Sunday, August 26, 2007

Barron's Summary (TMO, RTN, UA, QCOM)

“The Trader” column highlights Thermo Fisher Scientific (TMO), which is beloved by all 11 analysts who cover the stock. Yet Thermo Fisher shares trade more than 20% below the avg analyst tgt, one of the widest such chasms among large stocks. The co has seen profits grow strongly in the medical-research boom and as drug co’s race to find and develop new treatments. Greater emphasis on environmental protection and on safety standards also increases demand for the co's array of tools. This month, TMO also approved plans to buy back $700m more in stock, taking its buyback tally to $1bn. With annual sales topping $9bn, and a dizzying array of products and customers, the co's economic cycle risk is minimized. And with more than half its sales overseas, it's also shielded from any slack in the US economy. An already bullish sell-side chorus normally is a minus, but such a consensus can turn into a plus in times of mkt tumult.

“The Trader” also highlights Raytheon (RTN), whose strong cash stash and low debt inoculate it against credit-mkt ills. Nervousness over the US defense spending outlook and a possible withdrawal from Iraq further provide the opening to stockpile shares. Several catalysts could help Raytheon. Strong foreign demand should help spur continued intl. growth. The world's 5th-largest defense contractor ended a strong 2Q with $3bn in cash and a healthy cash-flow yield of about 7.6%. Cowen analyst Cai von Rumohr expects Raytheon to buy back shares actively, especially on dips, and for the co to expand its repurchase program at the fall board meeting. Defense spending priorities change with Oval Office occupants, but even Democrats are unlikely to do anything more drastic than prune the missile-defense budget. A greater risk to the stock lies in cage-rattling campaign rhetoric. But Raytheon's strong cash flow and buybacks should help support its shares, as does a dividend yield of nearly 2%. Valuation also is moderate; the stock pulled back as much as 12% in the mkt selloff before rebounding. At about 58, it trades at 15.5x forward earnings.

Fund manager picks include C, AXP, DIS, HOG, ODP and GPS.

With generous cash flows available to spend on high-return operations, Comcast (CMCSA) could see its shares climb as high as 40 in the next 12 months.

Banks and investment banks gave private-equity firms low rates on LBO deals that hadn't closed. Now they -- and their shareholders -- may be stuck with this poorly priced debt. Co’s mentioned: C, JPM, GS, MER and MS.

At a recent 17, the stock of Town Sports Intl. (CLUB) is well off its 52-week high of 24. That could be a good buying opportunity. With profits rising briskly, the stock could chin up to 25 within a year.

A recent pullback in the Chattem (CHTT) shares, to the high 50's, offers a buying opportunity. One bull sees the stock approaching 80 in 12 to 18 months.

“Follow Up” section negative on Under Armour (UA), saying that its high valuation heightens execution risk. After eating Nike's lunch in the sweat-busting gear mkt, UA faces far stronger competition as it enters categories such as cross-training shoes. It might also have to invest heavily to push European expansion, possibly pressuring margins. Daniel Scalzi, of Matrix, says that UA's return on capital is slipping, suggesting it's a maturing co, which could make it undeserving of such a high valuation. Goldman Sachs, an underwriter of UA's IPO, rates the stock Neutral, with a 55 price tgt. Says BB&T analyst Eric Tracy: "This is one stock that appears to be priced to perfection, maybe even beyond perfection. The continuation of near-perfect execution and substantial earnings upside will be needed to justify further share appreciation." And, as we know, even Michael Jordan missed a shot once in a while.

“Plugged In” column discusses Qualcomm (QCOM), saying that analysts and investors are extremely bullish on Qualcomm's prospects, particularly because the co is also sweetly positioned to benefit from the coming boom in Third Generation (3G) wireless telephony. Credit Suisse analyst Michael Ounjian is so bullish on "accelerating 3G adoption," he thinks Qualcomm shares should hit 60, despite any drag from patent disputes. What's more, his ests exclude patent-related rev from Nokia, which he deems too unpredictable. Patent settlements and awards are no small matter, they can reach into hundreds of millions of dollars.

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