Wednesday, February 14, 2007

Paperstand (DCX, VZ, EFII, DTG, HTZ)

The WSJ reports that DaimlerChrysler (DCX) is set to announce that it plans to cut some 10K jobs and close factories at its Chrysler Group unit in the US. One striking feature of Chrysler's latest plan: The co is turning away from the big pickups and SUVs that powered its profits in the past. Chrysler is expected to close a SUV assembly plant in Newark, Del., and possibly another truck factory near St. Louis. DaimlerChrysler will again push to cut costs by making its Chrysler and Mercedes units cooperate more. The next generation Jeep Grand Cherokee and Mercedes M Class could ride on similar foundations. But many on the Mercedes side fear working too closely with Chrysler will hurt the luxury brand's sales by sullying its image. Analysts believe Chrysler will take a significant restructuring charge and report an operating loss when DaimlerChrysler reports its 4Q earnings today. Most also believe problems will linger throughout the year.

Barron’s Online out on Verizon (VZ), saying that the co hasn’t gotten the credit it deserved for running one of the most profitable wireless co’s in the world. That could start to change this year as Verizon starts to produce results from its fiber-optic adventure, called FiOS. The FiOS build-out is costing Verizon $10bn a year, putting a crimp on the co's cash and its valuation. Verizon's total value measured in equity and debt is just 5.1x its projected operating profit, well below the premium valuation of AT&T, trading at about 6.1x. But as FiOS' spending growth cools and profits start to pick up, investors may start to pay more attention to Verizon Wireless, which is growing faster and is vastly more profitable than either AT&T's Cingular unit or Sprint Nextel. A newfound appreciation for the wireless unit could help Verizon gain in valuation, to perhaps 6x operating profit, pushing the shares from $38 to the mid-$40s by year's end. Coupled with a 4.25% dividend yield, that means that investors could be in for a total return of more than 20% in the next year. "[Verizon Wireless] is one of the biggest and best-run assets in the world," says one portfolio manager. "The valuation for the wireless unit implied in Verizon stock is certainly below other wireless valuations in the marketplace."

“Inside Scoop” section reports that Blum Capital disclosed a 5.3% stake, or 3.04M shares, in EFI (EFII). Blum's shopping spree came immediately after EFI shares tumbled 9% following the co's disappointing 4Q earnings report. Ben Silverman, of, says it is "par for the course" for value-focused investors such as Blum to use a pullback in a stock's price following a disappointing earnings report to increase its stake in a co. "Considering that [Blum has] averaged up their cost basis [in EFI shares], I would think that they would be in the stock for multiple quarters, which for me means a couple of years," says Silverman. Blum isn't likely to quickly sell out of a stock once it has hit the 5% ownership mark. "Blum is one of the longer-life value investors still around, and I think that any value-oriented investors should pay attention to them," says Silverman.

Barron’s Online highlights an interview with T.Rowe Price Health Sciences Fund manager. Top 10 holdings include GILD, CEPH, DNA, AMGN, UNH, Roche, WLP, SEPR, STJ and ALXN.

The NY Times reports that Dollar Thrifty Automotive (DTG) is in early talks to merge with Vanguard Car Rental, which owns National and Alamo, in a deal valued at more than $3bn. If completed, a deal would create the 3rd-largest rental car co in the US behind leaders Enterprise Rent-a-Car and Hertz (HTZ).

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