Sunday, July 15, 2007

Barron's Summary (SPWR, EPG, FTEK, PICO, CPTC.OB, FSLR, NRN)

Barron’s cover highlights 5 green growth stocks for the next decade. The 5 co’s listed below come from 4 major components of the Clean-Tech category: energy, pollution control, water and wind. They comprise a pricey group, no doubt, but one that analysts believe will hold long-term value. SunPower (SPWR) - Pricey, but bulls claim this Cypress solar spinoff has more upside. Environmental Power (EPG) - Biogas maker stands to profit from emission credits. FuelTech (FTEK) - Expensive shares could get a lift as pollution-control firm enters China. PICO Holdings (PICO) - Water portfolio is rising fast in high-growth US areas with limited supplies. Composite Tech (CPTC.OB) - An innovative new wind turbine should give the co a boost.

Barron’s negative on First Solar (FSLR), whose shares skyrocket more than 20 points Mon, after disclosing new European and N-American contracts worth $1.28bn over 5 ys. But, First Solar may not be quite what it seems. The co is perceived as thin-solar, 2G. The 1G of photovoltaic solar relied on polysilicon, making for thick, heavy panels that nonetheless could be set on a roof b/c they didn't require too much surface area. Thin-solar relies on chemicals and vapor deposition to lay down thin layers of film over a broad surface area. B/c it's so light and flexible, it can be incorporated into building materials such as roof tiles, turning roofs into big solar panels. The dirty secret on First Solar is that it uses thin-solar technology, but the film is still applied to heavy glass that resembles earlier generation panels, says Brion Tanous, of Merriman Curhan Ford. Consequently, "A vast majority of First Solar's products are panels mounted on the ground b/c they are too heavy for rooftops, which suggests that it's not a true thin-film technology," Tanous argues. Another problem: First Solar is highly dependent on European govt subsidies, especially in Germany. Just 2 weeks ago, the German environment minister confirmed that he wants to cut subsidies further for solar. The news hit European solar shares, but went largely unnoticed on Wall St. The co boasts more than a $8bn mkt value on about $400m in expected ‘07 revs and 53c in EPS. At 115, it is trading at 96x ‘08 earnings and 14x sales.
Notablecalls: Actionable.

According to the Barron’s, National Rural (NRN) could be due for a major downgrade by the top debt-rating agencies. While the finance co is rated the equivalent of single-A by the big agencies, a top independent firm, Egan-Jones, puts it seven notches lower, at a junky single-B-plus. "We're not saying it's going to go bankrupt," says Sean Egan. But, he says, the co "shouldn't be an investment-grade credit."

Rediff.com's (REDF) market cap is way out of proportion to the size of India's Internet ad market. At Sify (SIFY), subscriber growth is lagging and cybercafe competition is increasing.

“The Trader” discusses Target (TGT), saying that temple for mass consumerism, should find itself on Bill Ackman's shopping list. Pershing Square Capital has accumulated Target shares and options worth nearly $6bn and is preparing a regulatory filing detailing its stake. What might Target expect with Ackman's attention? Pershing Square previously amassed positions in co’s like McDonald’s (MCD) and Wendy’s (WEN) and then pressed mgmt to improve profits. Among other things, Ackman might broach the sale of Target's credit-card operation, which has $6.5bn in receivables. Its contribution to earnings growth is slight, but mgmt has maintained it is integral to building brand loyalty and tracking spending habits. Target might also be prodded to sell and then lease back its real estate. The co has some of the choicest retail locations, and the value of those properties presumably is understated on its balance sheet. It has been suggested the real estate could be worth nearly a 1/3 of Target's $70bn in EV. But while a sale and leaseback could raise billions, the ensuing rent expense could cut cash flow by almost $2bn. Levering up is another option, but with shares at an all-time peak, it remains to be seen if mgmt can be talked into a move that some est would boost EPS by less than 10%. If Ackman proves right on the dot, two things at the very least are clear: Target shares straining record highs might still offer good value, and widespread worries of consumer retreat may not prove as dire as many feared.

“The Trader” discusses Mueller Water (MWA), whose Class A shares made their debut in May’06 when nearly 29m were sold to the public, while its former parent, Walter Industries (WLT), held onto Class B shares and controlled 96% of the voting power. But by Dec, Walter had distributed all the B shares to its stockholders. Since then, the two classes have been inseparable on a stock chart. Then came June, when A shares, but not the B, were triumphantly added to the Russell 2000 index. Quickly, the gap between A and B shares widened from 1-2% to the current 11.5% chasm. The B shares each give 8 votes to just one for the A shares. "Apparently, indexing has created and sustained an inefficiency we'd think would be arbitraged away in today's ultra-competitive mkts," says Michael Econn, of Bondurant Mgmt.

According to the “The Trader,” options prices of Pozen (POZN) suggest that the mkt sees a 60% chance Trexima will be approved by the FDA, but Citigroup analyst Lucy Lu is more optimistic. She pegs the odds of an FDA nod at 80%, given Trexima's superior efficacy results in clinical trials and a safety profile comparable to Imitrex. Lu believes a yes could drive Pozen shares to between 23 and 25 and towards her tgt of 28. "We believe Trexima will be the new gold standard treatment of migraine headaches," she notes. There are other catalysts, too. B/c partner GlaxoSmithKline's (GSK) bestselling Imitrex will become a generic drug by late ‘08, "we believe GSK intends to aggressively convert its Imitrex sales to Trexima in order to capture significant mkt share in the migraine mkt before its Imitrex sales are at risk," Lu says. B/c Trexima is Pozen's primary candidate, any regulatory glitch can send shares tumbling to 7 or 8. Given that slim but real risk, bulls might consider buying August call options or call spreads on Pozen.

Fund holdings include BIG, GES, MDR, CROX, AMX, AVT, VSEA, AAPL, BMY and TDY.

1 comment:

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