Wednesday, March 07, 2007

Calls of Note Part 5

- Goldman Sachs is removing Directed Electronics (NASDAQ:DEIX) from the Americas Investment Sell List. Concerns of decelerating growth in satellite radio and the possibility of Directed losing the Sirius business are likely overblown. Although seasonality remains a headwind given Directed's exposure to consumer electronics, its valuation remains depressed even in the worst case scenario of Directed losing all of the Sirius business. With Directed's Q4 shortfall already priced into the stock and DEIX shares having declined by -24% since our downgrade vs. the S&P 500's -2.0%, our Sell has run its course. Over the past 52-weeks, DEIX shares are down -42% vs. the +9% for the S&P 500.

Although the risks associated with the Sirius satellite radio business will remain an overhang, the firm thinks Directed Electronics shares are getting punished beyond the value of the Sirius franchise. Analysis suggests that even in the worst case scenario, where Directed Electronics loses the entire Sirius business, DEIX shares would be at depressed relative to the earnings power of its underlying security and entertainment businesses.

While they are not recommending the shares now given Directed's seasonality and execution issues, they think the price is an attractive entry point for value-based investors with a long-term focus. Maintains $14.50 tgt.

Notablecalls: Would not be surprised to see some buy interest in DEIX over the next couple of days. GSCO was dead right on DEIX with their negative calls and while they are not turning positive here, it may be the first step.

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