Barron’s cover out saying that some bargain-hunters have been attracted to financial stocks. JP Morgan (JPM) and BofA (BAC) are trading for under 10x estd ‘07 profits, and BofA carries a bond-like dividend yield of 5.3%. The major Street firms all command less than 10x ‘07 earnings. Bear Stearns (BSC) could be the biggest bargain on the Street b/c its shares now trade for just 1.3x BV. Even if the firm fails to meet the consensus profit forecast of $14 a share for the current year, Bear could see its BV approach $100 in ‘08. Bear is known for taking limited financial risks. Even when its 2 mortgage-hedge funds collapsed, the firm's financial exposure hasn't been significant. Bear shares could get back to $150 or higher if its earnings hold, and it might fetch $175 or more in a takeover. The firm is very digestible b/c its mkt value is less than $20bn.
JP Morgan Chief Credit Strategist holds AET, UHS, WLP, MMC, JNS, KMP, GP and SPG bonds.
According to the Barron’s, Amazon (AMZN) shares are too expensive. Best to take substantial profits and wait for a better deal later on. Amazon's sky-high P/E multiples suggest investors' enthusiasm has gotten ahead of the co's growth potential. Late last week Amazon traded for 78x ests for ’07, and 56x '08 ests. Even if the co achieves this anticipated 41% jump in earnings next year, it's hard to justify such a premium to its growth rate, especially when Internet peers such as eBay (EBAY), which fetches about 21x ‘08 earnings ests on EPS growth of 16%, boast higher net operating margins. Hamed Khorsand, of BWS Financial, has a price tgt of 65 for Amazon shares.
“The Trader” column says that tgts of already-announced buyouts saw shares drift well below their offers. To Goldman Sachs strategist David Kostin, this is both an irreconcilable inconsistency, and opportunity. "Stocks cannot both melt down b/c the mkt fears that financial institutions will have to fund and hold leveraged loan commitments, while at the same time [see] shares of tgt co’s sell off on the belief that the same transactions will not close," he notes. The mkt assigns a roughly 62% chance that existing deals will close, but he thinks the likelihood is much higher. He suggested buying a basket of 22 tgts, including FDC, HET, HLT and TXU.
“The Trader” also discusses Raymond James Financial (RJF), saying that its subprime-free aura isn't the only appeal. CEO Thomas James has been building its banking and asset-mgmt operations, and that shift is "starting to click," notes Wachovia analyst Douglas Sipkin. RayJay also will benefit from rival AG Edwards' (AGE) agreement to be acquired by Wachovia (WB). Edwards brokers dissatisfied with Wachovia's retention packages have begun to prowl for greener pastures, and while any defections to the likes of Merrill Lynch (MER) or UBS (UBS) won't budge these behemoths' bottom lines much, they could bump up RayJay's commission haul noticeably. At about 31, the shares trade at 13.5x forward earnings and 2.4x the book or accounting value. That's not obviously cheap, but it has more than $3 a share in excess capital, and tangible equity roughly 11% that of total assets.
“Technology Trader” section discusses Microsoft (MSFT) that still seems to be a growth co. As CFO Chris Liddell pointed out, investors often assume that the co's size will make double-digit growth tougher. But, Liddell asserts, the co won't be contained by the law of large numbers, at least not yet. It sees F'08 top-line growth of 11-13%, operating-income growth of 12-15% and EPS gains of 13-16%. In effect, Microsoft expects to create another $5 or $6bn co this year. Still, the Street seems unconvinced. Mark Stahlman, of Gartner, remains wary of Microsoft. He thinks the coming departure of Bill Gates as a full-time employee, with a shift in development responsibility to chief software architect Ray Ozzie, will not be a smooth one. Stahlman thinks the kinds of systems you need to roll out products in the cloud actually require the services-centered thinking of computer scientists like Ozzie. But the hacker culture at Microsoft, embodied in Gates, runs deep and could resist a change in approach.
“Plugged In” highlights Internap (INAP), which takes aim at Akamai (AKAM). The co has predicted 30% earnings growth for ‘07, higher profits and gross margins of about 50% for all of its businesses, and higher margins in CDN. Internap is slated to announce earnings Tue, and based on its recent turnaround and penchant for raising tgts under new mgmt, it wouldn't be a stretch to see the co cast a rosier outlook for the 2H07. That could lift the stock. "We're really moving in the right direction," says CEO Jim DeBlasio. Only 10% of Internap's $192.3m in sales currently come from CDN. The rest is from its core Internet-routing optimization and data-center hosting businesses. The co differentiates itself from the others by bundling its services and selling them to customers that already outsource their data-center operations with Internap. Internap also can fetch higher prices b/c it offers better quality and reliability, contends DeBlasio. "My plan is to go after [Akamai]," he says. "We offer what they can't deliver: reliability."
JP Morgan Chief Credit Strategist holds AET, UHS, WLP, MMC, JNS, KMP, GP and SPG bonds.
According to the Barron’s, Amazon (AMZN) shares are too expensive. Best to take substantial profits and wait for a better deal later on. Amazon's sky-high P/E multiples suggest investors' enthusiasm has gotten ahead of the co's growth potential. Late last week Amazon traded for 78x ests for ’07, and 56x '08 ests. Even if the co achieves this anticipated 41% jump in earnings next year, it's hard to justify such a premium to its growth rate, especially when Internet peers such as eBay (EBAY), which fetches about 21x ‘08 earnings ests on EPS growth of 16%, boast higher net operating margins. Hamed Khorsand, of BWS Financial, has a price tgt of 65 for Amazon shares.
“The Trader” column says that tgts of already-announced buyouts saw shares drift well below their offers. To Goldman Sachs strategist David Kostin, this is both an irreconcilable inconsistency, and opportunity. "Stocks cannot both melt down b/c the mkt fears that financial institutions will have to fund and hold leveraged loan commitments, while at the same time [see] shares of tgt co’s sell off on the belief that the same transactions will not close," he notes. The mkt assigns a roughly 62% chance that existing deals will close, but he thinks the likelihood is much higher. He suggested buying a basket of 22 tgts, including FDC, HET, HLT and TXU.
“The Trader” also discusses Raymond James Financial (RJF), saying that its subprime-free aura isn't the only appeal. CEO Thomas James has been building its banking and asset-mgmt operations, and that shift is "starting to click," notes Wachovia analyst Douglas Sipkin. RayJay also will benefit from rival AG Edwards' (AGE) agreement to be acquired by Wachovia (WB). Edwards brokers dissatisfied with Wachovia's retention packages have begun to prowl for greener pastures, and while any defections to the likes of Merrill Lynch (MER) or UBS (UBS) won't budge these behemoths' bottom lines much, they could bump up RayJay's commission haul noticeably. At about 31, the shares trade at 13.5x forward earnings and 2.4x the book or accounting value. That's not obviously cheap, but it has more than $3 a share in excess capital, and tangible equity roughly 11% that of total assets.
“Technology Trader” section discusses Microsoft (MSFT) that still seems to be a growth co. As CFO Chris Liddell pointed out, investors often assume that the co's size will make double-digit growth tougher. But, Liddell asserts, the co won't be contained by the law of large numbers, at least not yet. It sees F'08 top-line growth of 11-13%, operating-income growth of 12-15% and EPS gains of 13-16%. In effect, Microsoft expects to create another $5 or $6bn co this year. Still, the Street seems unconvinced. Mark Stahlman, of Gartner, remains wary of Microsoft. He thinks the coming departure of Bill Gates as a full-time employee, with a shift in development responsibility to chief software architect Ray Ozzie, will not be a smooth one. Stahlman thinks the kinds of systems you need to roll out products in the cloud actually require the services-centered thinking of computer scientists like Ozzie. But the hacker culture at Microsoft, embodied in Gates, runs deep and could resist a change in approach.
“Plugged In” highlights Internap (INAP), which takes aim at Akamai (AKAM). The co has predicted 30% earnings growth for ‘07, higher profits and gross margins of about 50% for all of its businesses, and higher margins in CDN. Internap is slated to announce earnings Tue, and based on its recent turnaround and penchant for raising tgts under new mgmt, it wouldn't be a stretch to see the co cast a rosier outlook for the 2H07. That could lift the stock. "We're really moving in the right direction," says CEO Jim DeBlasio. Only 10% of Internap's $192.3m in sales currently come from CDN. The rest is from its core Internet-routing optimization and data-center hosting businesses. The co differentiates itself from the others by bundling its services and selling them to customers that already outsource their data-center operations with Internap. Internap also can fetch higher prices b/c it offers better quality and reliability, contends DeBlasio. "My plan is to go after [Akamai]," he says. "We offer what they can't deliver: reliability."
No comments:
Post a Comment