Thursday, March 29, 2007

Paperstand (DE, TTWO, ABT, CHK)

The WSJ’s ”Heard on the Street” column out saying that shares of Deere (DE) have been riding high on the fumes of the ethanol boom, but that intoxication could soon level off. Deere's shares are up 40% since the beginning of Sep, buoyed by ethanol-induced euphoria and near-record crop prices. But some analysts think the stock price may already have the positive outlook for farm equipment baked in. Robert McCarthy, of Robert W. Baird, thinks Deere's stock is starting to look expensive. Shares of Deere were trading at 16.7x Mr. McCarthy's estd EPS for the next 12 mo’s, he wrote in a note to investors last month. That is above the highest forward P/E ratio for Deere based on the consensus est the stock achieved the last time corn prices were this heady a decade ago. Baird has a Hold rating on Deere.

“Ahead of the Tape” column reports that the board of Take-Two (TTWO) is likely to get the heave-ho today from a group of dissident shareholders. The hope is that fresh faces will right Take-Two's ship after years of missteps. Those hopes may be baked in to shares, up nearly 20% YTD to about $21 - pretty pricey, relative to expected earnings; the stock's forward P/E ratio is 27. That's a lot to pay for a co that has been a one-hit wonder. Grand Theft Auto has been Take-Two's cash cow ever since GTA III's introduction in ‘01. Take-Two is releasing a new version, GTA IV, in Oct, but sales may not stack up to past hits. The introduction of expensive next-generation machines such as Xbox 360 and PlayStation 3 could limit sales, b/c fewer gamers use them and GTA IV will be compatible only with the latest consoles. Todd Greenwald, of Nollengberger, figures Take-Two will sell just 5m units of GTA IV in the 3 mo’s after its rollout, compared with 3-month sales of 12m for the previous version. To call the stock a grand theft would be a cheap shot. But investors should keep their hands on their wallets for now.

Barron’s Online highlights Abbott (ABT), whose shares are up 30% in the past year. Still, the stock may not reflect the earnings potential of its new stent, two cholesterol drugs that could hit the mkt next year and increasing sales of the blockbuster rheumatoid arthritis drug, Humira. Some analysts say Abbott's profits could increase as much as 15% annually over the next 3 years, a nice figure compared to relatively paltry earnings growth from the broader mkt. "I wouldn't call the stock cheap, but you're paying a reasonable multiple for shares of a co with earnings expectations it will probably beat," says Bryce Hill, of Oppenheimer. "If things go well with the new stent, Humira and the new drugs, it's reasonable that the stock could trade at 70 a share," Hill adds.

“Inside Scoop” section reports that Aubrey McClendon, Chmn and CEO of Chesapeake Energy (CHK), has been a persistent buyer of shares of the co. On March 22 and 23, he plunked down another $6.1m to purchase 200K shares on the open mkt. McClendon now beneficially owns about 26m shares. Meanwhile, Richard Davidson, appointed a director a year ago, bought 10K shares for nearly $300K, boosting his stake to 32,500 shares. Jonathan Moreland, of, says McClendon's purchase is consistent with the robust insider-buying that is cropping up across the energy sector. "Chesapeake has been a quality co in the past, and I think it will do well in the future, as the industry trend is bullish," says Moreland. Ben Silverman, of, says that if the stock stays above $27.50, McClendon "picks up some easy income" through short puts he has sold on 85,600 shares.

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