Friday, June 29, 2007

Paperstand (MS, T, TMO, SONS)

The WSJ’s „Heard on the Street” column highlights Discover Financial Services, which is being spun off from Morgan Stanley (MS) next week. The co is dwarfed by rival card processors Visa and MasterCard. It holds $51bn in credit-card loans, less than half that of behemoth issuers like BofA, JP Morgan and Citigroup. It generates less spending on those cards than American Express and has little presence outside the US. "The mkt for plastic is still relatively underpenetrated in many ways, and there aren't a large number of networks in the mkt," says Moshe Katri, of Cowen who covers payment processors. The positive sentiment is being fueled by hopes Discover will be nimbler and more aggressive as an independent co. And if it still can't catch up to its rivals, there are expectations that the co will be a takeover tgt for a big bank or even retailer.

“Ahead of the Tape” highlights AT&T (T), which is the sole carrier of iPhone for the next 5 years. While Apple (AAPL) is up 42% this year, AT&T is up only 13%, and may be a better way for investors to play Apple's new product. Subs to the iPhone service should be less likely to switch to other services once they sign up, partly b/c of the hefty investment in the device. That should reduce the important "churn" rate of subs who switch to other services. iPhone's users also seem likely to pay for extra telephone services. Analysts at Credit Suisse est the avg net profit from an iPhone subs will be $1,724 to AT&T for phone services over the life of a customer, compared with $936 on avg for AT&T customers who use other phones. Ma Bell also could snatch subs from rivals. Of the 1m+ ppl who signed up for an AT&T service that will notify them when an iPhone is available, 40% don't have AT&T's service. AT&T ests about half of its iPhone subs will come from competitors. Now all Apple has to do is deliver the product everyone expects.

Barron’s Online discusses Thermo Fischer (TMO), saying that despite the stock run-up, investing in Thermo Fisher is no risky experiment. Remaining revenue and cost synergies from the already profitable merger, growth opportunities in emerging markets, and strong free cash flow mean investors can still extract plenty of upside from the stock in the next 12 mo’s. The stock's climb over the last year is due in large part to enthusiasm over the merger, and the kudos are well-deserved, says Caryn Zweig, of Abner, Herrman & Brock Asset Mgmt. The union of Thermo Electron and Fisher Scientific is "one of the few mergers where one plus one equals three," says Zweig. "They will be able to take full advantage of their opportunities."

“Inside Scoop” section reports that the stock of Sonus Networks (SONS) is near multiyear highs and the co is facing delisting, but one value investor sees potential. This week Legatum Capital bought 1.14m shares for $9.7m. In addition to Legatum, the overall institutional ownership in Sonus has steadily risen since ‘05, according to Joshua Hong, of

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