Sunday, June 17, 2007

Barron's Summary (BID, EVST, FWLT, UTSI)

Barron’s “The Trader” section discusses Sotheby’s (BID), whose shares have pulled back since late April. This week, the conspicuous consumers will flock to London for the Impressionists and contemporary art sales, and the recent track record suggests Sotheby's ests may again be conservative. Record NY sales in May already bode well for the 2Q earnings, and Robbert van Batenburg, of Louis Capital, expects EPS as high as $1.72 vs. consensus of $1.34. With Christie's snagging more mkt share in ‘06's fall auctions, and Sotheby's regaining some of that this year, Sotheby's is "carrying considerable momentum into the 2H07" and faces easier yoy comparisons, notes Wedbush analyst Rommel Dionisio. More important, record prices motivate "otherwise reluctant owners to bring their pieces to the mkt," Van Batenburg adds. "This emergence of more highly valued works of art not only generates higher revenue with higher margins, but also fuels the auction hype." Van Batenburg sees the stock pushing 66 by year end.

“The Trader” also discusses Everlast (EVST), which recently agreed to be acquired by Hidary Group. A 30-day "go shop" clause for Everlast to find a better bid looks insincere next to the $4.5m breakup fee. Also curious was the June 4 agreement by CEO Seth Horowitz to vote the 19.2% of shares he controls in support of the Hidary offer, even if a better offer emerges. It also did not escape investors' notice that Horowitz's employment contract was recently amended to remove limits on payments he might receive following a change of control. Aquamarine Capital says it will vote against the low-ball offer. Since price is the decisive arbiter of cash bids, "why didn't the board of directors run an auction or actively take other measures to get the best possible price?" asks Jeff Lick, of Galt Investments. Logical buyers including Nike (NKE), Adidas, Puma and Under Armour (UA) weren't contacted. The unasked question among these firms' carefully lawyered missives: Why would mgmt agree to an un-shopped lowball offer from an affiliate? Everlast's prospects indeed look bright, the co recently signed a deal with Michelin to launch a footwear line next year, and has inked licensing pacts to start selling in China in ‘08. And assuming rev grows at 20%, applying a multiple of 10x ‘08 EBITDA of about $20m would value shares at more than 40, Lick says.

Roundtable likes CVC, HLT, MDS, SQAA, USM, RIMM, WFC, VLO, LYO, AEO, IMOS, C, ENDP, ULUR, HPQ and PIR. Dislikes NETL and XLY.

Lehman's (LEH) lagging share price offers the chance to invest in a rising banking power with a keen eye for risk management.

If Alleghany (Y) hews to its course and doesn't encounter any unforeseen problems, its shares, which have been trading above $360, could rise 50% by 2010.

“International Trader” highlights HSBC (HBC), which has been battered by the US subprime-mortgage mess. But the bank looks better when judged over a longer span. Its shares have outpaced those of RB of Scotland, Citigroup (C) and BofA (BAC), especially since ‘04, when the Fed started raising interest rates. The longer view shows that HSBC shares fare better than their peers when systemic risks, macro fundamentals, go against the banking industry. Reason: The co's earnings streams come from various global regions and are less correlated with one another than are the sources of some other big banks' profits.

“Follow Up” section highlights Foster Wheeler (FWLT), whose stock is up almost 700% since Jan ’05. Earnings are expected to rise to $5.46 a share this year. Analysts forecast continued earnings growth in ‘08, to $5.95. The shares are changing hands at just 18x next year's ests, roughly even with the broad mkt and below the 22x by peers. If the preliminary work "proceeds to project, it suggests that this mkt is with us for at least 5 more years," says CEO Ray Milchovich. Investors often overlook another Foster Wheeler business: supplying boilers and other equipment to power providers like utilities. This business, accounting for about 23% of cash flow, looks to be picking up as the world's power needs expand.
The could give the co, and its stock, an even bigger surge.

“Follow Up” saying that seemingly insatiable demand for base and precious metals has helped give a powerful lift to mining co shares. Like CVRD (RIO) and Rio Tinto (RTP). Like most co’s in the metals sector, CVRD and Rio Tinto are considered well run, which suggests there would be little room for a buyer to make operating improvements. It's hardly an opportune environment for takeovers, says Damien Hackett, of Canaccord Adams. In general, he thinks the shares are fully valued. Most stocks in the sector, he says, are trading at 9 or 10x estd earnings for the year ahead, about where they should be, given the record commodity prices. "It's hard to imagine commodity prices going up in the next 6-8 mo’s," Hackett adds. Hackett expects shares of the major players in the metals sector "to drift sideways for the next 3-6 mo’s...until the economic outlook changes." If the global economy slows, as he expects, the sector could take a hit.

“Plugged In” column out negative on UTStarcom (UTSI), whose shares have plunged 21% since co-founder Ying Wu quit on June 1. The reason for Wu's abrupt departure is unclear, but one thing is clear: He's now free to unload some of his 4.7m shares. Frankly, it's darn near impossible to know what's going on, b/c UTStarcom hasn't provided meaningful information in nearly a year. Even when making mandatory filings, UTStarcom is stealthy. On the Fri before last Christmas, it revealed that it had received an SEC Wells notice, several days before. Critics contend that the co's IPTV products are more hype than substance.

No comments: