to a record 4.205M, resulting in a jump in CDMA's share of total India net adds to 28.8% in August from 27.1% in July, though this is still well below June's 34.2% share and roughly inline with the 28.2% YTD average.
All-in, the August figures out of India suggest quite robust end demand for handsets overall, and though rhetoric from Reliance continues to suggest the potential for increased emphasis on GSM at the expense of CDMA, CDMA continues to hold 28-30% Indian market share in the near-term.
Reiterate Neutrals. Despite healthy, although not accelerating, end-user demand for both CDMA and WCDMA handsets, QCOM's legal, contractual and regulatory hurdles continue to multiply across numerous fronts, chief of which, they believe, should be its contract negotiations with Nokia followed by the 6-party complaint brought to the European Commission. Unless and until the firm sees a positive resolution to the Nokia contract renewal issue, they remain Neutral.
Notablecalls: Not actionable but good to know category. Must say it surprising to see QCOM trade 20x 2007 EPS.
(excluding CDMA additions for state-owned MTNL and BSNL, which do not report monthly CDMA nos), up 9.5% from 5.391M adds in July and 49.3% above 3.953M in Apr, the last month to register a sequential decline in net adds.
India August CDMA net adds rebounded 16.2% m/m to 1.698M - the highest month ever - from an 11.9% decline to 1.461M in July and 1.023M in the Apr trough. GSM August net adds climbed a healthy but lagging 7.0% to a record 4.205M, resulting in a jump in CDMA's share of total India net adds to 28.8% in August from 27.1% in July, though this is still well below June's 34.2% share and roughly inline with the 28.2% YTD average.
All-in, the August figures out of India suggest quite robust end demand for handsets overall, and though rhetoric from Reliance continues to suggest the potential for increased emphasis on GSM at the expense of CDMA, CDMA continues to hold 28-30% Indian market share in the near-term.
Reiterate Neutrals. Despite healthy, although not accelerating, end-user demand for both CDMA and WCDMA handsets, QCOM's legal, contractual and regulatory hurdles continue to multiply across numerous fronts, chief of which, they believe, should be its contract negotiations with Nokia followed by the 6-party complaint brought to the European Commission. Unless and until the firm sees a positive resolution to the Nokia contract renewal issue, they remain Neutral.
Notablecalls: Not actionable but good to know category. Must say it surprising to see QCOM trade 20x 2007 EPS.
Calls of Note Part 2
- Merrill Lynch notes that a review of Open Text's (NASDAQ:OTEX) 10-K filing last night revealed an ongoing SEC review of its Annual Report and 10-K for FY05 and 10-Qs for the first three quarters of FY06 related to its method of accounting for acquisition related costs. The lack of detail and context of the disclosure are likely to resurrect investor concerns over lack of transparency given Open Text's acquisitive history.
The Hummingbird shareholder vote is September 15th, and despite management optimism, they continue to have concerns about the scale and scope as well as lack of clarity on integration plans. The deal introduces risk of unanticipated challenges that could easily upset the tenuous operational stability realized through painful retrenchment throughout FY06.
For now they remain sellers of the stock pending comfort into the viability of plans to integrate Hummingbird as well as evidence that the shift to partnership model is successfully offsetting declines in more mature product lines. Given recent strength in the stock, the specter of an SEC investigation could impair potential takeout prospects and further undermine investor confidence.
Maintains Sell rating.
Notablecalls: OTEX stock has had a nice run lately. It started about 10 days after Merrill switched their rating to Sell (July 6). That was about 20% below current levels. Anyway, I think Merrill's findings will cause some downside volatility. Hope it won't gap down huge allowing for a nice short entry.
The Hummingbird shareholder vote is September 15th, and despite management optimism, they continue to have concerns about the scale and scope as well as lack of clarity on integration plans. The deal introduces risk of unanticipated challenges that could easily upset the tenuous operational stability realized through painful retrenchment throughout FY06.
For now they remain sellers of the stock pending comfort into the viability of plans to integrate Hummingbird as well as evidence that the shift to partnership model is successfully offsetting declines in more mature product lines. Given recent strength in the stock, the specter of an SEC investigation could impair potential takeout prospects and further undermine investor confidence.
Maintains Sell rating.
Notablecalls: OTEX stock has had a nice run lately. It started about 10 days after Merrill switched their rating to Sell (July 6). That was about 20% below current levels. Anyway, I think Merrill's findings will cause some downside volatility. Hope it won't gap down huge allowing for a nice short entry.
Paperstand
The WSJ's "Ahead of the Tape" column suggests that now might be the time to own retailers. With gasoline prices in retreat, low-income consumers will have a little more to spend. In its weekly report on gasoline prices yesterday, the EIA reported that a gallon of regular now avgs $2.62 nationally, down 14% from the peak level. And with wholesale gasoline prices down more than a third from their August highs, it looks like prices at the pump will be slipping even more in the weeks to come. B/c there is little cushion between their paychecks and their daily spending needs, high gasoline prices tend to hurt lower-income Americans, and the retailers that cater to them, much more than the well-to-do. ICSC economist Mike Niemira ests that, all else being equal, each 10% rise in gasoline prices reduces Wal-Mart Stores' (WMT) sales by 0.9% vs a 0.4% decline for overall chain-store sales. The gas squeeze was so intense earlier this year that Wal-Mart noted more and more of its sales were clustering around the first and 15th of each month, when its customers' paychecks came in. Now, with gas prices dropping, relief could be on the way for the have-nots.
The WSJ reports that insider stock purchases are piling up at U-Store-It Trust (YSI). President and CEO Dean Jernigan reported last week loading up with a purchase of 195K more shares of the co. Mr. Jernigan's latest transaction comes on top of other sizable stock purchases by him and other co insiders since late May, when shares of U-Store-It reached a 52-w low. "The co is poised to do exceedingly well, I think, in the near term," Mr. Jernigan said. "You know the old saying, 'Action speaks louder than words.' Those are actions to let our shareholders have some comfort that I believe what I'm telling them."
Barron's Online highlights Marsh & McLennan (MMC), saying that bargain hunters should beware. Marsh may not look that expensive on a P/E basis, but it could take a year or more for CEO Michael Cherkasky to take the steps necessary to improve the stock price, including righting the brokerage business, drawing investor cash into Putnam, and building credibility with the Street. "[Cherkasky] didn't give you any comfort that they are getting the job done," said Todd Lowenstein, of HighMark Value Momentum Fund. "We would encourage a breakup. I think Putnam should be spun off."
"Inside Scoop" section reports that Ayasli Children LLC, a trust set up by the children of Hittite Microwaves (HITT) founder Yalcin Ayasli sold 84K shares of the co stock for $3.8m. The selling is the first by the trust since Hittite went public in Jul'05 and follows a string of trading-plan-related selling by the elder Ayasli. Ben Silverman, of InsiderScore.com, says that the selling is "not all that disconcerting," and that it is important to note that as its founding family, Yalcin Ayasli and his children own the bulk of Hittite's shares.
Calls of Note Part 1
- After going through the broker chatter following Apple's (NASDAQ:AAPL) new product announcements, I think Merrill Lynch's note sums it up best:
Merill thinks the improvements to the iPod line, though incremental, are enough to keep Apple's devices ahead of competitors in feature-adjusted price/performance in the intermediate term. Apple did not announce a full-screen touchless interface iPod, nor WiFi support for iPods, which may be disappointing to some investors with more aggressive expectations, though the firm expects these innovations to emerge in coming quarters. As expected, there was no iPhone announcement, though they continue to expect it by C2Q07. The preview of the coming iTV media hub (available 1Q07) and addition of movies to iTunes make the portfolio more complete and increase the probability consumers may chose Apple as the media management device standard.
They are raising their price objective from $72 to $88 on higher estimates and on view that the combination of existing and coming products is likely to create earnings power in excess of $4.00. For instance, they estimate each point of mobile phone market share could drive about $0.35 NOPAT/share. If Apple were to achieve mobile phone share equal to its PC share, it could eventually add more than $0.90 to the run-rate of consensus estimates of approximately $3.09 in F2008.
Firm is raising their F2008 EPS estimate from $3.17 to $3.54 to reflect one point of share in mobile phones, net of iPod cannibalization. Maintains Buy.
Notablecalls: AAPL stock was among the laggards yesterday as there had been too much hot money chasing it higher ahead of the event. Just as JP Morgan noted yesterday, AAPL has several qtrs of upward EPS revisions ahead of it. I don't have a clear view of what the stock will do in the very s-t but I suspect it will move higher in the coming weeks.
Merill thinks the improvements to the iPod line, though incremental, are enough to keep Apple's devices ahead of competitors in feature-adjusted price/performance in the intermediate term. Apple did not announce a full-screen touchless interface iPod, nor WiFi support for iPods, which may be disappointing to some investors with more aggressive expectations, though the firm expects these innovations to emerge in coming quarters. As expected, there was no iPhone announcement, though they continue to expect it by C2Q07. The preview of the coming iTV media hub (available 1Q07) and addition of movies to iTunes make the portfolio more complete and increase the probability consumers may chose Apple as the media management device standard.
They are raising their price objective from $72 to $88 on higher estimates and on view that the combination of existing and coming products is likely to create earnings power in excess of $4.00. For instance, they estimate each point of mobile phone market share could drive about $0.35 NOPAT/share. If Apple were to achieve mobile phone share equal to its PC share, it could eventually add more than $0.90 to the run-rate of consensus estimates of approximately $3.09 in F2008.
Firm is raising their F2008 EPS estimate from $3.17 to $3.54 to reflect one point of share in mobile phones, net of iPod cannibalization. Maintains Buy.
Notablecalls: AAPL stock was among the laggards yesterday as there had been too much hot money chasing it higher ahead of the event. Just as JP Morgan noted yesterday, AAPL has several qtrs of upward EPS revisions ahead of it. I don't have a clear view of what the stock will do in the very s-t but I suspect it will move higher in the coming weeks.
Tuesday, September 12, 2006
Color on quarter: Texas Instruments (NYSE:TXN)
- Nothing too drastic was revealed in Texas Instruments' (NYSE:TXN) mid-quarter report. After going through the broker chatter this morning I think the note from JP Morgan sums it up best:
Firm notes TI provided an update on the first two months of its 3Q06. As they expected, the company maintained its previous 3Q06 revenue and EPS guidance and narrowed its revenue guidance from a range of $3.63 billion to $3.95 billion, (down 2% to up 7% QoQ) to $3.71 billion to $3.87 billion (flat to up 5% QoQ) and narrowed EPS guidance from a range of $0.42 to $0.48 to a range of $0.44 to $0.46.
TI stated its Analog (37% of 2Q06 revenue) and DLP (6% of 2Q06 revenue) products are exhibiting strength while its wireless business (32% of 2Q06 revenue) is experiencing below-seasonal order trends.
The company stated its book to bill is dropping, which the firm believes is a pre-cursor to an inventory correction since the last time TI's book to bill was below 1.0 was mid-2004, during the last inventory correction. They believe TI should begin to experience cancellations and push-outs before the end of year and result in estimate cuts, which is when they firm could revisit their rating and become more positive.
Notes National Semiconductor (NYSE:NSM), one of TI's largest competitors, lowered expectations last week partially due to an inventory build at distribution. Firm continues to believe the semiconductor industry has too much inventory as YoY unit growth (ex-discretes) was 22% in the recent SIA July sales data, roughly twice the normal YoY unit growth of 10%, clearly indicative of an inventory build.
They are maintaining their C06 and C07 revenue and EPS estimates.
TXN is trading at 17X C07 EPS estimate of $1.88, the lower half of its historical range of 10X-30X NTM EPS. Despite ranking of TI as one of the most attractive stocks for the long term, the firm believes fundamentals and margins for TI have peaked and order rates should decline during 2H06 leading to a reduction in sales and earnings estimates. As a result, they reiterate Neutral rating on the stock.
Notablecalls: The path of least resistance in TXN's case is surely down.
Firm notes TI provided an update on the first two months of its 3Q06. As they expected, the company maintained its previous 3Q06 revenue and EPS guidance and narrowed its revenue guidance from a range of $3.63 billion to $3.95 billion, (down 2% to up 7% QoQ) to $3.71 billion to $3.87 billion (flat to up 5% QoQ) and narrowed EPS guidance from a range of $0.42 to $0.48 to a range of $0.44 to $0.46.
TI stated its Analog (37% of 2Q06 revenue) and DLP (6% of 2Q06 revenue) products are exhibiting strength while its wireless business (32% of 2Q06 revenue) is experiencing below-seasonal order trends.
The company stated its book to bill is dropping, which the firm believes is a pre-cursor to an inventory correction since the last time TI's book to bill was below 1.0 was mid-2004, during the last inventory correction. They believe TI should begin to experience cancellations and push-outs before the end of year and result in estimate cuts, which is when they firm could revisit their rating and become more positive.
Notes National Semiconductor (NYSE:NSM), one of TI's largest competitors, lowered expectations last week partially due to an inventory build at distribution. Firm continues to believe the semiconductor industry has too much inventory as YoY unit growth (ex-discretes) was 22% in the recent SIA July sales data, roughly twice the normal YoY unit growth of 10%, clearly indicative of an inventory build.
They are maintaining their C06 and C07 revenue and EPS estimates.
TXN is trading at 17X C07 EPS estimate of $1.88, the lower half of its historical range of 10X-30X NTM EPS. Despite ranking of TI as one of the most attractive stocks for the long term, the firm believes fundamentals and margins for TI have peaked and order rates should decline during 2H06 leading to a reduction in sales and earnings estimates. As a result, they reiterate Neutral rating on the stock.
Notablecalls: The path of least resistance in TXN's case is surely down.
Calls of Note Part 2
- Morgan Stanley continues to be positive on Apple (NASDAQ:AAPL) saying they've long maintained that product portfolio opportunities (from Mac to music to video and related software/accessories) are key reasons to own AAPL shares. Firm expects today's product announcement to highlight new video-related products that extend Apple's customer reach and share of wallet. Apple's core Mac portfolio also continued to take share in August. AAPL remains their top pick into year-end.
NPD weekly POS data and proprietary channel checks point to strong consumer Mac sell-through in August. Specifically, Apple accelerated revenue growth for both consumer notebooks and desktops in the month of August. Consumer-based Mac inventory appears flushed out post the back-to-school season - another indication of strong demand.
US retail and commercial distribution data points to 29% YoY Mac Revenue growth compared to firm's current 21% YoY estimate. Every 5 points of incremental Mac revenue growth translates to $0.02-0.03 EPS.
With continued Mac momentum and new products launched today, firm continues to view upward revisions as likely over the next two quarters. Maintains Overweight.
Notablecalls: I continue to maintain the view that AAPL stock will experience some upside over the coming weeks.
NPD weekly POS data and proprietary channel checks point to strong consumer Mac sell-through in August. Specifically, Apple accelerated revenue growth for both consumer notebooks and desktops in the month of August. Consumer-based Mac inventory appears flushed out post the back-to-school season - another indication of strong demand.
US retail and commercial distribution data points to 29% YoY Mac Revenue growth compared to firm's current 21% YoY estimate. Every 5 points of incremental Mac revenue growth translates to $0.02-0.03 EPS.
With continued Mac momentum and new products launched today, firm continues to view upward revisions as likely over the next two quarters. Maintains Overweight.
Notablecalls: I continue to maintain the view that AAPL stock will experience some upside over the coming weeks.
Calls of Note Part 1
Couple of firms are today with cautious comments on Casinos and especially HET:
- Merrill Lynch is lowering their ests on Harrah's Entertainment (NYSE:HET). Firm's estimate for 3Q goes from $1.02 to $0.97 and their estimate for 2006 from $3.51 to $3.45. The primary driver of this reduction is a more competitive promotional environment in Atlantic City.
Firm notes that for the first two months of the quarter, revenue at Harrah's A.C. portfolio has decreased -2.3% versus their estimate of +2%. However, the real news appears to be the potential for margin deterioration owing to increased competition from the recently expanded Borgata; accordingly, they lowered their blended EBITDA margin for Harrah's A.C. portfolio from 35.0% to 33.5%.
After a challenging July, where most riverboat markets generally came in below plan, August results were clearly better with most of Harrah's properties generating revenue slightly better than firm's projections. However, they note that the quarter will be aided by a temporary casino that opened on the Gulf Coast and the ongoing performance of the New Orleans land-based casino.
Valued at an EV/2007E EBITDA multiple of 8.6x, they find HET fairly valued. Maintains Neutral rating.
- Thomas Weisel Partners notes Atlantic City win rebounded in August, but their analysis suggests that performance at BYD's Borgata and for HET could be tracking light. Results in other markets for the two appear to be on target. Firm is OK with estimates, but does see modest downside risk.
At HET win rose 1% in August and fell 2% quarter to date. The current trajectory puts HET on track to hit $560mn for the quarter versus firm's estimate of $571mn and each $5mn would affect EPS by $0.02 (3Q EPS: TWP estimate $1.04, consensus $1.03), all else being equal. Firm's sum-of-the-parts analysis for HET yields a current fair value of $78-81. Maintains Outperform.
Notablecalls: Bear Stearns commented on HET yesterday trimming their 3Q06 EPS to $0.95 from $1.01 to account for lower EBITDA from its Atlantic City properties (due to lower margins). Firm's 4Q06 and full year 2007 EPS are unchanged. Firm believes that the market has become excessively promotional (they think largely due to the competitive pressures stemming from Borgata's public space expansion) as some operators reported high levels of comping that were not seen since Borgata opened in Summer 2003.
Would not be surprised to see some additional weakness in HET over the next couple of weeks.
- Merrill Lynch is lowering their ests on Harrah's Entertainment (NYSE:HET). Firm's estimate for 3Q goes from $1.02 to $0.97 and their estimate for 2006 from $3.51 to $3.45. The primary driver of this reduction is a more competitive promotional environment in Atlantic City.
Firm notes that for the first two months of the quarter, revenue at Harrah's A.C. portfolio has decreased -2.3% versus their estimate of +2%. However, the real news appears to be the potential for margin deterioration owing to increased competition from the recently expanded Borgata; accordingly, they lowered their blended EBITDA margin for Harrah's A.C. portfolio from 35.0% to 33.5%.
After a challenging July, where most riverboat markets generally came in below plan, August results were clearly better with most of Harrah's properties generating revenue slightly better than firm's projections. However, they note that the quarter will be aided by a temporary casino that opened on the Gulf Coast and the ongoing performance of the New Orleans land-based casino.
Valued at an EV/2007E EBITDA multiple of 8.6x, they find HET fairly valued. Maintains Neutral rating.
- Thomas Weisel Partners notes Atlantic City win rebounded in August, but their analysis suggests that performance at BYD's Borgata and for HET could be tracking light. Results in other markets for the two appear to be on target. Firm is OK with estimates, but does see modest downside risk.
At HET win rose 1% in August and fell 2% quarter to date. The current trajectory puts HET on track to hit $560mn for the quarter versus firm's estimate of $571mn and each $5mn would affect EPS by $0.02 (3Q EPS: TWP estimate $1.04, consensus $1.03), all else being equal. Firm's sum-of-the-parts analysis for HET yields a current fair value of $78-81. Maintains Outperform.
Notablecalls: Bear Stearns commented on HET yesterday trimming their 3Q06 EPS to $0.95 from $1.01 to account for lower EBITDA from its Atlantic City properties (due to lower margins). Firm's 4Q06 and full year 2007 EPS are unchanged. Firm believes that the market has become excessively promotional (they think largely due to the competitive pressures stemming from Borgata's public space expansion) as some operators reported high levels of comping that were not seen since Borgata opened in Summer 2003.
Would not be surprised to see some additional weakness in HET over the next couple of weeks.
Paperstand
The WSJ's "Heard on the Street" column discusses Avis Budget (CAR), saying that some debt investors are betting it may follow the road taken by rival Hertz. That co was bought out late last year by private-equity investors. But Avis says it isn't headed that way. Avis has a few traits buyout firms typically find appealing: The shares look inexpensive, the co doesn't carry much debt and the business generates steady cash flow. The shares have plunged 25% since the start of August. The co has paid down much of the former Cendant's old debt, potentially creating room to add debt to finance a buyout, an acquisition or a shareholder-friendly activity like share buybacks or new dividends. Added to the mix is the presence of billionaire financier Carl Icahn, known for pushing firms to improve returns for shareholders. He disclosed last month that his stake in the co more than doubled to about 0.6%, or nearly $100m worth of shares at the end of June. "Avis is ripe for a buyout," said Frank Lee, of CreditSights. He adds that he doesn't think Mr. Icahn would have bought the shares if the financier didn't envision a shakeup of some kind at Avis.
"Tracking the Numbers" column highlights Shanda Interactive (SNDA), which in Nov'05 dropped a bomb: It was changing the business model for its cash-cow "massive multiplayer online role-playing games" from collecting rev through hourly or monthly fees to a "free to play" system. Under the new model, users join for free but pay to enhance their online-game experience with special weapons and accessories, a little like luxury goods for the virtual world. It was slow to catch on, and in this year's Q1, Shanda's net income plunged 95%, with rev down 31%. But lately, that business model, borrowed from S-Korea's hypercompetitive games mkt, has fared far better than expected. Shanda's Q2 net income was 10x as high as that of the Q1. Online-game rev rose 21%. It turns out that Chinese game players weren't satisfied with just one basic virtual sword. Some spent as much as 1K yuan a day to dominate games. Shanda CEO Chen Tianqiao has lashed out at Wall St. analysts he says he believes don't understand the Chinese mkt. Western investors and analysts, Shanda says, didn't appreciate how Chinese Internet users would like upgrading their online lives. "Players have a greater time enjoying the interactive communication more than the game itself," says Shanda spokesman Zhuge Hui. It has worked in S-Korea, too, where 2/3 of the top 30 online role-playing games use a similar model. According to iResearch, annual gains in the number of online gamers in China will slow to 10% in 2010 from an estd 38% this year. William Bao Bean, of Deutsche Bank, was skeptical of the free-to-play business model and admits he still isn't sure why it is working. But last month, he upgraded Shanda stock to Buy from Hold, with price tgt of $19.
Barrons' "Insider Scoop" section highlights H-P (HPQ), suggesting that it may be time for investors to capture some profits considering heavy selling by the tech giant's top execs. Eight senior execs and one director grossed a total of nearly $45.8m by selling about 1.3m H-P shares nearly all acquired through options over the past 90 days. "H-P is a huge elephant outperforming the mkt almost like a nimble small cap," says Mark LoPresti, of Thomson Financial, pointing to momentum behind the stock despite investigations into the legality of the probe initiated by H-P Chmn Patricia Dunn. Strictly from an insider perspective, he says that "as an investor following insiders you may want to take their lead and maybe now is the time to trim your stake or start tightening the stops."
"Tracking the Numbers" column highlights Shanda Interactive (SNDA), which in Nov'05 dropped a bomb: It was changing the business model for its cash-cow "massive multiplayer online role-playing games" from collecting rev through hourly or monthly fees to a "free to play" system. Under the new model, users join for free but pay to enhance their online-game experience with special weapons and accessories, a little like luxury goods for the virtual world. It was slow to catch on, and in this year's Q1, Shanda's net income plunged 95%, with rev down 31%. But lately, that business model, borrowed from S-Korea's hypercompetitive games mkt, has fared far better than expected. Shanda's Q2 net income was 10x as high as that of the Q1. Online-game rev rose 21%. It turns out that Chinese game players weren't satisfied with just one basic virtual sword. Some spent as much as 1K yuan a day to dominate games. Shanda CEO Chen Tianqiao has lashed out at Wall St. analysts he says he believes don't understand the Chinese mkt. Western investors and analysts, Shanda says, didn't appreciate how Chinese Internet users would like upgrading their online lives. "Players have a greater time enjoying the interactive communication more than the game itself," says Shanda spokesman Zhuge Hui. It has worked in S-Korea, too, where 2/3 of the top 30 online role-playing games use a similar model. According to iResearch, annual gains in the number of online gamers in China will slow to 10% in 2010 from an estd 38% this year. William Bao Bean, of Deutsche Bank, was skeptical of the free-to-play business model and admits he still isn't sure why it is working. But last month, he upgraded Shanda stock to Buy from Hold, with price tgt of $19.
Barrons' "Insider Scoop" section highlights H-P (HPQ), suggesting that it may be time for investors to capture some profits considering heavy selling by the tech giant's top execs. Eight senior execs and one director grossed a total of nearly $45.8m by selling about 1.3m H-P shares nearly all acquired through options over the past 90 days. "H-P is a huge elephant outperforming the mkt almost like a nimble small cap," says Mark LoPresti, of Thomson Financial, pointing to momentum behind the stock despite investigations into the legality of the probe initiated by H-P Chmn Patricia Dunn. Strictly from an insider perspective, he says that "as an investor following insiders you may want to take their lead and maybe now is the time to trim your stake or start tightening the stops."
Monday, September 11, 2006
Calls of Note Part 7
- CIBC notes that reflecting on their recent visit to China, they are incrementally negative on online gaming sector. Overall, the firm believes a busy calendar of new titles, emergence of free-to-play games, rising levels of promotional spending, and higher talent costs could result in lower margins and returns on capital.
They expect regulatory risks to increase near term with the potential launch of the Real Name system, slower approvals for foreign titles, and new policies curbing addictive or improper content. That said, the market is not zero sum and should grow w/more home users & emerging revenue models.
Despite these concerns, they remain bullish on NCTY as they believe they have the most attractive pipeline which could lead to upward revisions in '07. Short term, NCTY may be range bound as growth of World of Warcraft moderates in advance of the Burning Crusades expansion pack in 1H'07.
Although SNDA's outlook has improved, shares are likely to remain range bound in mid-teens, as a sustainable move is unlikely given expectations of low ARPU growth and margin pressures. In firm's opinion, NTES is the most vulnerable due to gaps in game pipeline, partly offset by $100M buybacks.
Notablecalls: Remember the cautious comments from Goldman on NTES couple of weeks back? I suspect NTES will keep rolling over.
They expect regulatory risks to increase near term with the potential launch of the Real Name system, slower approvals for foreign titles, and new policies curbing addictive or improper content. That said, the market is not zero sum and should grow w/more home users & emerging revenue models.
Despite these concerns, they remain bullish on NCTY as they believe they have the most attractive pipeline which could lead to upward revisions in '07. Short term, NCTY may be range bound as growth of World of Warcraft moderates in advance of the Burning Crusades expansion pack in 1H'07.
Although SNDA's outlook has improved, shares are likely to remain range bound in mid-teens, as a sustainable move is unlikely given expectations of low ARPU growth and margin pressures. In firm's opinion, NTES is the most vulnerable due to gaps in game pipeline, partly offset by $100M buybacks.
Notablecalls: Remember the cautious comments from Goldman on NTES couple of weeks back? I suspect NTES will keep rolling over.
Calls of Note Part 6
- First Albany expects Atheros Communications (NASDAQ:ATHR) to post a strong quarter and provide strong guidance on the back of a strong PC market and market share gains in 802.11g. While 802.11n and the PAS markets will likely be down in 3Q, the weakness is reflected in firm's model and guidance. They expect business to accelerate in 4Q on the back of strong
seasonality and increasing PAS penetration.
Firm believes it is clear from their checks that the 802.11 market will be strong this quarter, and expect 802.11 units to grow 12% to 15% in 3Q and dollar revenue to increase 9% to 12%, as pricing has remained relatively benign with low signal digit sequential price declines.
ATHR is currently trading at $15.35, or at 2.2x CY06 enterprise value to sales and at 1.8x CY07 estimates. Historically, the shares have bottomed at roughly 2x EV to sales.
Notablecalls: Would not be surprised to see a bit out of bounce.
seasonality and increasing PAS penetration.
Firm believes it is clear from their checks that the 802.11 market will be strong this quarter, and expect 802.11 units to grow 12% to 15% in 3Q and dollar revenue to increase 9% to 12%, as pricing has remained relatively benign with low signal digit sequential price declines.
ATHR is currently trading at $15.35, or at 2.2x CY06 enterprise value to sales and at 1.8x CY07 estimates. Historically, the shares have bottomed at roughly 2x EV to sales.
Notablecalls: Would not be surprised to see a bit out of bounce.
Calls of Note Part 5
- RBC Capital note that over r the last few weeks, they have conducted a substantial number of channel checks to understand the near-term outlook for online advertising. Firm had expected to find some erosion in visibility for online media and marketing services companies as a result of lower consumer spending, in part due to higher debt burdens and gasoline prices. The findings were surprising -- firm's bearish expectation about the consumer appears to be wrong (or early), as consumer spending levels remain robust. The two exceptions appear to be in those categories directly related to real estate sales, and those categories directly exposed to rising fuel costs. Further, the outlook for online advertising, search, and marketing services companies remains very strong, with seasonal and secular trends far more pronounced than the impact of isolated areas of consumer weakness. Finally, back-to-school sales online appear to be very strong, with a strong August followed by an equally strong early September. Given this data, firm's favorite names are GOOG, AQNT, VCLK, and YHOO, in that order. TFSM is likely to report a solid quarter, but valuation gives them pause.
Firm also notes some slight acceleration (y/y) in volume of ads served during 3Q over a solid but seasonal 2Q. In fact, they believe 3Q ad volumes were ahead of 1Q levels for those providing ad serving technology, including AQNT.
Notablecalls: Will be watching AQNT following the call. Notice how the stock bounced from the key 200MA level on Friday? Also, while not mentioned in the call, AKAM may see some additional interest as much of the traffic goes through their systems. Nice chart too!
Firm also notes some slight acceleration (y/y) in volume of ads served during 3Q over a solid but seasonal 2Q. In fact, they believe 3Q ad volumes were ahead of 1Q levels for those providing ad serving technology, including AQNT.
Notablecalls: Will be watching AQNT following the call. Notice how the stock bounced from the key 200MA level on Friday? Also, while not mentioned in the call, AKAM may see some additional interest as much of the traffic goes through their systems. Nice chart too!
Calls of Note Part 4
- Citigroup is strongly recommending buying AutoZone's (NYSE:AZO) stock ahead of their fourth quarter earnings release on Tuesday, September 19th. Firm is modelling EPS of $2.81, two cents above consensus, and believes their may be upside to their est. Notes their call is non-consensus & proprietary supporting stk apprec. on earnings day.
EPS upside will likely be driven by higher than expected GMs & mgm't will likely point to the sustainability of the improvement going forward. Re-negotiated supply agreements in fiscal 3Q will be the primary driver.
Mgm't will also likely indicate that a successful roll out of a new commercial biz model is driving DIFM comps up in the mid to high-teens in stores with the new program. Less than half of the stores have currently seen the rollout.
Share buybacks will likely exceed expectations. They believe share repurchases reflect the tremendous FCF generation of AZO even in a tough macro environment. AZOs model supports sales leverage in a lower comp environm't.
Reits Buy and $124 tgt.
Notablecalls: Well at least they have conviction! Would not be surprised to see couple of points of upside over the next 2 days.
EPS upside will likely be driven by higher than expected GMs & mgm't will likely point to the sustainability of the improvement going forward. Re-negotiated supply agreements in fiscal 3Q will be the primary driver.
Mgm't will also likely indicate that a successful roll out of a new commercial biz model is driving DIFM comps up in the mid to high-teens in stores with the new program. Less than half of the stores have currently seen the rollout.
Share buybacks will likely exceed expectations. They believe share repurchases reflect the tremendous FCF generation of AZO even in a tough macro environment. AZOs model supports sales leverage in a lower comp environm't.
Reits Buy and $124 tgt.
Notablecalls: Well at least they have conviction! Would not be surprised to see couple of points of upside over the next 2 days.
Calls of Note Part 3
- JP Morgan is adding the Overweight rated CSX Corp (NYSE:CSX) to the JP Morgan Focus List with a $42 December 2007 price target (13x P/E applied to $3.22/share EPS in 2008). CSX's recent transition to a trend of volume growth gives the firm increased confidence that execution of its turnaround story will drive strong EPS growth and significant upside for CSX stock.
Following a 2.4% decline in volumes in 2005, a decline of 1.0% in 1Q06 and only 0.1% growth in 2Q06, CSX has transitioned to meaningful volume growth with 3.4% QTD volume growth in 3Q06. In 3Q CSX has continued to realize y/y improvement in terminal dwell time and other operating metrics which indicate it remains on a path of improving rail network operation and cost performance. The firm expects solid margin expansion in 2H06 for CSX, but notes that the pace is likely to slow somewhat due to a headwind from a sharply lower fuel hedge position. CSX is essentially unhedged in 2H06 and in 05 CSX realized its maximum hedge benefit in 3Q.
Despite weakness in economically sensitive segments, CSX has realized solid 3Q volume growth
driven by coal and grain along with an upturn in intermodal. Firm expects the solid volume growth to drive in line to modest upside EPS for CSX in 2H06.
In firm's view, CSX's current P/E valuation of 11.4x on 2007 EPS estimate is attractive. Historically the railroad group has traded in an average P/E range of 11x-15x on one year forward EPS.
Notablecalls: CSX is worth keeping on the radar. May become an interesting long if it breaks the $30.5 level. That of course may happen already around the open leaving us without a meaningful trigger.
- JP Morgan comments on @Road (NASDAQ:ARDI) asking if last week's contract wins mark an inflection point? ARDI's fixed-cost hosted MRM service model should yield strong earnings growth if the company can only generate top line growth. Unfortunately 2004-2006 has been a relatively disappointing period for the company, following two prior years of strong, 30%+ revenue growth.
The BellSouth and E.ON contracts add to a sequence of small contract wins and channel partnerships in 2006, including the Eaton Corp and Telstra partnerships, and contracts with Service Master and Performance Transportation. The 2006 customer roster is growing and management says thepipeline activity is at historical highs.
A good phase but not enough to establish lift-off. The subscriber count stands at only 151K (flat y/y, including the Verizon loss), and the BellSouth and E.ON contract wins do not represent 'green field' triumphs, merely extensions of existing customer relationships.
So, in short, the firm is not convinced that the inflection point has been reached. MRM remains a fragmented industry, and although the competitive landscape has not deteriorated in 2006, they continue to see low-end, handset based offerings in the space. Nonetheless, there's been enough activity at ARDI this year to justify putting the stock on the radar.
Maintains Neutral.
Notablecalls: ARDI stock was up 10% on Friday. Think the comments from JP Morgan will cap further upside.
Following a 2.4% decline in volumes in 2005, a decline of 1.0% in 1Q06 and only 0.1% growth in 2Q06, CSX has transitioned to meaningful volume growth with 3.4% QTD volume growth in 3Q06. In 3Q CSX has continued to realize y/y improvement in terminal dwell time and other operating metrics which indicate it remains on a path of improving rail network operation and cost performance. The firm expects solid margin expansion in 2H06 for CSX, but notes that the pace is likely to slow somewhat due to a headwind from a sharply lower fuel hedge position. CSX is essentially unhedged in 2H06 and in 05 CSX realized its maximum hedge benefit in 3Q.
Despite weakness in economically sensitive segments, CSX has realized solid 3Q volume growth
driven by coal and grain along with an upturn in intermodal. Firm expects the solid volume growth to drive in line to modest upside EPS for CSX in 2H06.
In firm's view, CSX's current P/E valuation of 11.4x on 2007 EPS estimate is attractive. Historically the railroad group has traded in an average P/E range of 11x-15x on one year forward EPS.
Notablecalls: CSX is worth keeping on the radar. May become an interesting long if it breaks the $30.5 level. That of course may happen already around the open leaving us without a meaningful trigger.
- JP Morgan comments on @Road (NASDAQ:ARDI) asking if last week's contract wins mark an inflection point? ARDI's fixed-cost hosted MRM service model should yield strong earnings growth if the company can only generate top line growth. Unfortunately 2004-2006 has been a relatively disappointing period for the company, following two prior years of strong, 30%+ revenue growth.
The BellSouth and E.ON contracts add to a sequence of small contract wins and channel partnerships in 2006, including the Eaton Corp and Telstra partnerships, and contracts with Service Master and Performance Transportation. The 2006 customer roster is growing and management says thepipeline activity is at historical highs.
A good phase but not enough to establish lift-off. The subscriber count stands at only 151K (flat y/y, including the Verizon loss), and the BellSouth and E.ON contract wins do not represent 'green field' triumphs, merely extensions of existing customer relationships.
So, in short, the firm is not convinced that the inflection point has been reached. MRM remains a fragmented industry, and although the competitive landscape has not deteriorated in 2006, they continue to see low-end, handset based offerings in the space. Nonetheless, there's been enough activity at ARDI this year to justify putting the stock on the radar.
Maintains Neutral.
Notablecalls: ARDI stock was up 10% on Friday. Think the comments from JP Morgan will cap further upside.
Calls of Note Part 2
- Piper Jaffray notes they continue to expect Apple (NASDAQ:AAPL) will announce its iPhone sometime in the next 4-6 months. That said, they have not seen any concrete evidence that the product is near completion or launch. There have been multiple indications that Apple is planning to introduce an iPhone, including: 1) registering the domain name iPhone.org in 1999; 2) trademarking the name "Mobile Me" in Jan-06; 3) comments from an Asian news source in May- 06 reporting that Softbank, a Japanese cell phone service provider, had reached an agreement with Apple to jointly develop cell phones; and 4) CFO comments related to music phone market on June quarter conference call. Also, given music enabled handsets are being introduced by potential handset maker competitors (ex: LG Chocolate), Apple will likely need to get in the game fairly soon to avoid missing the early adopters.
Assuming Apple ships its iPhone early in CY07, at Macworld-07 or a special event, the firm expects the company will sell 8.0m-12.0m iPhones in the full calendar year. Firm believes the most likely iPhone buyers would be those who have previously owned a higher ASP HDD iPod
Assuming Apple ships the iPhone at Macworld-07, their sensitivity analysis points to between 6%-10% upside to Street CY07 EPS.
Maintains Outperform and $99 tgt.
Notablecalls: Not actionable but good to know category. How to play this one once the news is out that AAPL indeed is coming out with a cellie? Buy the suppliers!
- ThinkEquity is positive on Zoltek Companies (NASDAQ:ZOLT) providing an update to their analysis of estimated carbon fiber demand from Vestas, Zoltek's largest customer. Firm continues to believe that demand for carbon fiber from the wind industry is solid and increasing. This helps to maintain confidence in the demand for Zoltek's product and they maintain positive view on the company and the stock.
Three key takeaways from the analysis:
1. Carbon fiber-based turbine orders continue to grow at a healthy pace at Vestas. Since August 2005, cumulative carbon fiber-based turbines orders have grown to 587 units.
2. Carbon fiber orders have increased as a percentage of total orders. Since August 2005, carbon fiber orders have increased to 24% of total orders. Firm believes that the rapid adoption of carbon fiber turbines reflects a trend toward using more efficient materials in the wind industry, allowing for larger but lighter turbines.
3. Vestas orders to Zoltek should be significant. On a cumulative basis, they estimate that Vestas has received orders which would represent $37M in carbon fiber sales to Zoltek.
Reiterates Buy and $40 Price Target.
Notablecalls: I don't dare to call this one actionable but ZOLT's surely a mover.
Assuming Apple ships its iPhone early in CY07, at Macworld-07 or a special event, the firm expects the company will sell 8.0m-12.0m iPhones in the full calendar year. Firm believes the most likely iPhone buyers would be those who have previously owned a higher ASP HDD iPod
Assuming Apple ships the iPhone at Macworld-07, their sensitivity analysis points to between 6%-10% upside to Street CY07 EPS.
Maintains Outperform and $99 tgt.
Notablecalls: Not actionable but good to know category. How to play this one once the news is out that AAPL indeed is coming out with a cellie? Buy the suppliers!
- ThinkEquity is positive on Zoltek Companies (NASDAQ:ZOLT) providing an update to their analysis of estimated carbon fiber demand from Vestas, Zoltek's largest customer. Firm continues to believe that demand for carbon fiber from the wind industry is solid and increasing. This helps to maintain confidence in the demand for Zoltek's product and they maintain positive view on the company and the stock.
Three key takeaways from the analysis:
1. Carbon fiber-based turbine orders continue to grow at a healthy pace at Vestas. Since August 2005, cumulative carbon fiber-based turbines orders have grown to 587 units.
2. Carbon fiber orders have increased as a percentage of total orders. Since August 2005, carbon fiber orders have increased to 24% of total orders. Firm believes that the rapid adoption of carbon fiber turbines reflects a trend toward using more efficient materials in the wind industry, allowing for larger but lighter turbines.
3. Vestas orders to Zoltek should be significant. On a cumulative basis, they estimate that Vestas has received orders which would represent $37M in carbon fiber sales to Zoltek.
Reiterates Buy and $40 Price Target.
Notablecalls: I don't dare to call this one actionable but ZOLT's surely a mover.
Paperstand
The WSJ's "Heard on the Street" column calls Expeditors Intl. (EXPD) momentum investor's trash in the coming weeks, but the co's stock is likely a long-term investor's treasure. Expeditors primarily buys air- and ocean-freight space at wholesale prices and resells it to commercial customers who need shipping services to and from Asia, the US and Europe. The co has been a standout performer in this increasingly lucrative niche. By consolidating customers' shipments and offering customs brokerage to speed delivery, the co has built an enviable book of steady clients. But the co's stock price is off almost 30% since the end of June. The fall has happened despite 2Q net income that was up more than 50%. This recent tumble might be b/c the shares had attracted quick-trigger momentum investors who worry that a slowing economy could temporarily depress freight volumes. Stock analysts, who project 18% annual earnings growth over the next 5 years, have gotten skittish, too, as the stock's P/E ratio has risen to more costly levels. The stock is rated a Hold by 11 of the 13 analysts who cover it. Despite what might be a bit of a blue period, many investors say shareholders reading short-term economic tea leaves or worrying about today's valuation might deserve the designation of cynic as defined by Oscar Wilde, someone "who knows the price of everything and the value of nothing." "The stock has been volatile lately, and that's probably an indication of its owners and not the co's results," says Joe Fath, of T. Rowe Price. "The mkt has become very short-term focused, and it can create an opportunity here for long-term investors," says Ed Han, of Transamerica Premier Growth Opportunities Fund.
The WSJ's "Tracking the Numbers" column discusses Aether (AETH), which intends to use some of its $130m in cash to close a recently announced acquisition, but for Aether's shareholders, it's the money the co has lost that is more important. Aether has landed hard, with a total of nearly $1bn in net operating and capital losses accumulated since '01. It can use the losses from those operations to offset taxes on future profits, but to do so Aether needs a business with the potential to create large operating profits: No profits, no tax benefits. Enter brand strategist and consultant Bob D'Loren, who became president of Aether in June with the goal of turning it into a vehicle to be called NexCen Brands, to consolidate consumer apparel brands and reintroduce them through a franchise network of which footwear retailer Athlete's Foot is the start. Mr. D'Loren is using Aethers cash and tax benefits to buy Athlete's Foot. "Aether has a public currency that was desirable for our model," says Mr. D'Loren. "It had cash of $130m that was valuable. The net operating losses were a nice additional asset." So far, the chips are falling Mr. D'Loren's way, but his latest deal isn't without risks. For one, Athlete's Foot has struggled in the past. Its largest US franchisee went through bankruptcy reorganization in '04, closing most of its 125 stores. Today, the chain has 200 of its 575 franchise stores in this country but faces stiff competition from Foot Locker and others. Aether is paying $51.5m for Athlete's Foot, plus an additional payment of up to $8.5m depending on performance. Price aside, shareholders don't have a good sense how profitable Athlete's Foot is: The shoe retailer hasn't disclosed how much royalty income its franchisees paid in '05; nor has it disclosed avg sales per store or the percentage growth in sales at stores opened more than one year.
The NY Times reports that a consortium of investment firms was near a deal late last night to acquire Freescale Semiconductor (FSL) for more than $16bn. The deal, if completed, would be the largest leveraged buyout ever in the technology sector, surpassing the $11.3bn sale of SunGard last year. The consortium of investors in talks to acquire Freescale include Texas Pacific Group, Blackstone Group and Permira. It is possible that the Carlyle Group and Bain Capital could also join the group.
The WSJ's "Tracking the Numbers" column discusses Aether (AETH), which intends to use some of its $130m in cash to close a recently announced acquisition, but for Aether's shareholders, it's the money the co has lost that is more important. Aether has landed hard, with a total of nearly $1bn in net operating and capital losses accumulated since '01. It can use the losses from those operations to offset taxes on future profits, but to do so Aether needs a business with the potential to create large operating profits: No profits, no tax benefits. Enter brand strategist and consultant Bob D'Loren, who became president of Aether in June with the goal of turning it into a vehicle to be called NexCen Brands, to consolidate consumer apparel brands and reintroduce them through a franchise network of which footwear retailer Athlete's Foot is the start. Mr. D'Loren is using Aethers cash and tax benefits to buy Athlete's Foot. "Aether has a public currency that was desirable for our model," says Mr. D'Loren. "It had cash of $130m that was valuable. The net operating losses were a nice additional asset." So far, the chips are falling Mr. D'Loren's way, but his latest deal isn't without risks. For one, Athlete's Foot has struggled in the past. Its largest US franchisee went through bankruptcy reorganization in '04, closing most of its 125 stores. Today, the chain has 200 of its 575 franchise stores in this country but faces stiff competition from Foot Locker and others. Aether is paying $51.5m for Athlete's Foot, plus an additional payment of up to $8.5m depending on performance. Price aside, shareholders don't have a good sense how profitable Athlete's Foot is: The shoe retailer hasn't disclosed how much royalty income its franchisees paid in '05; nor has it disclosed avg sales per store or the percentage growth in sales at stores opened more than one year.
The NY Times reports that a consortium of investment firms was near a deal late last night to acquire Freescale Semiconductor (FSL) for more than $16bn. The deal, if completed, would be the largest leveraged buyout ever in the technology sector, surpassing the $11.3bn sale of SunGard last year. The consortium of investors in talks to acquire Freescale include Texas Pacific Group, Blackstone Group and Permira. It is possible that the Carlyle Group and Bain Capital could also join the group.
Calls of Note Part 1
- ThinkEquity's Eric Ross and Eddie Cheung are doing it again! This time, on AMD (NYSE:AMD). They note they have heard from several sources that orders for AMD processors are well beyond its fab capacity. Even with Fab 36 ramping fast (and 65nm expected in volumes in January), and Fab 30 and Chartered's Fab 7 ramping, they believe AMD will not be in a position to ship to its demand. Despite a challenging PC environment, they believe AMD has orders beyond its capacity for 2H06 and into 2007. Distributors have been on allocation since mid-August.
Demand for AMD processors is spectacular. The firm has heard AMD is gaining share at every major PC and server maker. Several contacts inside major PC OEMs have indicated if AMD had even more capacity, they would transition more share to AMD.
Several of firm's sources say that if distributors are not a key provider to the big PC makers, they have been essentially locked out from any mid- and high-end processors. Low-end processors can still be found, but inventories are tight. This is a 180-degree change from three months ago when inventories were building from already high levels.
With the virtually 100% utilization at AMD's internal facilities, gross and operating margins for the company should reach all-time highs. The firm can not imagine how AMD would consider not maximizing capacity utilized at CHRT. They also believe AMD's pricing is much stronger than investors are expecting.
According to the firm all this will likely make their 2007 estimates (already the high on the Street) appear conservative. In their opinion, any recent weakness in the AMD shares should be considered a possible buying opportunity given AMD's share gains and the potential for more wins with other OEMs. Reiterates Buy rating and $30 price target.
Notablecalls: Another nice call from ThinkEquity's Semi team! It's calls like this one that make money for investors. I expect AMD stock to move up in the coming days. Eric, Eddie! You
guys make larger firms look bad!
Demand for AMD processors is spectacular. The firm has heard AMD is gaining share at every major PC and server maker. Several contacts inside major PC OEMs have indicated if AMD had even more capacity, they would transition more share to AMD.
Several of firm's sources say that if distributors are not a key provider to the big PC makers, they have been essentially locked out from any mid- and high-end processors. Low-end processors can still be found, but inventories are tight. This is a 180-degree change from three months ago when inventories were building from already high levels.
With the virtually 100% utilization at AMD's internal facilities, gross and operating margins for the company should reach all-time highs. The firm can not imagine how AMD would consider not maximizing capacity utilized at CHRT. They also believe AMD's pricing is much stronger than investors are expecting.
According to the firm all this will likely make their 2007 estimates (already the high on the Street) appear conservative. In their opinion, any recent weakness in the AMD shares should be considered a possible buying opportunity given AMD's share gains and the potential for more wins with other OEMs. Reiterates Buy rating and $30 price target.
Notablecalls: Another nice call from ThinkEquity's Semi team! It's calls like this one that make money for investors. I expect AMD stock to move up in the coming days. Eric, Eddie! You
guys make larger firms look bad!
Sunday, September 10, 2006
Barron's Summary
In Barrons' annual survey, they asked institutional money managers to indicate the degree of respect they had for the world's largest co's. Most highly valued is J&J (JNJ), followed by GE, PG, TMC, BRKA etc.
92 year old fund manager likes QMAR, IR and EPD.
Barron's discusses favorably Symantec (SYMC), saying that after hitting an all-time low in June, the shares have started moving up. They could climb more than 30% over the next 12 months as a diversification strategy bears fruit.
Barron's highlights Ford (F), discussing its newly named CEO Alan Mulally. According to the article, the financial mkts are betting there's a 40% chance Ford will be bankrupt within 5 years. And therefore suggesting that if he succeeds, so will Ford. If he doesn't…
According to the Barron's, Pixar shareholders got a sweet deal when Disney (DIS) greed to buy the co earlier this year, and the takeover looks even better now. Disney stock has appreciated, Pixar's latest movie, Cars, has proven disappointing at the box office and Pixar may have backdated stock options, potentially enmeshing former Pixar CEO and controlling shareholder Steve Jobs. "The deal was a stroke of genius by Jobs," says Michael Savner, of BofA. "He convinced the mkt that Pixar's business model was unbreakable and scalable." Disney paid a lot for a co that produces just one movie a year. Jobs netted over $3.5bn from the sale, swapping his illiquid Pixar shares for liquid Disney stock, another brilliant move.
"The Trader" section speculates on General Electric (GE) breakup. The most obvious spin-off candidate is NBC Universal, which has little fit with GE's industrial businesses. In a recent note, CSFB analysts Nicole Parent and Bill Drewry took a look at NBC Universal and valued the co at about $35.5bn, or $3.50 per GE share. That's 10x projected '07 operating profits, a modest valuation by media standards. Another analyst, Tony Boase of AG Edwards, recently valued the division at $40bn.
"The Trader" column also discusses LaBranche (LAB), questioning that might LaBranche operate better as a private co? Buyout firms, under mounting pressure to deploy their vast cash stash, are broadening their hunt, and LaBranche could merit a lingering look. The co, with a mkt value of $513m, could see a cash influx of about $400m over the next few years, ests Robbert Van Batenburg, of Louis Capital. He thinks LaBranche is ripe for a mgmt-led LBO. So, article suggests that while option premiums are by no means cheap for this volatile stock, they are reasonable by historical standards. And given the uncertainty facing LaBranche, the neglected call options may offer a limited-risk way to position for a hoped-for buyout, or at least a bounce if speculation escalates.
"Technology Trader" column discusses Neurochem (NRMX), a stock that traders call a tight stock. More than 4.3m shares of this thinly-traded stock had been sold short, as of mid-July, which exceeded 45 days' worth of trading volume. Unfortunately for the Neurochem shorts, about 1/3 of the co's stock is held by investment entities controlled by CEO Francesco Bellini and a large Canadian insurance co, while another 50% is in the hands of other friendly institutions. Since August 17, securities filings by Bellini's investment vehicles reported adding C$4.7m worth of Neurochem stock to their holdings. Shorts tell to the Barron's the maneuver has forced massive buy-ins of Neurochem short positions. Most interesting, Bellini's securities filings disclose that the source of his funds is a loan from the National Bank of Canada that's secured by...his holdings of 50m shares of Neurochem stock.
92 year old fund manager likes QMAR, IR and EPD.
Barron's discusses favorably Symantec (SYMC), saying that after hitting an all-time low in June, the shares have started moving up. They could climb more than 30% over the next 12 months as a diversification strategy bears fruit.
Barron's highlights Ford (F), discussing its newly named CEO Alan Mulally. According to the article, the financial mkts are betting there's a 40% chance Ford will be bankrupt within 5 years. And therefore suggesting that if he succeeds, so will Ford. If he doesn't…
According to the Barron's, Pixar shareholders got a sweet deal when Disney (DIS) greed to buy the co earlier this year, and the takeover looks even better now. Disney stock has appreciated, Pixar's latest movie, Cars, has proven disappointing at the box office and Pixar may have backdated stock options, potentially enmeshing former Pixar CEO and controlling shareholder Steve Jobs. "The deal was a stroke of genius by Jobs," says Michael Savner, of BofA. "He convinced the mkt that Pixar's business model was unbreakable and scalable." Disney paid a lot for a co that produces just one movie a year. Jobs netted over $3.5bn from the sale, swapping his illiquid Pixar shares for liquid Disney stock, another brilliant move.
"The Trader" section speculates on General Electric (GE) breakup. The most obvious spin-off candidate is NBC Universal, which has little fit with GE's industrial businesses. In a recent note, CSFB analysts Nicole Parent and Bill Drewry took a look at NBC Universal and valued the co at about $35.5bn, or $3.50 per GE share. That's 10x projected '07 operating profits, a modest valuation by media standards. Another analyst, Tony Boase of AG Edwards, recently valued the division at $40bn.
"The Trader" column also discusses LaBranche (LAB), questioning that might LaBranche operate better as a private co? Buyout firms, under mounting pressure to deploy their vast cash stash, are broadening their hunt, and LaBranche could merit a lingering look. The co, with a mkt value of $513m, could see a cash influx of about $400m over the next few years, ests Robbert Van Batenburg, of Louis Capital. He thinks LaBranche is ripe for a mgmt-led LBO. So, article suggests that while option premiums are by no means cheap for this volatile stock, they are reasonable by historical standards. And given the uncertainty facing LaBranche, the neglected call options may offer a limited-risk way to position for a hoped-for buyout, or at least a bounce if speculation escalates.
"Technology Trader" column discusses Neurochem (NRMX), a stock that traders call a tight stock. More than 4.3m shares of this thinly-traded stock had been sold short, as of mid-July, which exceeded 45 days' worth of trading volume. Unfortunately for the Neurochem shorts, about 1/3 of the co's stock is held by investment entities controlled by CEO Francesco Bellini and a large Canadian insurance co, while another 50% is in the hands of other friendly institutions. Since August 17, securities filings by Bellini's investment vehicles reported adding C$4.7m worth of Neurochem stock to their holdings. Shorts tell to the Barron's the maneuver has forced massive buy-ins of Neurochem short positions. Most interesting, Bellini's securities filings disclose that the source of his funds is a loan from the National Bank of Canada that's secured by...his holdings of 50m shares of Neurochem stock.
Thursday, September 07, 2006
Attention!
NC will be on vacation on Friday and will resume posting Monday morning.
Oh and btw, would appreciate any feedback. Just wondering who are the people reading this blog. I suspect most of you are professionals? Is there anything I should change or do more of?
Also, comments regarding the calls are always welcome. If you don't agree with my views, let me know!
Yours truly,
NC
Oh and btw, would appreciate any feedback. Just wondering who are the people reading this blog. I suspect most of you are professionals? Is there anything I should change or do more of?
Also, comments regarding the calls are always welcome. If you don't agree with my views, let me know!
Yours truly,
NC
Calls of Note Part 7
- RBC Capital is positive on Digital River (NASDAQ:DRIV) saying that historically, the co has introduced full-year guidance during its Q3 conference call, and they expect the same again this year. Firm believes management's revenue guidance of 25%-30% will be conservative, yet above current street consensus of approximately 19% growth. It's also worth noting that management has a history of beating its guidance and has historically grown close to 40%, which includes acquisitions.
Based on checks they have increased confidence for the remainder of 06 and are raising FY07 revenue/EPS estimates slightly from $360M/$2.11 to $370M/$2.15 and increasing price target from $50 to $60. Firm is also are introducing FY08 estimates of $455M/$2.61.
Notablecalls: Not actionable but good to know category. DRIV is set to report on Oct 26.
- Soleil comments on Harley-Davidson (NYSE:HOG) after the co announced it has an agreement with Lehman Trikes (NR) for the development of three-wheeled motorcycles referred to as "trikes"
While the company may be trying to capitalize on the aging of the babyboomers, they doubt trikes address near-term concerns and may present a longer-term negative.
Firm believes trikes conflict with HOG's ride wild image. Trikes will add to dealer costs and inventory, and may increase liability (and negative publicity). Believes that the current market for trikes is less than 1% of industry bike shipments. Typical trike customers are the disabled, seniors and women.
Firm notes they understand Harley will manufacture trikes as an OEM supplier (making HOG
the only US manufacturer). Maintains Sell and $44 tgt.
Notablecalls: Think HOG is an investment/core short due to the weakening consumer.
Based on checks they have increased confidence for the remainder of 06 and are raising FY07 revenue/EPS estimates slightly from $360M/$2.11 to $370M/$2.15 and increasing price target from $50 to $60. Firm is also are introducing FY08 estimates of $455M/$2.61.
Notablecalls: Not actionable but good to know category. DRIV is set to report on Oct 26.
- Soleil comments on Harley-Davidson (NYSE:HOG) after the co announced it has an agreement with Lehman Trikes (NR) for the development of three-wheeled motorcycles referred to as "trikes"
While the company may be trying to capitalize on the aging of the babyboomers, they doubt trikes address near-term concerns and may present a longer-term negative.
Firm believes trikes conflict with HOG's ride wild image. Trikes will add to dealer costs and inventory, and may increase liability (and negative publicity). Believes that the current market for trikes is less than 1% of industry bike shipments. Typical trike customers are the disabled, seniors and women.
Firm notes they understand Harley will manufacture trikes as an OEM supplier (making HOG
the only US manufacturer). Maintains Sell and $44 tgt.
Notablecalls: Think HOG is an investment/core short due to the weakening consumer.
Calls of Note Part 6
- CIBC is cutting their 3Q06 estimate for Goldman Sachs (NYSE:GS) due to August equity
volumes that failed to buoy a particularly weak quarter within the global equity markets. Firm is reducing their 3Q to $3.07 from $3.55 (consensus $3.03). 4Q06 and fiscal 2007 estimates remain unchanged.
Of little surprise, debt volumes during the third fiscal quarter were seasonally weak, however, this quarter will be the tough year on year comparison from last year when many second quarter deals were pushed into the third quarter resulting in uncharacteristic third quarter strength.
Of a slightly greater surprise was the lack of resiliency of the equity underwriting calendar despite solid and broad based indices gains and benign credit spreads.
Firm notes they remain bullish on the brokerage stocks and particularly on GS stock. They
believe the brokers are poised for an outsized fourth quarter (in part due to the timing shift from the third quarter) as liquidity trends are staunchly positioned to favor this group.
Notablecalls: Not actionable but good to know category.
- Citigroup notes Nike's (NYSE:NKE) stock has recovered somewhat from its lows in Aug, however the stock is still down 5.8% and has underperformed the S&P 500 8% year to date. Concerns weighing on the stock include a possible slowdown for its U.S. footwear business as one laps difficult comps and a possible shift away from marquee footwear, continued sluggish growth in Japan and Europe, expected flat gross margins during FY07, and higher inventories.
Firm thinks these concerns are already priced in, eradicating much of the downside risk. But the stock could continue to be sluggish in the short-term.
They think Nike is an extremely attractive long term investment and the stock remains undervalued at 13.5x, which is a 21% discount to its three yr avg. Firm believes Nike will meet consensus EPS of $1.42 when it reports its earnings on Sept 21 (tentative). However, uncertainty surrounding the first quarter will likely result in a tight trading range over the short term.
Maintains Buy and $104 tgt.
Notablecalls: Not actionable but good to know category. I like NKE short as a swing trade. The co reports on Sept 21 and I don't think investors want to be long the stock going into the announcement. Also, notice the 200 MA level the shares have been hugging against. That'd be your stop.
volumes that failed to buoy a particularly weak quarter within the global equity markets. Firm is reducing their 3Q to $3.07 from $3.55 (consensus $3.03). 4Q06 and fiscal 2007 estimates remain unchanged.
Of little surprise, debt volumes during the third fiscal quarter were seasonally weak, however, this quarter will be the tough year on year comparison from last year when many second quarter deals were pushed into the third quarter resulting in uncharacteristic third quarter strength.
Of a slightly greater surprise was the lack of resiliency of the equity underwriting calendar despite solid and broad based indices gains and benign credit spreads.
Firm notes they remain bullish on the brokerage stocks and particularly on GS stock. They
believe the brokers are poised for an outsized fourth quarter (in part due to the timing shift from the third quarter) as liquidity trends are staunchly positioned to favor this group.
Notablecalls: Not actionable but good to know category.
- Citigroup notes Nike's (NYSE:NKE) stock has recovered somewhat from its lows in Aug, however the stock is still down 5.8% and has underperformed the S&P 500 8% year to date. Concerns weighing on the stock include a possible slowdown for its U.S. footwear business as one laps difficult comps and a possible shift away from marquee footwear, continued sluggish growth in Japan and Europe, expected flat gross margins during FY07, and higher inventories.
Firm thinks these concerns are already priced in, eradicating much of the downside risk. But the stock could continue to be sluggish in the short-term.
They think Nike is an extremely attractive long term investment and the stock remains undervalued at 13.5x, which is a 21% discount to its three yr avg. Firm believes Nike will meet consensus EPS of $1.42 when it reports its earnings on Sept 21 (tentative). However, uncertainty surrounding the first quarter will likely result in a tight trading range over the short term.
Maintains Buy and $104 tgt.
Notablecalls: Not actionable but good to know category. I like NKE short as a swing trade. The co reports on Sept 21 and I don't think investors want to be long the stock going into the announcement. Also, notice the 200 MA level the shares have been hugging against. That'd be your stop.
Calls of Note Part 5
- Bear Stearns comments on AMD (NYSE:AMD) after ATI announced that it expects Aug-Q revenues to come in around $520M, which is significantly below their 6/29 guidance of $620-$660M.
The impact to firm's AMD pro-forma revenue and earnings is minimal as they had already anticipated a significant decline in Intel-based chipset sales in their prior forecast which is somewhat offset by growth in the merged company's AMD-based chipset revenues. Also the inventory adjustment in handhelds for ATI should not extend into 2007. Therefore their 4Q06 pro-forma EPS estimate, excluding acquisition related intangibles, is only lowered by a penny to $0.35, while 2007 pro-forma EPS estimate is unchanged at $1.70.
The sell off in AMD's shares after market represents a buying opportunity. As the firm said earlier, the revenue shortfall in Intel-based chipset business implies further processor share gain by AMD against Intel. Additionally, AMD is seeing considerable upside in MPU unit shipments for 3Q and 4Q, particularly for notebooks and because of this strong demand is clearly being more selective in taking on low margin business. Firm's 3Q and 4Q EPS estimates (for AMD stand-alone) at $0.30 and $0.46, respectively are well above consensus of $0.23 and $0.32, respectively.
Maintains Outperform.
Notablecalls: AMD traded close to $23 in after mkt. Bear Stearns is not the only firm telling investors to buy the weakness. This, combined with comments from JP Morgan (see below) may produce a bounce. AMD is eating INTC's lunch after all.
The impact to firm's AMD pro-forma revenue and earnings is minimal as they had already anticipated a significant decline in Intel-based chipset sales in their prior forecast which is somewhat offset by growth in the merged company's AMD-based chipset revenues. Also the inventory adjustment in handhelds for ATI should not extend into 2007. Therefore their 4Q06 pro-forma EPS estimate, excluding acquisition related intangibles, is only lowered by a penny to $0.35, while 2007 pro-forma EPS estimate is unchanged at $1.70.
The sell off in AMD's shares after market represents a buying opportunity. As the firm said earlier, the revenue shortfall in Intel-based chipset business implies further processor share gain by AMD against Intel. Additionally, AMD is seeing considerable upside in MPU unit shipments for 3Q and 4Q, particularly for notebooks and because of this strong demand is clearly being more selective in taking on low margin business. Firm's 3Q and 4Q EPS estimates (for AMD stand-alone) at $0.30 and $0.46, respectively are well above consensus of $0.23 and $0.32, respectively.
Maintains Outperform.
Notablecalls: AMD traded close to $23 in after mkt. Bear Stearns is not the only firm telling investors to buy the weakness. This, combined with comments from JP Morgan (see below) may produce a bounce. AMD is eating INTC's lunch after all.
Calls of Note Part 4
- JP Morgan notes they have been tracking PC specifications at the two largest PC OEMs, Dell
and HP (combined roughly 34% of global PC units) on component configurations of notebook, desktop, workstations and servers to analyze trends for INTC, AMD, NVDA and ATYT.
ased on our proprietary model, they estimate Intel's (NASDAQ:INTC) average share of OEM PCs fell from 86% in April to 81% in August, driven by share loss in HP notebook and desktop PCs to AMD. HP
notebooks with AMD processors rose from 6 out of 25 in April to 11 out of 29 in August due to increased adoption of AMD's Sempron and Turion notebook processors.
In general, OEM trends appear to be incrementally favorable for AMD. Firm believes some of AMD's traction may be seasonal as most of the company's share gains were in the consumer segment, which is the largest segment for AMD. Checks also indicate Intel is gaining some market share in the channel (roughly 40% of the PC market) due to aggressive pricing. Nevertheless, AMD's increased penetration at HP casts doubt on their belief in Intel share gains during 2H06. In addition, the survey does not account for future AMD offerings at Dell, which should be in the market in 4Q06 and increase AMD's share.
While they are positive on recent capex cuts, they remain concerned about Intel's record inventory, sluggish PC demand, and aggressive guidance.
Notablecalls: I have just one thing to say - cash in those chips!
and HP (combined roughly 34% of global PC units) on component configurations of notebook, desktop, workstations and servers to analyze trends for INTC, AMD, NVDA and ATYT.
ased on our proprietary model, they estimate Intel's (NASDAQ:INTC) average share of OEM PCs fell from 86% in April to 81% in August, driven by share loss in HP notebook and desktop PCs to AMD. HP
notebooks with AMD processors rose from 6 out of 25 in April to 11 out of 29 in August due to increased adoption of AMD's Sempron and Turion notebook processors.
In general, OEM trends appear to be incrementally favorable for AMD. Firm believes some of AMD's traction may be seasonal as most of the company's share gains were in the consumer segment, which is the largest segment for AMD. Checks also indicate Intel is gaining some market share in the channel (roughly 40% of the PC market) due to aggressive pricing. Nevertheless, AMD's increased penetration at HP casts doubt on their belief in Intel share gains during 2H06. In addition, the survey does not account for future AMD offerings at Dell, which should be in the market in 4Q06 and increase AMD's share.
While they are positive on recent capex cuts, they remain concerned about Intel's record inventory, sluggish PC demand, and aggressive guidance.
Notablecalls: I have just one thing to say - cash in those chips!
Calls of Note Part 3
Couple of tier-1 firms have positive comments on Apple (NASDAQ:AAPL):
* Goldman Sachs notes Apple's September 12th special event should refocus consumer attention on iPods heading into the holiday shopping season. While Macs are likely to be the standout category again in the September quarter driven by strong consumer and education notebook sales, new flash-based iPods should drive a sharp uptick in the seasonally stronger December quarter. The combination of new iPods, more aggressively priced Intel-based Macs, and still-to-come products like iPhone and a digital hub give the firm greater confidence that the bias to estimates has now shifted firmly to the upside.
With the next move in Apple's earnings estimates likely to be higher, driven by the ramp of new products, firm's current target price of $77 also has an upward bias. They would continue to be opportunistic buyers of the stock through the seasonally stronger back half
of the year.
* UBS thinks that next Tuesday Apple will unveil a major move into the digital home with the potential to multiply its revenue streams. Firm believes its evolving ecosystem can lead to higher sales of Macs given OS X's unique ability to bridge the digital divide in conjunction with iTunes. Near-term, checks show Mac sales may have upside & the firm believes momentum can continue.
To reflect higher sales of Macs,4Q06 estimate is $0.50 (was $0.49) based on 26% y/y revenue growth to $4.65B (was $4.63B). Firm is also raising FY07 estimate to $2.70 (was $2.65), now based on 25% revenue growth to $23.9B (was $23.7B) helped by a mix shift toward higher margin Macs. They are initiating an FY08 estimate of $3.10 based on 15% revenue growth to $27.43B.
In addition to potential new nanos & movie/video services, the firm is excited about potential products through 2007 such as portable media players & a cell phone (phone is not yet in their model). Tgt goes to $92 from $80. Maintains Buy.
Notablecalls: Think AAPL stock may move higher over the next couple of days. May not happen today as it made a pretty sharp move on Tuesday.
* Goldman Sachs notes Apple's September 12th special event should refocus consumer attention on iPods heading into the holiday shopping season. While Macs are likely to be the standout category again in the September quarter driven by strong consumer and education notebook sales, new flash-based iPods should drive a sharp uptick in the seasonally stronger December quarter. The combination of new iPods, more aggressively priced Intel-based Macs, and still-to-come products like iPhone and a digital hub give the firm greater confidence that the bias to estimates has now shifted firmly to the upside.
With the next move in Apple's earnings estimates likely to be higher, driven by the ramp of new products, firm's current target price of $77 also has an upward bias. They would continue to be opportunistic buyers of the stock through the seasonally stronger back half
of the year.
* UBS thinks that next Tuesday Apple will unveil a major move into the digital home with the potential to multiply its revenue streams. Firm believes its evolving ecosystem can lead to higher sales of Macs given OS X's unique ability to bridge the digital divide in conjunction with iTunes. Near-term, checks show Mac sales may have upside & the firm believes momentum can continue.
To reflect higher sales of Macs,4Q06 estimate is $0.50 (was $0.49) based on 26% y/y revenue growth to $4.65B (was $4.63B). Firm is also raising FY07 estimate to $2.70 (was $2.65), now based on 25% revenue growth to $23.9B (was $23.7B) helped by a mix shift toward higher margin Macs. They are initiating an FY08 estimate of $3.10 based on 15% revenue growth to $27.43B.
In addition to potential new nanos & movie/video services, the firm is excited about potential products through 2007 such as portable media players & a cell phone (phone is not yet in their model). Tgt goes to $92 from $80. Maintains Buy.
Notablecalls: Think AAPL stock may move higher over the next couple of days. May not happen today as it made a pretty sharp move on Tuesday.
Calls of Note Part 2
- Piper Jaffray is positive on Crocs (NASDAQ:CROX) saying diversification of the Crocs product portfolio remains central to firm's investment thesis. They believe appeal for the Crocs brand spans multiple demographics, retail channels, and geographies, and a broad offering of specialized products mitigates risk from competition, creates channel differentiation opportunities, and drives sales and pricing leverage. As visibility continues to improve surrounding supply-demand, retail penetration, international expansion, and complementary revenue streams, they think shares are poised to move higher, trading in line with its LT earnings growth rate near 30%.
Crocs has doubled its product offering over the trailing 9 months, now managing a portfolio of 20 styles, many of which are less seasonal in nature. Piper believes fall/winter 2006 marks a pivotal point in the Crocs story as retailers gauge year-round demand for the brand. Should sales prove to outpace plans, as they have to-date, they expect accelerated bookings into late-FY06 and FY07, upward revisions to estimates, and further multiple expansion.
Piper is raising their FY06 & FY07 estimates, reflecting increased confidence in growth initiatives. Tgt goes to $40 from $38.
Notablecalls: The general buyside view has been that CROX will have one more big qtr and after the fall/winter sets in, the results will cool off. Piper's comments may ignate some different sort of thinking. And that may send the shares higher. I'd be looking to buy CROX today. Gonna call this one actionable.
Crocs has doubled its product offering over the trailing 9 months, now managing a portfolio of 20 styles, many of which are less seasonal in nature. Piper believes fall/winter 2006 marks a pivotal point in the Crocs story as retailers gauge year-round demand for the brand. Should sales prove to outpace plans, as they have to-date, they expect accelerated bookings into late-FY06 and FY07, upward revisions to estimates, and further multiple expansion.
Piper is raising their FY06 & FY07 estimates, reflecting increased confidence in growth initiatives. Tgt goes to $40 from $38.
Notablecalls: The general buyside view has been that CROX will have one more big qtr and after the fall/winter sets in, the results will cool off. Piper's comments may ignate some different sort of thinking. And that may send the shares higher. I'd be looking to buy CROX today. Gonna call this one actionable.
Calls of Note Part 1
Several firms are commenting on Palm (NASDAQ:PALM) this morning after the revised its Sept quarter revenue expectations:
* JP Morgan notes PALM pre-announced a slight F1Q07 revenue miss last night. The company expects sales to be in the range of $354-$356, 7% lower than the mid-point of prior guidance. PF EPS guidance of $0.18-$0.19 was unchanged, suggesting good cost discipline below the line. Firm is adjusting their revenue estimate to align with the high end of revised guidance ($355.3m) but leaving EPS unchanged.
The accompanying press release points to two new product launches in the immediate future, which is likely to buoy the stock, notwithstanding F1Q's slight disappointment.
Firm continues to believe PALM's F2Q07 should manifest above-normal positive seasonality in shipment growth owing to sell-in of new product to the European channel (Vodafone). However, channel checks conducted last month in the UK, France and Spain indicated significant QWERTY based competition (esp. Nokia E61, HTC products and RIM) in the smartphone category, and they thus remain cautious regarding the European appetite for the forthcoming Palm
device.
Maintains Neutral. PALM is trading at 14.8x fully taxed FY07 EPS of $1.05, a 32% discount to the mean of coverage universe on a current year basis and an ex-cash multiple of just 11.5x fully-taxed PF FY07E EPS of $0.93 ($4.79 cash/share).
*Piper Jaffray notes that consistent with their channel checks, they noted increasing competition at Verizon and Cingular and lowered margin estimates due to increased competitive concerns and revenue estimates due to checks indicating weak Treo sales at Cingular.
While the firm believes the newly launched 700wx at Sprint and upcoming launch of the Treo 750 for Vodafone and then other WCDMA carriers should help reaccelerate Palm's revenue from the disappointing August results, they have slightly lowered their forward estimates due to the August quarter shortfall.
Based on August quarter shortfall, they are lowering FY07 estimates from EPS of $1.01 on revenue of $1.82B to $0.99/$1.74B and FY08 estimates from $1.06 on revenue of $2.05B to $1.05/$1.97B.
Maintains Mkt Perform and $16 tgt.
Notablecalls: I highlighted PALM as a potential short on Tuesday. It was actually a bad call as the shares rallied over the next couple of days. After the news broke last night the stock traded down about 7-8% in aftr mkt trading. Can't take any credit for that. While I like PALM around current levels, I think there is no trade to be had here just yet. The valuation (about 1/3 on mkt cap consists of cash) keeps it from gapping down enough to see a meaningful bounce from the lows. Uncertainty regarding n-t product demand (competition) will keep it from trading meaningfully higher from here. For the bulls, I do like the idea behind Blackberry Connect and think it may prove to be a meaningful revenue driver in the next couple of qtrs. And did I mention the rumors of RIMM buying PALM?
* JP Morgan notes PALM pre-announced a slight F1Q07 revenue miss last night. The company expects sales to be in the range of $354-$356, 7% lower than the mid-point of prior guidance. PF EPS guidance of $0.18-$0.19 was unchanged, suggesting good cost discipline below the line. Firm is adjusting their revenue estimate to align with the high end of revised guidance ($355.3m) but leaving EPS unchanged.
The accompanying press release points to two new product launches in the immediate future, which is likely to buoy the stock, notwithstanding F1Q's slight disappointment.
Firm continues to believe PALM's F2Q07 should manifest above-normal positive seasonality in shipment growth owing to sell-in of new product to the European channel (Vodafone). However, channel checks conducted last month in the UK, France and Spain indicated significant QWERTY based competition (esp. Nokia E61, HTC products and RIM) in the smartphone category, and they thus remain cautious regarding the European appetite for the forthcoming Palm
device.
Maintains Neutral. PALM is trading at 14.8x fully taxed FY07 EPS of $1.05, a 32% discount to the mean of coverage universe on a current year basis and an ex-cash multiple of just 11.5x fully-taxed PF FY07E EPS of $0.93 ($4.79 cash/share).
*Piper Jaffray notes that consistent with their channel checks, they noted increasing competition at Verizon and Cingular and lowered margin estimates due to increased competitive concerns and revenue estimates due to checks indicating weak Treo sales at Cingular.
While the firm believes the newly launched 700wx at Sprint and upcoming launch of the Treo 750 for Vodafone and then other WCDMA carriers should help reaccelerate Palm's revenue from the disappointing August results, they have slightly lowered their forward estimates due to the August quarter shortfall.
Based on August quarter shortfall, they are lowering FY07 estimates from EPS of $1.01 on revenue of $1.82B to $0.99/$1.74B and FY08 estimates from $1.06 on revenue of $2.05B to $1.05/$1.97B.
Maintains Mkt Perform and $16 tgt.
Notablecalls: I highlighted PALM as a potential short on Tuesday. It was actually a bad call as the shares rallied over the next couple of days. After the news broke last night the stock traded down about 7-8% in aftr mkt trading. Can't take any credit for that. While I like PALM around current levels, I think there is no trade to be had here just yet. The valuation (about 1/3 on mkt cap consists of cash) keeps it from gapping down enough to see a meaningful bounce from the lows. Uncertainty regarding n-t product demand (competition) will keep it from trading meaningfully higher from here. For the bulls, I do like the idea behind Blackberry Connect and think it may prove to be a meaningful revenue driver in the next couple of qtrs. And did I mention the rumors of RIMM buying PALM?
Paperstand
The WSJ's "Heard on the Street" column discusses Hershey (HSY), saying that for the co, the 2H06 mightn't be so sweet. The nation's largest chocolate maker by mkt share indicated just a few weeks ago that it expected a strong end of the year, helping drive annual net sales growth "somewhat above" its long-term range of 3-4%. But some preliminary data from checkout-counter scanners suggest Hershey's sales may be weakening as the co faces tough competition from, among others, closely held Mars. The data prompted JP Morgan analyst Pablo Zuanic to cut his recommendation on Hershey's stock to Hold from Buy Tuesday, pushing the stock down more than 4% that day. Mr. Zuanic calculates that the co has lost 2 percentage points of chocolate mkt share during the past 2 months, a scary prospect with the approach of the important Halloween candy-selling season. He doesn't expect to see improved trends until April of next year.
Barron's Online highlights favorably Black & Decker (BDK), saying that the co still has juice. With home-builder stocks down more than 30% so far this year, it's no surprise that B&D got dragged into the basement. Yet with less than 1/5 of its sales dependent on weak new housing construction in the US, the co could be a nice stock for an investor's tool box. Down 22% since hitting a record high April 28, the stock has been hammered by dimming earnings forecasts, investors' anxieties over the housing mkt, rising raw-materials costs and fewer orders from retailers and other distributors. But with its P/E multiple bouncing off 5y ows, new products, and strong cash flow funding a mammoth stock repurchase, B&D has room to move. "The valuation looks cheap and the free cash flow is strong," says John Hintz, of Thrivent Mid-Cap Core Fund. "It looks like a decent risk reward."
According to the "Inside Scoop" section, the Chmn of Starwood Hotels (HOT) is checking in on his co's shares after a selloff knocked 15% off the stock's price in 3 months. In transactions on Aug. 29 and 30, Bruce Duncan spent a total of $2.6m to purchase 51K shares for prices from $51.35 to $52.89 each. Ben Silverman, of InsiderScore.com, says that Duncan's purchase is especially notable b/c he was selling as recently as May.
Barron's Online highlights favorably Black & Decker (BDK), saying that the co still has juice. With home-builder stocks down more than 30% so far this year, it's no surprise that B&D got dragged into the basement. Yet with less than 1/5 of its sales dependent on weak new housing construction in the US, the co could be a nice stock for an investor's tool box. Down 22% since hitting a record high April 28, the stock has been hammered by dimming earnings forecasts, investors' anxieties over the housing mkt, rising raw-materials costs and fewer orders from retailers and other distributors. But with its P/E multiple bouncing off 5y ows, new products, and strong cash flow funding a mammoth stock repurchase, B&D has room to move. "The valuation looks cheap and the free cash flow is strong," says John Hintz, of Thrivent Mid-Cap Core Fund. "It looks like a decent risk reward."
According to the "Inside Scoop" section, the Chmn of Starwood Hotels (HOT) is checking in on his co's shares after a selloff knocked 15% off the stock's price in 3 months. In transactions on Aug. 29 and 30, Bruce Duncan spent a total of $2.6m to purchase 51K shares for prices from $51.35 to $52.89 each. Ben Silverman, of InsiderScore.com, says that Duncan's purchase is especially notable b/c he was selling as recently as May.
Wednesday, September 06, 2006
Calls of Note Part 3
- While several firms are positive on Intel (NASDAQ:INTC) after the announced restructuring program, Citi's comments sum it up the best:
Intel announced its restructuring and associated saving of $2B in 2007 and $3B in 2008 from a 10.5K workforce reduction and savings in other expenses. Headcount reduction of 10.5K was in line with Citi's expectations (although below some market expectations). However, expected cost savings of $2B is $800M above firm's expectations.
Firm's EPS estimate increases by $0.24 for 2007; they anticipate upward estimate revision to consensus. This marks the first upward estimate revision for Intel after nine months of declines. Firm views this as a positive for the shares. Solid PC back-to-school sales (August up 40% m/m at US POS retail), combined with improving sales trends in 2H August and improving visibility for 4Q06 at notebook ODMs should also act as positive catalysts for INTC.
2007 EPS estimate increases to $1.28 from $1.04 and 2008 EPS estimate to $1.56 from $1.21. Target price goes to $23 from $21. Maintains Buy.
Notablecalls: I suspect any gap up will be faded at current levels. The n-t catalyst has played out and back-to-school demand will cool off soon.
Intel announced its restructuring and associated saving of $2B in 2007 and $3B in 2008 from a 10.5K workforce reduction and savings in other expenses. Headcount reduction of 10.5K was in line with Citi's expectations (although below some market expectations). However, expected cost savings of $2B is $800M above firm's expectations.
Firm's EPS estimate increases by $0.24 for 2007; they anticipate upward estimate revision to consensus. This marks the first upward estimate revision for Intel after nine months of declines. Firm views this as a positive for the shares. Solid PC back-to-school sales (August up 40% m/m at US POS retail), combined with improving sales trends in 2H August and improving visibility for 4Q06 at notebook ODMs should also act as positive catalysts for INTC.
2007 EPS estimate increases to $1.28 from $1.04 and 2008 EPS estimate to $1.56 from $1.21. Target price goes to $23 from $21. Maintains Buy.
Notablecalls: I suspect any gap up will be faded at current levels. The n-t catalyst has played out and back-to-school demand will cool off soon.
Calls of Note Part 2
- First Analysis Securities' Gregg Haddad has some positive things to say about Allscripts Healthcare Solutions (NASDAQ:MDRX) after he and his collegues spent a couple of days last week with Allscripts Healthcare Solutions CFO Bill Davis. Sessions reinforced their positive outlook on the company's fundamentals, both in the short and long term.
They are increasingly confident that Allscripts can beat its 2006 guidance of $0.71 to $0.73 cash EPS (firm's estimate currently $0.71, consensus $0.72) and perform better than current expectation for 2007 ($0.96 cash EPS). The upside--perhaps a penny or two for 2006, and maybe a bit more for 2007--should come both from better-than-anticipated volume and margin rates. Their view does not result from any single data point. Firm sees a number of demand drivers accelerating favorably. In addition, they think the competitive environment, while intense, generally favors Allscripts and a few other leaders with strong track records in physician clinical software over at least the next 12 to 18 months.
They expect margin expansion (both gross and EBITDA) in the second half of 2006 and continuing through 2008. Firm believes the EBITDA margin rate should increase from about 13% in 2005 to 21% to 23% for 2008. Most of the improvement should result primarily from high-margin clinical and practice software sales representing a larger portion of aggregate revenue and margin.
Also, the physician practice software market disruption resulting from pending sales of Emdeon's (HLTH) and Misys' (MSY.L) businesses is resulting in share gain possibilities for Allscripts. GE's acquisition of IDX Systems also appears to be creating opportunity.
A major product transition appears to have been one of the primary drivers of the recent weakness. Firm sees Allscripts as increasingly confident in its ability to book solid order volume in the second half, better than they've been anticipating.
Firm's $24 target price is based on a PE ratio of 19x their 2008 cash EPS estimate of $1.29.
Notablecalls: Not actionable but good to know category.
They are increasingly confident that Allscripts can beat its 2006 guidance of $0.71 to $0.73 cash EPS (firm's estimate currently $0.71, consensus $0.72) and perform better than current expectation for 2007 ($0.96 cash EPS). The upside--perhaps a penny or two for 2006, and maybe a bit more for 2007--should come both from better-than-anticipated volume and margin rates. Their view does not result from any single data point. Firm sees a number of demand drivers accelerating favorably. In addition, they think the competitive environment, while intense, generally favors Allscripts and a few other leaders with strong track records in physician clinical software over at least the next 12 to 18 months.
They expect margin expansion (both gross and EBITDA) in the second half of 2006 and continuing through 2008. Firm believes the EBITDA margin rate should increase from about 13% in 2005 to 21% to 23% for 2008. Most of the improvement should result primarily from high-margin clinical and practice software sales representing a larger portion of aggregate revenue and margin.
Also, the physician practice software market disruption resulting from pending sales of Emdeon's (HLTH) and Misys' (MSY.L) businesses is resulting in share gain possibilities for Allscripts. GE's acquisition of IDX Systems also appears to be creating opportunity.
A major product transition appears to have been one of the primary drivers of the recent weakness. Firm sees Allscripts as increasingly confident in its ability to book solid order volume in the second half, better than they've been anticipating.
Firm's $24 target price is based on a PE ratio of 19x their 2008 cash EPS estimate of $1.29.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 1
- Merrill Lynch comments on Agere (NYSE:AGR) noting that according to TSR, Jul-06 HDD unit production increased 4% M/M, which was better than the historic average for flat. 1.8" and mobile (2.5") drive production was strong while enterprise and desktop drive production was about flat sequentially. Small drive (1.0"/0.85") production fell 14% Q/Q in July.
July production data suggests that AGR's Sep-06Q is off to a weak start. If production trends at Agere's customers don't improve significantly in August and September, the firm thinks Sep-06Q estimates could be at risk.
Overall unit production at AGR's (35% HDD exposure) customers declined by 8% in July (first month of Sep-06Q) compared to April (first month of Jun-06Q). Even after adjusting the data for share shifts at MXO in Q2, the firm estimates that AGR's units declined by at least 3% in the month of July on a Q/Q basis. This is well below their current forecast of 10% growth for Agere's storage business for the Sep-06Q. While AGR appears to be benefiting from strength in mobile drives at STX, desktop drive unit declines at MXO continue to be a drag on the company's storage business
Notablecalls: Not going to call this one outright actionable but one to keep on radar. Just in case it breaks $15 level and starts rolling over.
July production data suggests that AGR's Sep-06Q is off to a weak start. If production trends at Agere's customers don't improve significantly in August and September, the firm thinks Sep-06Q estimates could be at risk.
Overall unit production at AGR's (35% HDD exposure) customers declined by 8% in July (first month of Sep-06Q) compared to April (first month of Jun-06Q). Even after adjusting the data for share shifts at MXO in Q2, the firm estimates that AGR's units declined by at least 3% in the month of July on a Q/Q basis. This is well below their current forecast of 10% growth for Agere's storage business for the Sep-06Q. While AGR appears to be benefiting from strength in mobile drives at STX, desktop drive unit declines at MXO continue to be a drag on the company's storage business
Notablecalls: Not going to call this one outright actionable but one to keep on radar. Just in case it breaks $15 level and starts rolling over.
Paperstand
The WSJ's "Heard on the Street" column discusses Ford (F), General Motors (GM) and Toyota (TMC), saying that right now, common financial yardsticks for the co's are eye-catching, but investors who read too much into them might do so at their peril. At first glance, the 2 biggest US car makers don't look to be too far behind their global competitors. GM grabbed 24.8% of all US light-vehicle sales so far this year, while Ford has 17.7% of the mkt. Toyota has about 15% of the US light-vehicle mkt. Over the past 12 months GM's rev topped $205bn, compared with more than $185bn for Toyota and a little more than $170bn for Ford. But Toyota is way out in front on the scorecard kept by most investors on Wall St., its stock price. And the co seems to be extending its lead, despite all the talk about bold moves by Ford and GM. Ford shares are down about 13% in the past year and the auto maker now has a mkt value of just $15.4bn, even below its more than $23bn in cash and short-term investments. GM shares are down about 3% in the past 12 months and the co's mkt value has shriveled to $17.3bn, despite a rally since April, also below its own $20bn cash stash. Shares of Toyota, by contrast, are up more than 30% this year and have a mkt value of about $197bn. The co had almost $18bn in cash and short-term investments on Jun. 30. That gap in how investors view the co's isn't so shocking, of course, given the co's divergent bottom lines. Toyota generated more than $12.6bn of profit over the past 4 qrtrs. By contrast, GM lost $11.3bn during the past year, while Ford lost nearly $1.6bn. The numbers make it easy to see which co is favored by the mkts. But they don't necessarily tell you which will be the better investment. "In a sense, the best thing to do is separate the 2 questions," says Aswath Damodaran, a professor at NY University's Stern School of Business who focuses on valuation. "Toyota is obviously in much better shape than GM or Ford. But which is a better investment becomes a dicier question. Toyota might be a great co, but it is priced as such. GM and Ford aren't great co's right now, but they are priced as such."
Barron's Online highlights Lyondell Chemical (LYO), which recently acquired the remaining 40% stake in its Texas refinery, which was partly owned by Citgo Petroleum. The move means Lyondell's operating profits from refining should go from roughly 15% to more than a 1/3, nearly mirroring Lyondell's biggest business, ethylene. But Wall St. seems fixated on when the ethylene and propylene chemical businesses, more than 60% of Lyondell profits, will slow. So shares trade at year-ago levels and are 11% below their 52w high. But the stock looks cheap and may deserve more credit for the bold move in refining. True, the acquisition added $2.5bn to an already-significant pile of debt. But the outlook for refining margins is strong, b/c it's hard to build new refineries in the US and b/c Lyondell can process cheaper, "heavy" crude. And new chemical capacity won't come online overnight, signaling this earnings cycle still has a few more years of fun before graduating, one reason Merrill Lynch recently upgraded the stock. "Lyondell is a cheap co and with this acquisition, it's an awful-good deal," says James Barrow, of Barrow, Hanley, Mewhinney & Strauss, the second largest investor in Lyondell after Occidental Petroleum, which has a roughly 12% stake. "Anyone getting into refining will do well, b/c [Americans will] be using more gasoline and heating oil," says Peter Beutel, of Cameron Hanover. "This year we saw some of the largest refining margins in a number of years, and I think that is going to continue."
"Inside Scoop" section reports that Ruth's Chris Steak House (RUTH) 4 insiders sold 1.6m shares for nearly $31.5m in August at prices between $18 and $20. "That's a negative," says Ben Silverman, of InsiderScore.com of insiders selling just as the stock rebounds from recent lows. "The suggestion is that perhaps the momentum could not be sustained."
Barron's Online highlights Lyondell Chemical (LYO), which recently acquired the remaining 40% stake in its Texas refinery, which was partly owned by Citgo Petroleum. The move means Lyondell's operating profits from refining should go from roughly 15% to more than a 1/3, nearly mirroring Lyondell's biggest business, ethylene. But Wall St. seems fixated on when the ethylene and propylene chemical businesses, more than 60% of Lyondell profits, will slow. So shares trade at year-ago levels and are 11% below their 52w high. But the stock looks cheap and may deserve more credit for the bold move in refining. True, the acquisition added $2.5bn to an already-significant pile of debt. But the outlook for refining margins is strong, b/c it's hard to build new refineries in the US and b/c Lyondell can process cheaper, "heavy" crude. And new chemical capacity won't come online overnight, signaling this earnings cycle still has a few more years of fun before graduating, one reason Merrill Lynch recently upgraded the stock. "Lyondell is a cheap co and with this acquisition, it's an awful-good deal," says James Barrow, of Barrow, Hanley, Mewhinney & Strauss, the second largest investor in Lyondell after Occidental Petroleum, which has a roughly 12% stake. "Anyone getting into refining will do well, b/c [Americans will] be using more gasoline and heating oil," says Peter Beutel, of Cameron Hanover. "This year we saw some of the largest refining margins in a number of years, and I think that is going to continue."
"Inside Scoop" section reports that Ruth's Chris Steak House (RUTH) 4 insiders sold 1.6m shares for nearly $31.5m in August at prices between $18 and $20. "That's a negative," says Ben Silverman, of InsiderScore.com of insiders selling just as the stock rebounds from recent lows. "The suggestion is that perhaps the momentum could not be sustained."
Tuesday, September 05, 2006
Calls of Note Part 9
- UBS is out with several Farm Equipment upgrades as they are moving from an investment thesis based on the potential for a large corn crop in 2006 to cause a downdraft in farm commodity prices, to a thesis based on belief that demand for corn in 2007 may be too strong for production to keep up. Firm believes a shortage of corn could develop next year, leading to higher corn prices and higher farm equipment company stock prices.
Firm is raising their target prices on AG to $26 per share, CNH to $25 per share and DE to $96 per share to reflect a valuation based on initial forecasts of earnings in 2008. They are raising ratings on AG and CNH to Neutral, from Reduce. Raising rating on DE to Buy, from Neutral.
Firm remains with significantly below consensus earnings forecasts for the farm equipment manufacturers, driven by relatively weak farm equipment demand (current depressed levels of farm commodity prices, coupled with elevated input costs and higher interest rates) and relatively weak construction equipment demand (housing/rental).
Notablecalls: Talking to a technically oriented trader this AM saying he will most likely be fading the upgrade. Thinks DE is the best candidate. Most of these stocks have been going vertical lately and I suspect the catalyst was the largest outdoor agriculture show called the Farm Progress Show in Amana, Iowa that took place last week. Bear Stearns notes that overall the mood at the show was more upbeat than they have seen for a couple of years as farm conditions are improving with strong livestock markets, growing exports and ethanol usage. All participants agreed that farmers are "cautiously optimistic " -- which is a change from last year when drought caused farmers to be "cautious ". The reason for the slightly more optimistic outlook is simply that demand for U.S. food commodities is growing and production is not keeping up.
Firm is raising their target prices on AG to $26 per share, CNH to $25 per share and DE to $96 per share to reflect a valuation based on initial forecasts of earnings in 2008. They are raising ratings on AG and CNH to Neutral, from Reduce. Raising rating on DE to Buy, from Neutral.
Firm remains with significantly below consensus earnings forecasts for the farm equipment manufacturers, driven by relatively weak farm equipment demand (current depressed levels of farm commodity prices, coupled with elevated input costs and higher interest rates) and relatively weak construction equipment demand (housing/rental).
Notablecalls: Talking to a technically oriented trader this AM saying he will most likely be fading the upgrade. Thinks DE is the best candidate. Most of these stocks have been going vertical lately and I suspect the catalyst was the largest outdoor agriculture show called the Farm Progress Show in Amana, Iowa that took place last week. Bear Stearns notes that overall the mood at the show was more upbeat than they have seen for a couple of years as farm conditions are improving with strong livestock markets, growing exports and ethanol usage. All participants agreed that farmers are "cautiously optimistic " -- which is a change from last year when drought caused farmers to be "cautious ". The reason for the slightly more optimistic outlook is simply that demand for U.S. food commodities is growing and production is not keeping up.
Calls of Note Part 8
- William Blair is cautious on Guitar Center (NASDAQ:GTRC) noting that although management has provided no update on business subsequent to the second quarter, firm's store channel checks and escalating competitive offers on the Internet suggest a less-than-robust end-market environment, likely as a result of a lackluster overall consumer climate. Given their concerns, the firm is lowering their fourth-quarter estimate by $0.16, to $1.15 (versus consensus of $1.29), bringing full year 2006 estimate to $2.64 (up 9% excluding options and LTIP).
Firm's third-quarter estimate remains $0.40, at the low end of guidance of $0.40 to $0.46 and below consensus of $0.43. Although they remain optimistic that their $0.40 estimate will be met, they cannot rule out the possibility of an earnings shortfall.
A recent conversation with management confirmed that the competitive environment on the Internet is again becoming more erratic, after exhibiting signs of stability for much of this calendar year.
Firm also suspects that the core Guitar Center business is facing a challenging environment, and they now project comps are more likely to come in near the low end of management's 3% to 5% guidance in the third quarter absent a ramp-up in promotional activity in September.
Maintains Outperform due to valuation, ongoing solid fundamentals and dominant share in an attractive niche market.
Notablecalls:
Firm's third-quarter estimate remains $0.40, at the low end of guidance of $0.40 to $0.46 and below consensus of $0.43. Although they remain optimistic that their $0.40 estimate will be met, they cannot rule out the possibility of an earnings shortfall.
A recent conversation with management confirmed that the competitive environment on the Internet is again becoming more erratic, after exhibiting signs of stability for much of this calendar year.
Firm also suspects that the core Guitar Center business is facing a challenging environment, and they now project comps are more likely to come in near the low end of management's 3% to 5% guidance in the third quarter absent a ramp-up in promotional activity in September.
Maintains Outperform due to valuation, ongoing solid fundamentals and dominant share in an attractive niche market.
Notablecalls:
Calls of Note Part 7
- JP Morgan is raising their Q306 EPS estimate on Anheuser-Busch (NYSE:BUD) to $0.83 and 2007 EPS estimate to $2.84. Firm thinks EPS consensus for 2H06 (Q3: $0.81, Q4: $0.27) assumes a +2% pricing forecast, versus their new +3.3% estimate. Firm's Q406 EPS estimate
remains unchanged as they are taking MDandA estimate up (offsetting increased net rev/bbl forecast) based on higher options expense and management's change to full year guidance from down to flat.
Firm thinks pricing in 2H06 will exhibit the same sequential pattern as the last several years prior to 2005. They anticipate a sequential decrease in absolute net revenue per barrel in Q3 due to seasonal discounting and a sequential increase in Q4 as discounting abates. Firm applied the average absolute sequential change from prior years (excl 2005) to Q306 and Q406 to arrive at new forecast. Given the continuous sequential decline in pricing each quarter in 2005, the year-over-year pricing forecast for 2H06 is higher than historical levels.
They performed a similar analysis using CPI data and scanner data. All three analyses point to pricing that should come in noticeably above what they believe to be consensus for the back half of the year, +1.5-2.0%.
Reits BUD Neutral.
Notablecalls: BUD is in a nice uptrend and JP Morgan's comments surely support the trend.
remains unchanged as they are taking MDandA estimate up (offsetting increased net rev/bbl forecast) based on higher options expense and management's change to full year guidance from down to flat.
Firm thinks pricing in 2H06 will exhibit the same sequential pattern as the last several years prior to 2005. They anticipate a sequential decrease in absolute net revenue per barrel in Q3 due to seasonal discounting and a sequential increase in Q4 as discounting abates. Firm applied the average absolute sequential change from prior years (excl 2005) to Q306 and Q406 to arrive at new forecast. Given the continuous sequential decline in pricing each quarter in 2005, the year-over-year pricing forecast for 2H06 is higher than historical levels.
They performed a similar analysis using CPI data and scanner data. All three analyses point to pricing that should come in noticeably above what they believe to be consensus for the back half of the year, +1.5-2.0%.
Reits BUD Neutral.
Notablecalls: BUD is in a nice uptrend and JP Morgan's comments surely support the trend.
Calls of Note Part 6
- Piper Jaffray believes Vonage (NYSE:VG) recently exceeded the two million VoIP subscriber milestone and will likely be promoting this fact in conjunction with next week's VoIP industry trade show (VON or Voice-On-the- Net) next week. Vonage exited Q2 with 1.85 million VoIP subscribers and was adding just under 20K net subscribers per week on average. Assuming this 20K level of net subscriber adds has carried into Q3 and given we are nine weeks past the 1.85 million level reported for June, the firm believes Vonage recently exceeded the two million subscriber level and will likely be announcing this news relatively soon.
Vonage has roughly 124 million shares of common stock that comes available for sale following the IPO lock-up expiration on November 20. They believe the lock-up expiration could create an overhang for the stock and could impact investor sentiment.
Despite the potential for near-term catalysts (2M subs, VON conference, better-than-expected EBITDA), the firm remains cautious on VG shares due to numerous concerns which include, increased competition, declining ARPU, decelerating sub adds, customer care issues, and
increasing customer churn.
Maintains Mkt Perfrm and $7 tgt.
Notablecalls: Note there VG shares have rallied over the past couple of weeks from around $6.5 levelt just below $9. Suspect the 2 mln sub announcement will prove to be the top of that move.
Vonage has roughly 124 million shares of common stock that comes available for sale following the IPO lock-up expiration on November 20. They believe the lock-up expiration could create an overhang for the stock and could impact investor sentiment.
Despite the potential for near-term catalysts (2M subs, VON conference, better-than-expected EBITDA), the firm remains cautious on VG shares due to numerous concerns which include, increased competition, declining ARPU, decelerating sub adds, customer care issues, and
increasing customer churn.
Maintains Mkt Perfrm and $7 tgt.
Notablecalls: Note there VG shares have rallied over the past couple of weeks from around $6.5 levelt just below $9. Suspect the 2 mln sub announcement will prove to be the top of that move.
Calls of Note Part 5
- Piper Jaffray is positive on Smith Micro Software (NASDAQ:SMSI) saying that based on their monthly handset channel checks, they believe Verizon accelerated sales of music enabled handsets and Music Essentials Kits (MEKs) due to the recent launch of LG's Chocolate phone and promotion of the CDM 8945 music enabled handset from UTStarcom for only $30 with a free Music Essentials Kit.
Further, with the back-to-school season, it was clear Verizon store managers were strongly promoting its V CAST music service and enjoying strong sales of music-enabled handsets such as the LG Chocolate phone and the LG VX 8300.
Each phone Verizon offers for its V CAST music service requires its own unique Smith Micro MEKs, and Smith Micro recognizes revenue on sales of the kits into the market. While selling MEKs into the channel to support phone launches could potentially create a future inventory correction, they believe the Verizon service is in the early stages of strong growth and do not foresee any near-term inventory issues given expectations of ramping music phone models and sales for the remainder of 2006.
In fact, with firm's August checks indicating strong sell-through trends for music enabled handsets, they believe Smith Micro September quarter estimates may prove conservative. Maintains Outperform and $18 tgt.
Notablecalls: I highlighted SMSI 3 weeks back in connection with ThinkEquity's comments saying it could eventually be a $200 stock. The shares have rallied 40% since then. I think that while Piper is a bit late with their call, SMSI may be starting to attract some serious inst. interest. Look for a pullback before buying.
Further, with the back-to-school season, it was clear Verizon store managers were strongly promoting its V CAST music service and enjoying strong sales of music-enabled handsets such as the LG Chocolate phone and the LG VX 8300.
Each phone Verizon offers for its V CAST music service requires its own unique Smith Micro MEKs, and Smith Micro recognizes revenue on sales of the kits into the market. While selling MEKs into the channel to support phone launches could potentially create a future inventory correction, they believe the Verizon service is in the early stages of strong growth and do not foresee any near-term inventory issues given expectations of ramping music phone models and sales for the remainder of 2006.
In fact, with firm's August checks indicating strong sell-through trends for music enabled handsets, they believe Smith Micro September quarter estimates may prove conservative. Maintains Outperform and $18 tgt.
Notablecalls: I highlighted SMSI 3 weeks back in connection with ThinkEquity's comments saying it could eventually be a $200 stock. The shares have rallied 40% since then. I think that while Piper is a bit late with their call, SMSI may be starting to attract some serious inst. interest. Look for a pullback before buying.
Calls of Note Part 4
- Jefferies notes that despite the option overhang, they believe Trident (NASDAQ:TRID) remains the best way to access the significant DTV market growth due to its superior customer base. Firm recommends investors build positions as they expect a strong sell-through and design wins to deliver significant revenue growth and strong profitability in CY06 and CY07.
Recent round of checks within the TV supply chain suggest orders remain robust. With regard to design activity for 2007, they believe that Trident will likely maintain its share at Sony, Samsung, and Sharp, and gain Philips, resulting in an increased share Y/Y in 2007.
Trident remains the best way to play the DTV market. Despite all of the concerns regarding
increasing competition, they believe they are likely overblown as recent checks suggest that Trident appears well-positioned to maintain its share at Sony, Samsung, and Sharp in 2007. In addition, they believe Trident has secured wins in a worldwide LCD TV platform with Philips, potentially 3-4MM units in CY07.
Firm believes Broadcom (NASDAQ:BRCM) is gaining traction in the TV market, but limited impact to Trident in 2007. Although they have found Broadcom at LG, checks have not revealed any Broadcom traction within Trident's main volume platforms at Sony, Samsung, and Sharp. They do believe that Broadcom has secured wins at Sharp with its PC/TV division, not currently Trident sockets. More importantly, Trident investors will likely take comfort that the much talked about Broadcom wins do not impact Trident's major customers.
Reits Buy and $28 tgt.
Notablecalls: Not actionable but good to know category.
Recent round of checks within the TV supply chain suggest orders remain robust. With regard to design activity for 2007, they believe that Trident will likely maintain its share at Sony, Samsung, and Sharp, and gain Philips, resulting in an increased share Y/Y in 2007.
Trident remains the best way to play the DTV market. Despite all of the concerns regarding
increasing competition, they believe they are likely overblown as recent checks suggest that Trident appears well-positioned to maintain its share at Sony, Samsung, and Sharp in 2007. In addition, they believe Trident has secured wins in a worldwide LCD TV platform with Philips, potentially 3-4MM units in CY07.
Firm believes Broadcom (NASDAQ:BRCM) is gaining traction in the TV market, but limited impact to Trident in 2007. Although they have found Broadcom at LG, checks have not revealed any Broadcom traction within Trident's main volume platforms at Sony, Samsung, and Sharp. They do believe that Broadcom has secured wins at Sharp with its PC/TV division, not currently Trident sockets. More importantly, Trident investors will likely take comfort that the much talked about Broadcom wins do not impact Trident's major customers.
Reits Buy and $28 tgt.
Notablecalls: Not actionable but good to know category.
Calls of Note Part 3
- Piper Jaffray notes that based on their monthly handset channel checks, they believe Palm (NASDAQ:PALM) Treo sales were solid at Verizon and Sprint during August. However, firm's
checks indicated weak Treo sales trends at Cingular due in part to the lack of new product introductions.
At Cingular,checks indicated Treo 650 sales remained weak due to continued stronger demand for the HTC 8125 and BlackBerry 8700. They also believe the Nokia E62 is on track to ramp in volume by October and should sell at a very competitive price. Firm was disappointed several Cingular stores that had expected a 700 version of the Treo by now were no longer certain of its launch date and hinted of a WCDMA version (Treo 750) by the end of the year. Firm believes as Cingular rolls out 3G services covering more markets nationwide, Palm must ship a 3G-enabled smartphone at Cingular to help drive sales. In fact, channels checks indicated Cingular will soon offer a new HTC 3G-enabled smartphone to replace the current strong selling 8125 model.
Overall, they believe Palm sales trends are tracking in line with August quarter proforma EPS of $0.19. However, due to increasing global competition, the firm slightly reduced their gross margin assumptions leading to lowering FY07 EPS estimate from $1.03 to $1.01 and FY08 estimate from $1.14 to $1.06. Tgt goes to $16 from $19.
Notablecalls: Expect to see some downside pressure in PALM in the coming days.
checks indicated weak Treo sales trends at Cingular due in part to the lack of new product introductions.
At Cingular,checks indicated Treo 650 sales remained weak due to continued stronger demand for the HTC 8125 and BlackBerry 8700. They also believe the Nokia E62 is on track to ramp in volume by October and should sell at a very competitive price. Firm was disappointed several Cingular stores that had expected a 700 version of the Treo by now were no longer certain of its launch date and hinted of a WCDMA version (Treo 750) by the end of the year. Firm believes as Cingular rolls out 3G services covering more markets nationwide, Palm must ship a 3G-enabled smartphone at Cingular to help drive sales. In fact, channels checks indicated Cingular will soon offer a new HTC 3G-enabled smartphone to replace the current strong selling 8125 model.
Overall, they believe Palm sales trends are tracking in line with August quarter proforma EPS of $0.19. However, due to increasing global competition, the firm slightly reduced their gross margin assumptions leading to lowering FY07 EPS estimate from $1.03 to $1.01 and FY08 estimate from $1.14 to $1.06. Tgt goes to $16 from $19.
Notablecalls: Expect to see some downside pressure in PALM in the coming days.
Calls of Note Part 2
- Goldman Sachs comments on Netease (NASDAQ:NTES) saying 2Q06 earnings reports suggest that free-to-play massively multiplayer online (MMO) games have carved out over a quarter of the Chinese MMO industry by users and revenue. Firm believes that rising home internet access (13% broadband penetration of urban homes in 2004, 26% in 2006E) together with low levels of credit and debit card penetration among game players may render free-to-play MMOs increasingly convenient versus pay-to-play in China.
They believe that Netease could ease the transition from a mostly PC caf user base to a mostly home user base for its games by releasing free-to-play MMO titles. However Netease appears reluctant to repurpose existing games as free-to-play, or to publish licensed games. Assuming that Tian Xia and the next mainstream MMO are pay-to-play, it may release its planned strategy MMO as a free-to-play game in 2008. Owning Netease between now and 2008 remains, in firm's view, a call on whether Tian Xia contributions can offset potentially declining income from WJ2 and FWJ, which generate 85% of its revenue.
Notablecalls: Notes like these can destory stocks. I would not want to be long NTES here.
They believe that Netease could ease the transition from a mostly PC caf user base to a mostly home user base for its games by releasing free-to-play MMO titles. However Netease appears reluctant to repurpose existing games as free-to-play, or to publish licensed games. Assuming that Tian Xia and the next mainstream MMO are pay-to-play, it may release its planned strategy MMO as a free-to-play game in 2008. Owning Netease between now and 2008 remains, in firm's view, a call on whether Tian Xia contributions can offset potentially declining income from WJ2 and FWJ, which generate 85% of its revenue.
Notablecalls: Notes like these can destory stocks. I would not want to be long NTES here.
Calls of Note Part 1
- Couple of firm have interesting comments on the handset mkt this morning:
*Deutsche Bank notes that for the overall handset market in Q3, July was a strong month, August showed normal seasonality, and if September is normal, we can expect a strong overall Q3. Based on this, the firm remains comfortable with their handset unit shipments of 965 million for CY06.
Motorola (NYSE:MOT) continues to increase its market share and makes inroads into
its competitor's space. In Q3, they predict MOT taking away share from its competitors (including Nokia). The company continues to lead the way in innovative handset designs and its new product line should help drive further gains.
Firm's channel checks indicate Silicon Labs (NASDAQ:SLAB) original estimate of up to 1
million shipments of its AeroFone for FY06 may be optimistic. It appears that the product is having issues with the higher layer software supporting its chipsets. This glitch will likely impact overall shipments and hence we could only see shipments in the 100 K
to 200 K range for FY06.
*Piper Jafray says that according to their checks, Motorola's (NYSE:MOT) RAZR continued to be mentioned as a top- selling phone at both T-Mobile and Cingular channels. Firm's checks indicated the iTune-enabled RAZR V3i should be available at Cingular this week, and they believe this newer version of RAZR should enable Motorola to maintain leadership at this key channel.
While checks noted slight Motorola share losses at Verizon and Cingular due to new product launches by competitors, they believe Motorola maintained its dominant market share in North America. Further, with Sprint introducing new thin Motorola products such as the Q, KRZR, and RAZR during Q406 combined with the launch of several new Motorola products for the leading North American carriers this holiday season, they believe Motorola should maintain and may even grow its dominant North American market share during Q406.
Due to increasing confidence in Motorola continuing to gain global market share during 2007, the firm has raised their 2007 EPS estimate from $1.50 to $1.56. Tgt goes to $27 from $26. Maintains Outperform rating.
* Piper also has interesting comments on Nokia (NYSE:NOK) saying that based on their monthly handset channel checks, they believe Nokia's August sell-through trends remained weak in North America, mainly due to the lack of new product introductions.
Firm was disappointed to learn Cingular stores still do not have the 6126, as it appears this thinner clam shaped Nokia phone remains stuck in testing. With the KRZR coming from Motorola and other new products shipping for the holiday season, they believe the 6126 may have already missed its window of opportunity with Cingular. However, Nokia's 6102i and 6103 were still mentioned favorably at Cingular and T-Mobile stores, respectively, and sales of these models may have made up for some of the potential missed sales due to problems with the 6126.
While Nokia's overall market share in North America continues to lag its global market share, they believe solid Nokia trends in Western Europe and healthy sales in other global markets such as India and China should offset the weakness in North America. In fact, the firm believes Nokia's September quarter continues to track in line with estimates. Maintains Outperform and $27 tgt.
Notablecalls: Think MOT may see some mild buy interest following the call. The checks on NOK are a bit negative but the downside seems to be limited. The most interesting comment is the SLAB one. While AeroFone isn't a huge rev driver yet, it is expected to account as much as 10% of C07 revs. Suspect SLAB shares may have some downside in them over the next couple of days.
*Deutsche Bank notes that for the overall handset market in Q3, July was a strong month, August showed normal seasonality, and if September is normal, we can expect a strong overall Q3. Based on this, the firm remains comfortable with their handset unit shipments of 965 million for CY06.
Motorola (NYSE:MOT) continues to increase its market share and makes inroads into
its competitor's space. In Q3, they predict MOT taking away share from its competitors (including Nokia). The company continues to lead the way in innovative handset designs and its new product line should help drive further gains.
Firm's channel checks indicate Silicon Labs (NASDAQ:SLAB) original estimate of up to 1
million shipments of its AeroFone for FY06 may be optimistic. It appears that the product is having issues with the higher layer software supporting its chipsets. This glitch will likely impact overall shipments and hence we could only see shipments in the 100 K
to 200 K range for FY06.
*Piper Jafray says that according to their checks, Motorola's (NYSE:MOT) RAZR continued to be mentioned as a top- selling phone at both T-Mobile and Cingular channels. Firm's checks indicated the iTune-enabled RAZR V3i should be available at Cingular this week, and they believe this newer version of RAZR should enable Motorola to maintain leadership at this key channel.
While checks noted slight Motorola share losses at Verizon and Cingular due to new product launches by competitors, they believe Motorola maintained its dominant market share in North America. Further, with Sprint introducing new thin Motorola products such as the Q, KRZR, and RAZR during Q406 combined with the launch of several new Motorola products for the leading North American carriers this holiday season, they believe Motorola should maintain and may even grow its dominant North American market share during Q406.
Due to increasing confidence in Motorola continuing to gain global market share during 2007, the firm has raised their 2007 EPS estimate from $1.50 to $1.56. Tgt goes to $27 from $26. Maintains Outperform rating.
* Piper also has interesting comments on Nokia (NYSE:NOK) saying that based on their monthly handset channel checks, they believe Nokia's August sell-through trends remained weak in North America, mainly due to the lack of new product introductions.
Firm was disappointed to learn Cingular stores still do not have the 6126, as it appears this thinner clam shaped Nokia phone remains stuck in testing. With the KRZR coming from Motorola and other new products shipping for the holiday season, they believe the 6126 may have already missed its window of opportunity with Cingular. However, Nokia's 6102i and 6103 were still mentioned favorably at Cingular and T-Mobile stores, respectively, and sales of these models may have made up for some of the potential missed sales due to problems with the 6126.
While Nokia's overall market share in North America continues to lag its global market share, they believe solid Nokia trends in Western Europe and healthy sales in other global markets such as India and China should offset the weakness in North America. In fact, the firm believes Nokia's September quarter continues to track in line with estimates. Maintains Outperform and $27 tgt.
Notablecalls: Think MOT may see some mild buy interest following the call. The checks on NOK are a bit negative but the downside seems to be limited. The most interesting comment is the SLAB one. While AeroFone isn't a huge rev driver yet, it is expected to account as much as 10% of C07 revs. Suspect SLAB shares may have some downside in them over the next couple of days.
Sunday, September 03, 2006
Barron's Summary
Barron's discusses teen retailers, saying that American Eagle (AEOS) and Abercrombie & Fitch (ANF) are poised to rally, but Hot Topic (HOTT) and Pacific Sunwear (PSUN) face tough competition. Another cool play: Federated Department Stores (FD).
According to the Barron's, unless Pegasus Wireless (PGWC) unveils a truly groundbreaking technology, its battered shares appear to have little chance of recovering.
Barron's highlights Medifast's (MED), saying its volatile stock has taken a roller-coaster ride. Now, it looks as if it's headed for a downslope that could leave it at 9 a share or lower. According to the article, insiders have already sold heavily.
"The Trader" column discusses Danaher (DHR), whose stock trades near all time high, driven by earnings growth. Yet, according to the article, a small but growing camp of doubters is beginning to circle the stock. A combination of a stout valuation and a slowing industrial economy, the co's need for ever-bigger deals and a recent push outside its core areas to expensive medical-supply deals has prompted concern. Danaher has long been the object of mad crushes by sell-side analysts, and it remains a favorite. Fully 16 of the 20 analysts covering the co rate it a Buy, with one Sell (from the highly regarded Nicholas Heymann of Prudential). The bullishness has moderated slightly of late, with Morgan Stanley's Scott Davis initiating coverage on Aug. 8 with laudatory words about the co, tempered by concerns about paying up for it at today's valuation. He's at the equivalent of a Hold. Christopher Laudani, of the research boutique Short Ideas, last week proposed betting against Danaher outright, based on a variety of concerns, with a downside tgt in the mid-$50s.
"The Trader" column also highlights Source Interlink (SORC), which put itself on the block, a few months ago. Despite the likelihood that the co will be bought by private-equity firms for a significant premium to its current share price, the stock is well off its springtime high. Late last week, prices being paid for options on Source Interlink shares were inflated, perhaps on speculation that a deal might happen sooner than later. The good news for buyers of the stock around current levels is that it remains cheap and appears to have limited downside, even absent an acquisition. Annual sales now run around $2bn, and earnings for the fiscal year ending next Jan. 31 are expected to be $40m, or 78c a share. Free cash flow should exceed $1 per share, and F'08 earnings are pegged at close to $1 a share. In this mkt, a stock at 11x free cash flow certainly qualifies as cheap. There's a crowd of smart-money hedge funds in the stock, including SAC Capital, Elliott Mgmt, DE Shaw and others. Otherwise, the stock's largely ignored by institutions. Portfolio managers who are in the stock are pegging a possible buyout price between $13-18 a share.
"Technology Trader" section discusses PetMed (PETS), which, according to the article, has some skeletons in its closet. The co has been caught up in an ugly legal brawl between its co-founders, Yali Golan and Marc Puleo. Golan served 2.5 years in prison after a drug-conspiracy conviction in the early '90s. In a lawsuit against Puleo and PetMed, one that's been wending its way through state and federal courts in Miami, Golan says his felony record led the two founders to use a shell co to hide Golan's involvement. But Puleo agreed to secretly share half his pay, claims Golan in the lawsuit, which demands damages from Puleo and PetMed. In deposition, Golan claimed that the idea of selling pet medicines by mail order was his. In '96, he incorporated PetMed Express along with Puleo. "I put the wheel in motion," bragged Golan in the deposition. "I was actually nice enough to give him half, you know, of the business." Golan gave the court a crudely drawn document in which Puleo promised to split all compensation. While acknowledging that Golan hid behind a shell co, Puleo and PetMed call the profit-splitting document a forgery. "The claims being asserted are factually and legally without merit," PetMed CEO Menderes Akdag told. "Obviously we will vigorously defend against those claims." Akdag said that PetMed is in no way distracted by the litigation with its felonious founder Yali Golan. But article suggests that investors who get in bed with this stock may rise with fleas.
Fund manager top 10 holdings include: EXC, TXU, NRG, FPL, EIX, WMB, FE, DUK, CEG and EQT.
According to the Barron's, unless Pegasus Wireless (PGWC) unveils a truly groundbreaking technology, its battered shares appear to have little chance of recovering.
Barron's highlights Medifast's (MED), saying its volatile stock has taken a roller-coaster ride. Now, it looks as if it's headed for a downslope that could leave it at 9 a share or lower. According to the article, insiders have already sold heavily.
"The Trader" column discusses Danaher (DHR), whose stock trades near all time high, driven by earnings growth. Yet, according to the article, a small but growing camp of doubters is beginning to circle the stock. A combination of a stout valuation and a slowing industrial economy, the co's need for ever-bigger deals and a recent push outside its core areas to expensive medical-supply deals has prompted concern. Danaher has long been the object of mad crushes by sell-side analysts, and it remains a favorite. Fully 16 of the 20 analysts covering the co rate it a Buy, with one Sell (from the highly regarded Nicholas Heymann of Prudential). The bullishness has moderated slightly of late, with Morgan Stanley's Scott Davis initiating coverage on Aug. 8 with laudatory words about the co, tempered by concerns about paying up for it at today's valuation. He's at the equivalent of a Hold. Christopher Laudani, of the research boutique Short Ideas, last week proposed betting against Danaher outright, based on a variety of concerns, with a downside tgt in the mid-$50s.
"The Trader" column also highlights Source Interlink (SORC), which put itself on the block, a few months ago. Despite the likelihood that the co will be bought by private-equity firms for a significant premium to its current share price, the stock is well off its springtime high. Late last week, prices being paid for options on Source Interlink shares were inflated, perhaps on speculation that a deal might happen sooner than later. The good news for buyers of the stock around current levels is that it remains cheap and appears to have limited downside, even absent an acquisition. Annual sales now run around $2bn, and earnings for the fiscal year ending next Jan. 31 are expected to be $40m, or 78c a share. Free cash flow should exceed $1 per share, and F'08 earnings are pegged at close to $1 a share. In this mkt, a stock at 11x free cash flow certainly qualifies as cheap. There's a crowd of smart-money hedge funds in the stock, including SAC Capital, Elliott Mgmt, DE Shaw and others. Otherwise, the stock's largely ignored by institutions. Portfolio managers who are in the stock are pegging a possible buyout price between $13-18 a share.
"Technology Trader" section discusses PetMed (PETS), which, according to the article, has some skeletons in its closet. The co has been caught up in an ugly legal brawl between its co-founders, Yali Golan and Marc Puleo. Golan served 2.5 years in prison after a drug-conspiracy conviction in the early '90s. In a lawsuit against Puleo and PetMed, one that's been wending its way through state and federal courts in Miami, Golan says his felony record led the two founders to use a shell co to hide Golan's involvement. But Puleo agreed to secretly share half his pay, claims Golan in the lawsuit, which demands damages from Puleo and PetMed. In deposition, Golan claimed that the idea of selling pet medicines by mail order was his. In '96, he incorporated PetMed Express along with Puleo. "I put the wheel in motion," bragged Golan in the deposition. "I was actually nice enough to give him half, you know, of the business." Golan gave the court a crudely drawn document in which Puleo promised to split all compensation. While acknowledging that Golan hid behind a shell co, Puleo and PetMed call the profit-splitting document a forgery. "The claims being asserted are factually and legally without merit," PetMed CEO Menderes Akdag told. "Obviously we will vigorously defend against those claims." Akdag said that PetMed is in no way distracted by the litigation with its felonious founder Yali Golan. But article suggests that investors who get in bed with this stock may rise with fleas.
Fund manager top 10 holdings include: EXC, TXU, NRG, FPL, EIX, WMB, FE, DUK, CEG and EQT.
Friday, September 01, 2006
Calls of Note Part 4
- ThinkEquity is upgrading Intel (NASDAQ:INTC) because they have heard it will implement
aggressive cost-cutting measures faster than they had originally thought. While they are still negative on their revenue growth (due to share losses to Advanced Micro Devices (NYSE:AMD), the firm expects margins could radically improve over the next six quarters. With efficiencies at a minimum at the company, in their opinion, cost cutting could add substantially to earnings.
Firm notes they are not upgrading on INTC's new products, and still expect AMD to gain share. Firm raises estimates and price target. Valuation is still a bit heavy, but increasing margins should drive the stock.
Believes INTC will write off much of its low-end inventory. Thinks the majority of Intel's inventory is low-end. Writing this off will likely drive margins higher, even as the cost is taken as a one-time expense. Expects headcount reductions. They believe a reduction of another 9,000 will come in 2H06. Firm also believes INTC's planned Israel and Arizona fabs will be delayed. They have heard deployment plans will more closely match demand. Intel will also likely to attempt to spin off its NOR Flash business. There is little strategic reason to keep this business now that the mobile processor business has been sold to Marvell.
The firm humbly bows their heads to those investors who convinced them that, even here, INTC has good upside potential. Notes they caught the move down to $17, but missed the move back to $19; they believe we can now capture the move from $19 to $23.
Rating change is from Sell to Accumulate. Tgt goes to $23 from $14.
Notablecalls: ThinkEquity's Eric Ross & Eddie Cheung have been making some high conviction calls on chips lately (remember the AMD call couple of weeks ago?). Thats what I want too see coming from analysts. Keep up the good work guys! Regarding the note, I'd be cashing in my chips into the upgrade. But that's just bc of my ultra-st/contrarian style.
aggressive cost-cutting measures faster than they had originally thought. While they are still negative on their revenue growth (due to share losses to Advanced Micro Devices (NYSE:AMD), the firm expects margins could radically improve over the next six quarters. With efficiencies at a minimum at the company, in their opinion, cost cutting could add substantially to earnings.
Firm notes they are not upgrading on INTC's new products, and still expect AMD to gain share. Firm raises estimates and price target. Valuation is still a bit heavy, but increasing margins should drive the stock.
Believes INTC will write off much of its low-end inventory. Thinks the majority of Intel's inventory is low-end. Writing this off will likely drive margins higher, even as the cost is taken as a one-time expense. Expects headcount reductions. They believe a reduction of another 9,000 will come in 2H06. Firm also believes INTC's planned Israel and Arizona fabs will be delayed. They have heard deployment plans will more closely match demand. Intel will also likely to attempt to spin off its NOR Flash business. There is little strategic reason to keep this business now that the mobile processor business has been sold to Marvell.
The firm humbly bows their heads to those investors who convinced them that, even here, INTC has good upside potential. Notes they caught the move down to $17, but missed the move back to $19; they believe we can now capture the move from $19 to $23.
Rating change is from Sell to Accumulate. Tgt goes to $23 from $14.
Notablecalls: ThinkEquity's Eric Ross & Eddie Cheung have been making some high conviction calls on chips lately (remember the AMD call couple of weeks ago?). Thats what I want too see coming from analysts. Keep up the good work guys! Regarding the note, I'd be cashing in my chips into the upgrade. But that's just bc of my ultra-st/contrarian style.
Calls of Note Part 3
Couple of firms are calling for a decline in PBM's after the Plavix news:
* Citigroup thinks a couple dollars can come out of the PBM stocks - especially CMX, MHS - on Friday, because a federal judge, after market close Thursday, has blocked sales of a generic version of the blood thinner Plavix while he considers the merits of a claim that Canadian drugmaker Apotex Inc. improperly entered the market, according to the Associated Press. PBMs earn more money on generics than on brands, and both MHS and CMX moved higher on the news Apotex would launch Plavix at risk. Firm does not expect earnings estimates to be cut on this news. However, both CMX and MHS are close to firm's price targets and have near-term downside potential of a couple dollars probably on sentiment. An inefficient market on the Friday before Labor Day may cause a worse drop than warranted, however. ESRX on the other hand didn't run up as much on the news and therefore may not sell off as much now.
* UBS notes they assume there is at minimum 3-6 months of inv in channel, which means PBMs will still benefit in 3Q06-4Q06 from dispensing generic Plavix. While firm's models don't assume any benefit in 07, if BMY decides to continue its recent initiative of paying rebates for Plavix or if Apotex wins in appeal or patent infringement case (trial begins 1/22/07), PBMs could see benefit in 07 & beyond as well.
With the PBM group up 4-8% since the prospect of Plavix going generic was first disseminated to the market (8/4) , they expect the group to give back some of these gains. Distributors, though less impacted by this, are likely to trade down as well. While the ruling is disappointing to the group, the firm continues to highlight the introduction of generic Zocor, Zoloft, Mobic, and Pravachol as key growth drivers for group in next 12 months.
Notablecalls: No further comments. The notes say it all.
* Citigroup thinks a couple dollars can come out of the PBM stocks - especially CMX, MHS - on Friday, because a federal judge, after market close Thursday, has blocked sales of a generic version of the blood thinner Plavix while he considers the merits of a claim that Canadian drugmaker Apotex Inc. improperly entered the market, according to the Associated Press. PBMs earn more money on generics than on brands, and both MHS and CMX moved higher on the news Apotex would launch Plavix at risk. Firm does not expect earnings estimates to be cut on this news. However, both CMX and MHS are close to firm's price targets and have near-term downside potential of a couple dollars probably on sentiment. An inefficient market on the Friday before Labor Day may cause a worse drop than warranted, however. ESRX on the other hand didn't run up as much on the news and therefore may not sell off as much now.
* UBS notes they assume there is at minimum 3-6 months of inv in channel, which means PBMs will still benefit in 3Q06-4Q06 from dispensing generic Plavix. While firm's models don't assume any benefit in 07, if BMY decides to continue its recent initiative of paying rebates for Plavix or if Apotex wins in appeal or patent infringement case (trial begins 1/22/07), PBMs could see benefit in 07 & beyond as well.
With the PBM group up 4-8% since the prospect of Plavix going generic was first disseminated to the market (8/4) , they expect the group to give back some of these gains. Distributors, though less impacted by this, are likely to trade down as well. While the ruling is disappointing to the group, the firm continues to highlight the introduction of generic Zocor, Zoloft, Mobic, and Pravachol as key growth drivers for group in next 12 months.
Notablecalls: No further comments. The notes say it all.
Calls of Note Part 2
Several firms commenting on OmniVision Tech (NASDAQ:OVTI) after the co reported wear results and provided below consensus guidance:
* JP Morgan notes OVTI shipped 58M sensors, up 10M q/q, but blended ASP dropped 14% q/q
(38% y/y), due to pricing pressure, particularly for VGA sensors, offset slightly by the ramping volume of 2MPx 1/4" sensors.
The company is seeing greater than expected demand for modules, leading to a packaging bottleneck. In addition to $17M invested in equipment installed at Xintec for chip scale packaging, OVTI expects to invest an additional $50M each for equipment installed at XinTec and VisEra. While the capacity constraint is expected to continue through 2QF07, the company expects to see a reacceleration of revenue growth in 3QF07.
In the meantime, F2Q guidance of $135-145M in sales compares with prior JPM estimates of $135M and street ests of $150.7M. Moreover, EPS guidance ($0.26-0.34 PF, $0.12-0.20 GAAP) is disappointing, and reflects continued margin pressure, pricing pressures and the capacity constraint. Firm is adjusting estimates accordingly: they are slightly raising revenue estimates, but gross margin pressure as well as higher than forecast operating expenses cause them to lower EPS estimates. Maintains Overweight, though incrementally cautious. In firm's view the risks associated with OVTI are mounting; however, they appear overly priced in with the stock trading at 11.8 times revised CY07 PF EPS of $1.41, a 48% discount to the mean of coverage. OVTI is sitting on $6.66 per share of cash and trades at an ex-cash P/E multiple of 8.2 times CY07E cash PF EPS estimate of $1.22.
* Piper Jaffray notes that as they had written in their August 17 note, they believe OmniVision faces an increasingly competitive pricing environment not only for lower-end VGA sensors but also for 1.3MP/2.0MP. In the past two quarters, 4QF06 and 1QF07, average ASPs declined 16.6% Q/Q (from $3.26 to $2.72) and 13.6% Q/Q (from $2.72 to $2.35), respectively. Firm believes that erosion in the ASP was a result of increased competition from focused CIS players, diversified semiconductor firms with internal fabs, and certain Flash manufacturers in pursuit of higher margins. In addition, they feel there may be a lack of meaningful near-term catalysts, such as visible upgrade cycles, that could accelerate the transition to higher-resolution CIS. As a result, they are lowering their revenue and EPS estimates as shown at left and lowering PT from $19 to $17, based on 13x (same multiple) new CY07 EPS estimate, in line with the company's comp. valuation group.
Notablecalls: I know OVTI has historically been a notorious bouncer, but I see very little reason to buy the stock here. ASP's just keep going down, there is no upgrade cycle to be seen. Soon they'll be losing money as end demand weakens. Tough, ver tough.
* JP Morgan notes OVTI shipped 58M sensors, up 10M q/q, but blended ASP dropped 14% q/q
(38% y/y), due to pricing pressure, particularly for VGA sensors, offset slightly by the ramping volume of 2MPx 1/4" sensors.
The company is seeing greater than expected demand for modules, leading to a packaging bottleneck. In addition to $17M invested in equipment installed at Xintec for chip scale packaging, OVTI expects to invest an additional $50M each for equipment installed at XinTec and VisEra. While the capacity constraint is expected to continue through 2QF07, the company expects to see a reacceleration of revenue growth in 3QF07.
In the meantime, F2Q guidance of $135-145M in sales compares with prior JPM estimates of $135M and street ests of $150.7M. Moreover, EPS guidance ($0.26-0.34 PF, $0.12-0.20 GAAP) is disappointing, and reflects continued margin pressure, pricing pressures and the capacity constraint. Firm is adjusting estimates accordingly: they are slightly raising revenue estimates, but gross margin pressure as well as higher than forecast operating expenses cause them to lower EPS estimates. Maintains Overweight, though incrementally cautious. In firm's view the risks associated with OVTI are mounting; however, they appear overly priced in with the stock trading at 11.8 times revised CY07 PF EPS of $1.41, a 48% discount to the mean of coverage. OVTI is sitting on $6.66 per share of cash and trades at an ex-cash P/E multiple of 8.2 times CY07E cash PF EPS estimate of $1.22.
* Piper Jaffray notes that as they had written in their August 17 note, they believe OmniVision faces an increasingly competitive pricing environment not only for lower-end VGA sensors but also for 1.3MP/2.0MP. In the past two quarters, 4QF06 and 1QF07, average ASPs declined 16.6% Q/Q (from $3.26 to $2.72) and 13.6% Q/Q (from $2.72 to $2.35), respectively. Firm believes that erosion in the ASP was a result of increased competition from focused CIS players, diversified semiconductor firms with internal fabs, and certain Flash manufacturers in pursuit of higher margins. In addition, they feel there may be a lack of meaningful near-term catalysts, such as visible upgrade cycles, that could accelerate the transition to higher-resolution CIS. As a result, they are lowering their revenue and EPS estimates as shown at left and lowering PT from $19 to $17, based on 13x (same multiple) new CY07 EPS estimate, in line with the company's comp. valuation group.
Notablecalls: I know OVTI has historically been a notorious bouncer, but I see very little reason to buy the stock here. ASP's just keep going down, there is no upgrade cycle to be seen. Soon they'll be losing money as end demand weakens. Tough, ver tough.
Calls of Note Part 1
Several firms are commenting on Bristol Myers (NYSE:BMY) after the judge granted a preliminary injunction halting future sales of generic Plavix by Apotex:
* Merrill Lynch notes that because several months (possibly more than a year) of generic Plavix are in the channel, BMY's financials are likely to be under significant pressure over at least the next few quarters.
A material step-down in BMY net income and cash flow could cause the company to cut its dividend. The continues to model that the dividend is cut from $1.12 to $0.60, but it is impossible to predict a dividend cut with accuracy.They note that BMY may attempt to maintain the dividend. If the Plavix patent is ultimately upheld in court (trial is slated to start January 22, 2007 and verdict could be in 2H:07) and generic Plavix channel inventory is worked down, the company's financials could step back up.
They firm notes they are awaiting communication from BMY management regarding how the company will deal with ongoing generic Plavix competition. Notes that as of Friday,
August 18, generic Plavix had captured 78% of NRx's (new prescriptions) and they
anticipate further market share erosion in the coming weeks. Firm does not know what BMY/SNY will do with Plavix sales and marketing support.
* Goldman Sachs notes their estimates are under review and they await management guidance, which they would expect in the near term. Firm believes the $1.12/share dividend is at a
lower risk, but earnings could face substantial short-term pressure. They continue to believe that Plavix represents $0.62/share in full-year 2006, or 50% of earnings, using gross profits and no cost cutting. Firm assumes little cost management can be used to offset - maybe a maximum Advertising & Promotion rate of 5% of Plavix sales (group average is 7% in 2006), which would yield $200 million in costs. Direct sales and A&P costs represent around $0.08/share annually. Netting these items and dividing them by four quarters, would show a maximum $0.13-$0.16/quarter impact while generic Plavix is in the channel.
As we now go to court, it is less likely that Bristol cuts the dividend (depending upon the amount of inventory in the channel), and the dividend yield should support the stock, in firm's view. They would expect the shares to trade around the pre-settlement levels of mid-$20s, especially since a preliminary injunction includes the likelihood of Bristol/sanofi succeeding on the merits of the case. Firm believes the uncertainty around the court case would likely cap further share performance in the near term. The trial is set
to begin on January 22, 2007.
Notablecalls: Watch BMY for a potential short after the open. I think it gets faded as there is stil way too much uncertainty: a) possible div cut b) lowered guidance c) possibility that Apotex will ultimately prevail in the case.
* Merrill Lynch notes that because several months (possibly more than a year) of generic Plavix are in the channel, BMY's financials are likely to be under significant pressure over at least the next few quarters.
A material step-down in BMY net income and cash flow could cause the company to cut its dividend. The continues to model that the dividend is cut from $1.12 to $0.60, but it is impossible to predict a dividend cut with accuracy.They note that BMY may attempt to maintain the dividend. If the Plavix patent is ultimately upheld in court (trial is slated to start January 22, 2007 and verdict could be in 2H:07) and generic Plavix channel inventory is worked down, the company's financials could step back up.
They firm notes they are awaiting communication from BMY management regarding how the company will deal with ongoing generic Plavix competition. Notes that as of Friday,
August 18, generic Plavix had captured 78% of NRx's (new prescriptions) and they
anticipate further market share erosion in the coming weeks. Firm does not know what BMY/SNY will do with Plavix sales and marketing support.
* Goldman Sachs notes their estimates are under review and they await management guidance, which they would expect in the near term. Firm believes the $1.12/share dividend is at a
lower risk, but earnings could face substantial short-term pressure. They continue to believe that Plavix represents $0.62/share in full-year 2006, or 50% of earnings, using gross profits and no cost cutting. Firm assumes little cost management can be used to offset - maybe a maximum Advertising & Promotion rate of 5% of Plavix sales (group average is 7% in 2006), which would yield $200 million in costs. Direct sales and A&P costs represent around $0.08/share annually. Netting these items and dividing them by four quarters, would show a maximum $0.13-$0.16/quarter impact while generic Plavix is in the channel.
As we now go to court, it is less likely that Bristol cuts the dividend (depending upon the amount of inventory in the channel), and the dividend yield should support the stock, in firm's view. They would expect the shares to trade around the pre-settlement levels of mid-$20s, especially since a preliminary injunction includes the likelihood of Bristol/sanofi succeeding on the merits of the case. Firm believes the uncertainty around the court case would likely cap further share performance in the near term. The trial is set
to begin on January 22, 2007.
Notablecalls: Watch BMY for a potential short after the open. I think it gets faded as there is stil way too much uncertainty: a) possible div cut b) lowered guidance c) possibility that Apotex will ultimately prevail in the case.
Paperstand
According to the WSJ's "Heard on the Street" column, the cooling housing mkt is starting to pinch the nation's banks, which are more exposed to real estate than ever, and it comes at a time when some of their other key businesses already are being squeezed. Although real-estate downturns typically trigger concerns about rising delinquencies and defaults on existing mortgages, the more pressing worry in the industry right now is that a slowdown in demand for new loans will cut into earnings that have been exceptionally strong. That is significant b/c financial institutions already are grappling with several issues. They include a difficult interest-rate environment, competition for traditional banking customers, a saturated credit-card mkt and expectations that strong consumer-credit quality will soon show signs of weakening. "Any wiggle in the real-estate business has a significant impact on banking b/c that's where the growth has been coming from," says Richard Bove, of Punk Ziegel. Banks mentioned include: FED, FHN, ZION, JPM, BAC and C.
Barron's Online says that for those investors who don't see much promise in the beaten-down stocks of home builders, there is another more intriguing real-estate investment that relies more on advanced technology. A handful of co's in the US make money charging fees to cellular operators, such as the Verizon Wireless, to park those operators' radio equipment on towers that dot the land. An ongoing spectrum auction in Washington could propel investments in cell sites by Verizon and others, which could mean rising rents for publicly traded stocks of tower owners such as American Tower (AMT), Crown Castle (CCI), Global Signal (GSL) and SBA Comm. (SBAC). American Tower, the biggest of the group, may be the best bet. It owns in excess of 22K towers, almost all of them in the US, nearly double that of Crown, its closest competitor. Even without a dramatic new round of network upgrades by wireless carriers, American Tower offers a steadily rising stream of cash and the potential for stock buybacks and, maybe, a dividend. After rising 32% this year, American's shares aren't cheap. But with growth of 15% or more in free cash flow, a bet on American could be a profitable wager that cellphone growth will boost the tower business. "It's basically a real-estate business," says Hal Goldstein, of First American Mid Cap Growth Opportunities Fund, which owns American Tower shares. "It's also a fixed-cost business, b/c the towers are already built out, with an ability to raise prices and gain increased tenancy. That incremental rent is very accretive to cash flow."
"Inside Scoop" section reprots that NiSource's (NI) Chmn Gary L. Neale has sold off nearly $11m in shares of the co. In a series of transactions from Aug. 9 to Aug. 29, Mr. Neale sold 466K NiSource shares, he also exercised options for 50K shares. "Given that the stock has not been able to punch through the $25 barrier this year, it seems like that's one very large vote that NiSource is not going to finally break through that barrier anytime soon," says Jonathan Moreland, the director of research at InsiderInsights.com.
The NY Post reprots that Carlos Ghosn, chief of Renault and Nissan, said talks on a possible alliance with General Motors (GM) are going better than he expected and he'll review progress in Sep. The carmakers will present the results of their talks by mid-Oct as planned, Ghosn said. "The discussions, which are open, are extremely cordial," Ghosn said in an interview. "I would qualify them even as above expectations."
Barron's Online says that for those investors who don't see much promise in the beaten-down stocks of home builders, there is another more intriguing real-estate investment that relies more on advanced technology. A handful of co's in the US make money charging fees to cellular operators, such as the Verizon Wireless, to park those operators' radio equipment on towers that dot the land. An ongoing spectrum auction in Washington could propel investments in cell sites by Verizon and others, which could mean rising rents for publicly traded stocks of tower owners such as American Tower (AMT), Crown Castle (CCI), Global Signal (GSL) and SBA Comm. (SBAC). American Tower, the biggest of the group, may be the best bet. It owns in excess of 22K towers, almost all of them in the US, nearly double that of Crown, its closest competitor. Even without a dramatic new round of network upgrades by wireless carriers, American Tower offers a steadily rising stream of cash and the potential for stock buybacks and, maybe, a dividend. After rising 32% this year, American's shares aren't cheap. But with growth of 15% or more in free cash flow, a bet on American could be a profitable wager that cellphone growth will boost the tower business. "It's basically a real-estate business," says Hal Goldstein, of First American Mid Cap Growth Opportunities Fund, which owns American Tower shares. "It's also a fixed-cost business, b/c the towers are already built out, with an ability to raise prices and gain increased tenancy. That incremental rent is very accretive to cash flow."
"Inside Scoop" section reprots that NiSource's (NI) Chmn Gary L. Neale has sold off nearly $11m in shares of the co. In a series of transactions from Aug. 9 to Aug. 29, Mr. Neale sold 466K NiSource shares, he also exercised options for 50K shares. "Given that the stock has not been able to punch through the $25 barrier this year, it seems like that's one very large vote that NiSource is not going to finally break through that barrier anytime soon," says Jonathan Moreland, the director of research at InsiderInsights.com.
The NY Post reprots that Carlos Ghosn, chief of Renault and Nissan, said talks on a possible alliance with General Motors (GM) are going better than he expected and he'll review progress in Sep. The carmakers will present the results of their talks by mid-Oct as planned, Ghosn said. "The discussions, which are open, are extremely cordial," Ghosn said in an interview. "I would qualify them even as above expectations."
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