Sunday, July 01, 2007

Barron's Summary (AAPL, ELNK)

Barron’s discusses Apple (AAPL), saying that a lot of iPhone sizzle is in the shares, so profit-taking makes sense. Even some bulls anticipate a postlaunch stumble in the shares. "There have been letdowns after Apple product launches in the past," says Glen Kacher, of Integral Capital. But if the phone is reliable and AT&T (T) delivers, a dip won't last long. And a new OS is coming. Walter Price Jr., of Allianz Capital, says he has been cutting his Apple position, with the idea of rebuilding it for the long haul after shares stop sputtering.

Notablecalls: Actionable.

Fund manager likes BONT, JWN, SAH, UAG, RICK and PTT, dislikes casual-dining stocks.

Barron’s discusses Discover Financial Services (DFS), whose CEO has told that the co will have better opportunities for growth as an independent concern, as it seeks to gain greater acceptance of the Discover card among merchants, and higher transaction volume. But both goals may be more elusive than Discover fans think, given the dominance of industry rivals American Express (AXP), MasterCard (MA) and Visa. Craig Maurer, of Calyon Securities, has a Sell rating on the stock and a price tgt of 22, or 15x his below-consensus est for ‘08 earnings of around $1.50 a share. He contends Discover deserves to trade at a 5-point discount to his tgt '08 multiple for American Express.

Seaspan (SSW) is seaworthy: It offers about a 6% yield, the prospect of a 15% price rise in the next year and is a good play on the rapid rise in global trade -- with less risk than other shippers.

Wall Street’s worries about the financing of giant LBOs have depressed the shares of takeover tgts, creating opportunities for investors willing to bet that the deals will be completed. Pending LBOs could require up to $300bn in financing, prompting concern about the willingness of banks and high-yield investors to absorb that mountain of debt. In the face of such uncertainty, investors now can earn 10%-plus returns on such tgts as HET, AT, ADS and FDC. "The mkt is about as attractive as we've seen in a while," says Mike Shannon, of Merger Fund. He says the annualized return on about 150 tgts worldwide is about 15%, vs 12% just a week ago. Othr stocks mentioned include ASN, CCU, JNC, SLM and TRB.

“International Trader” out saying that Vodafone (VOD) looks like the front-runner in the race to secure exclusive European rights to Apple's iPhone. But the co should be careful about what it wishes for. Vodafone might get the deal, but on terms far less favorable than it's accustomed to receiving from other equipment suppliers. Doing a deal with Apple comes with extra costs. To carry iPhone-compatible e-mail traffic, European operators will have to invest in their infrastructure. Thus, it's hard to believe that Vodafone would agree to an AT&T-style arrangement - giving away subs rev to Apple. But the selling price of Apple's handset is one reason for not projecting sales on the scale of the iPod's. European mobile customers are used to receiving heavy discounts on phones. Persuading ppl to spend a possible €450 on the iPhone will prove difficult. And with only 10m iPhones expected to be sold worldwide in the first year, the device's overall mkt share will be small. So, even though shares of Vodafone edged up last week, after newspaper reports that the co was the favorite to get rights to the iPhone in Europe, investors should keep in mind that a deal with Apple could be an expensive venture.

“Follow Up” section highlights Lionsgate (LGF), sayin that the co has a very healthy balance sheet, it continues to spin off from its franchise of horror movies. On top of that, it's been among the faster movers into new methods of digital delivery: The 15 movies that Lionsgate made available earlier this year to Microsoft's Xbox Live helped boost digital rev 50%, while CEO Jon Feltheimer notes that VOD sales for Employee of the Month "exceeded $3m on a film that grossed about $27m at the domestic box office." The co has, he explains, "nearly a dozen active agreements in place for digital delivery" of its content with major co’s, including Bst Buy. Finally, Lionsgate is one of the last remaining pure-play entertainment co’s, and has been rumored to be a takeover candidate, especially on the strength of its library of more than 11K titles. Says Feltheimer: "There are no more libraries out there to be bought." Three analysts see the shares headed above 15.

Interface (IFSIA) will sell its underperforming fabric business, clearing the way for the co to further reduce its debt load, improve its balance sheet and focus on its high-margin core tile business. Interface will receive approximately $63.5m at the closing of the transaction, and an additional $6.5m, subject to the division's meeting certain performance measures. "Look for a leaner, cleaner co going forward, with much less drag on their operating profits," says Chad Kilmer, of Value Discovery Fund. Bulls expect the stock to climb to 22.

“Technology Trader” highlights Earthlink (ELNK), whose new CEO Rolla Huff tells Barron’s that he plans to spend the next 60-90 days sorting through Earthlink's moving parts and figuring out exactly what he's got. By the end of the process, he says, he should have a workable strategy. Huff says it's possible Earthlink could keep all of its parts, but it seems clear some are going to have to go. The co has a mkt-cap of $950m. In ‘07, the Street expects rev of $1.3bn. It has net cash and investments of more than $200m. And Huff has made it clear that changes, of the shareholder-value enhancing variety, are coming. Huff says he comes to Earthlink "with no pre-conceived notions...I am not married to anything other than driving a return for our shareholders. And for me." That last statement reflects the fact that Huff bought 100K shares of the co's stock on the day he took the job. "I didn't do that to make a statement," he says. "I did it b/c I think I am going to make a great return on that money." In short, Earthlink is going to be fixed, and soon. Eventually, it might be sold. Huff has not historically been shy about finding M&A exits. Meanwhile, if Huff take the aggressive approach to remaking the business, holders should get a short-term reward.

Notablecalls: Actionable.

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