Wednesday, February 28, 2007

Calls of Note Part 6

- ThinkEquity notes they believe yesterday's "China Effect" shellacking of the U.S. equity market makes for a compelling buying opportunity in Research in Motion (NASDAQ:RIMM) shares.Firm's Next-gen Computing & Communications universe was down 5.0% on an mcap-weighted basis (compared to 3.5% and 3.8% for the S&P500 and NASDAQ Composite Indices, respectively). From these ashes, they expect RIMM to, as a Phoenix, rise. Firm believes the company is well positioned with the new 8800 alongside the already-proven popular Pearl. They expect a strong upgrade cycle to propel the stock higher. As there is now 19% upside to price target ,they are upgrading to Buy.

Firm's $165 price target reflects a 33x multiple on calendar 2008 EPS estimate of $5.00 and is based on a PEG of 1.5. They believe further significant share price appreciation is now more likely than not given the winning features of the 8800. While they still believe that the competitive environment in the smartphone space is going to get "hot as Hades", they think RIM has a winner on its hands. They encourage investors to take advantage of yesterday's weakness in RIMM shares from the China market fallout.

Notablecalls: Love ThinkEquity's way of reacting quickly to changes in the marketplace. This firm has rebuilt their power, becoming one of the best sell-side research providers on the Street. Jonathan, while I think you will be right about RIMM over the next couple of qtrs, I'm going to suggest that traders use the bounce this AM as a fading oppy. I suspect there are sellers left and they will use any strength to sell into. One to watch.

Calls of Note Part 5

- Banc of America is cutting their 2007 EPS estimate on ASML (NASDAQ:ASML) from $2.01 to $1.82. They are now assuming ASML will ship 35-40 immersion lithography systems in 2007 versus prior estimate of 45-50. Firm thinks the total market will remain in the 65-70 range. They are now assuming Nikon will ship somewhere in the 30 range versus prior estimate of 20.

Nikon's immersion tool has shown good success to date at Toshiba in the NAND flash process development. BAC expects Nikon to win the lion's share of the production orders this year at Toshiba; they estimate 15. Firm expects ASML to place a couple of tools at Toshiba

They suspect that Nikon's success is causing others chip makers including Samsung to look more carefully at the Nikon tool. Expects most of the upside in revised Nikon shipments will come from development tools rather than production.

Total CY07 immersion forecast remains the same; no impact on CYMI. Lowering target price to $30 (from $32). Maintains Neutral.

Notablecalls: Had there not been such a sell-off yesterday, I'd call this one actionable.

Calls of Note Part 4

- JP Morgan notes that last night, Komag (NASDAQ:KOMG) filed an 8-K, which highlighted the agreement. This should not be relatively new news as Komag telegraphed prospects of rising substrate (unfinished disks) sales on its last earnings call. Meanwhile, the filing also stated that Seagate assumes parts of the old Maxtor media supply agreement with Komag.

Firm's checks indicate that ASPs for 3.5-inch and 2.5-inch substrates (unfinished disks) are approximately $1.55 and $2.00, respectively. This compares to ASPs on similarly-sized finished disks of approximately $5.50 and $6.75, respectively. Thus, it is apparent how the substrate revenue stream cannot offset potential slippage in the core finished disk revenue base. They believe such a deal actually points to Seagate's longer-term shift away from external media suppliers.

Komag's new substrate supply agreement might serve a temporary tonic, but in firm's view, it does not represent enough of a buffer to greater risks in the coming year. They expect Komag shares to remain under pressure owing to 1) sluggish HDD unit trends, 2) more tenuous media pricing, and 3) ongoing expansion plans at Hitachi GST, Seagate, and Showa Denko. JPM continues to recommend actively trimming positions in Komag shares.

Notablecalls: I saw some buyers in KOMG last night in after market action. Nothing big, though. Can't call the note actionable in any way.

Color on quarter: Wynn Resorts (NASDAQ:WYNN)

Several firms are positive on Wynn Resorts (NASDAQ:WYNN) after the co issued strong results last night:

- Goldman Sachs notes Wynn reported operating EPS of $0.53 vs $0.04 and ahead of their $0.44 estimate and consensus of $0.47. Upside to firm's estimate due to higher EBITDA ($140mn vs our $122mn estimate after corporate exp). Wynn beat their property EBITDA estimates in both Las Vegas and Macau.

Wynn reported a solid 4Q06 and demonstrated that the Las Vegas property is on track to show improving operating leverage and that the Macau property is building up a significant VIP customer base and is ready to start more aggressively targeting the mass market. Non-gaming trends (retail sales, F&B, etc.) at Wynn Macau continue to have positive implications for the market as more amenities come online. Firm is maintaining their $2.15 2007E and $2.70 2008E EPS estimates. They are also establishing a 2009E EPS estimate of $3.05. Maintains Neutral rating.

- Deutsche Bank says thy believe that is still early in the game for WYNN and that there are a number of initiatives that could provide incremental upside. Details on WYNN Cotai, development of the Las Vegas golf course to a casino resort (s), plus the potential for opportunities in new markets could serve as catalysts. Firm's price target is $120 (from $122), reflects increased Encore scope (10.5x multiple of LV cash flows and 12x for Macau). Risks to shares include economic (U.S., China, and broader Asia region), competitive, regulatory and development.

- Jefferies says they are maintaining Buy rating and raising their price target to $111.50 from $90 on WYNN shares. The substantial raise in price target is mainly due to: 1) 9.33 of value for the addition of a very high-end hotel casino adjacent to Wynn Macau. 2) They are now giving Wynn's 142 acres of underdeveloped land on the Las Vegas Strip $20mm/acre (an increase of $9.45/share). This reflects the combination of $15mm/acre, the same the firm currently gives Buy-rated MGM and Buy-rated Boyd ($46.92) for their land and $5mm/acre to reflect a portion of the upside potential the company should have from developing such land into a must-see casino project. Firm anticipate Wynn making a formal announcement on this land later this year. Their main thesis on the stock continues to be the development pipeline. They look forward to more results out of Macau and the opening of the Encore in Las Vegas (beginning of 2009) along with 52 acres of land to develop in Cotai (Macau), 142 acres on the Las Vegas Strip and a high- end boutique hotel-casino adjacent to Wynn Macau (2Q09).

Notablecalls: Expect to see buy interest in WYNN today. I was somewhat surprised by the gneral lack of interest in WYNN in after market action but I guess it was due to market participants not wanting any real exposure ahead of today's opening of markets. Now however it looks like there will be at least some buyers showing up early on.

Calls of Note Part 3

- JP Morgan notes Dell (NASDAQ:DELL) is scheduled to release its January quarter results after the market close on Thursday, March 1. With the resignation of the former CEO, Kevin Rollins, on January 31, the company noted that results for the quarter would be below consensus expectations.

Even JPM's recently lowered estimates could prove optimistic. They are looking for EPS of $0.29 on revenues of $15.10 billion for the quarter, versus consensus of $0.29 and $14.88 billion. Nevertheless, incremental weakness in desktop and server units could lead to further disappointment.

HP's substantial share gains are unlikely to ease in the near term. HP reported that it grew its overall PC units by 19% year over year for the January quarter. Meanwhile, th firm is optimistically assuming that Dell's PC units decline by 4% for the quarter.

Dell is unlikely to provide guidance or host a conference call. Nevertheless, the firm believes it is probable that consensus expectations will trend downward following the release. They are maintaining their Neutral rating, downside risk remains. Dell is trading at 19x firm's calendar 2007 estimates including options expense, and 17x excluding options expense. This represents a 15% premium to the SandP 500. THeybelieve this premium may erode in coming quarters and still prefer HP's shares for PC and enterprise exposure.

Notablecalls: Not actionable but good to know category. Shows you where the expectations stand.

Calls of Note Part 2

- Goldman Sach's met with Tim Cook, Apple's (NASDAQ:AAPL) COO at the GS Technology Symposium. While there was no breaking news on the financial side, the meeting reinforces firm's view that AAPL shares represent a core holding and should be bought on any weakness. Most pointedly, Apple continues to reinforce its emphasis on and ability to innovate at levels that separate it from other companies. Firm's rating is Buy

Apple's unusual culture is embedded enough into Apple to virtually ensure a continuing string of breakthrough products beyond iMac, iPod, OS/X, and soon the iPhone, with the latter including sufficiently innovative features to enable Apple to achieve its fiscal 2008 10M unit targets even at Apple's higher price points. Indeed, Apple's 3-5 year outlook will extend it into new growth opportunities, partly a result of iPhone's reach. On other fronts, Apple once again addressed the issue of its iPod inventory exiting the December quarter and, despite some controversy in the investment community, the firm remains comfortable with its 200,000 unit iPod inventory build. Beyond that, the doubling of Apple's gift card business in the December quarter should lead to an uptick in iTunes revenue in the current quarter. Mac-wise, Apple continues to add to its string of substantially outgrowing the market.

Though this is a time when Apple shares are more subject to negative speculation, they continue to view AAPL as a stock that should be bought on dips over the next 3-4 months during the anticipation period in front of iPhone.

Notablecalls: Not actionable but good to know category. For you Apple fans out there.

Color on sell-off from Morgan Stanley

- Morgan Stanley notes yesterday's 3%-4% drop in the popular stock averages is a wake-up call for a market that had become far too complacent, in ther view. The firm has been
defensively positioned for some time, and the sharp move now gives thm an opportunity to reassess their position and weightings.

Firm concludes that it is too early to increase equity weightings (unless an investor has a long time horizon, low exposure to equities and moderately high tolerance for risk), as valuations and earnings forecasts still appear vulnerable to a decelerating economy and the potential correction of a very high level of investor risk appetite that has prevailed for the past several months.

Recession or not? Alan Greenspan's comments Monday - that the US economy might slip into recession before the end of 2007 - garnered a lot of attention, but probably for the wrong reason. Most economists will admit the chance is real, but their published forecasts imply a certainty that Greenspan won't endorse. Rather, he suggests that forecasting that far into the future is 'very precarious.' Now, that is something to consider; is there an ample margin of safety for stocks given the economic uncertainty?

High quality, large capitalization stocks with diversified, defensive earnings streams, reasonable growth expectations and visible cash flow (buybacks and importantly, dividends) are the characteristics the firm seeks in stocks to add to portfolios now. They would avoid/reduce: companies that depend on commodity pricing power to drive earnings gains, cyclical earnings risk and small/midcap stocks that have seen substantial price/earnings multiple expansion over the past 5-7 years.

Notablecalls: Not actionable but good to know category. Gives some color on how the analyst community sees things.

Calls of Note Part 1

- Citigroup notes Focus Media (NASDAQ:FMCN) had the unfortunate timing of reporting solid 4Q results and good FY07 guidance just as the China A share market fell on speculative concerns. Bad for Focus, but a better opportunity for investors to buy Focus at a price below the recent secondary with a far better risk-reward, e.g. 1Q and FY07 guidance have now been given.

China's advertising market not likely to be affected by A Shares sell-off? Focus's core business is Brand Advertising. As discussed on the 4Q call at the start of the year, advertisers set yearly budgets, giving Focus visibility into its FY numbers. These budgets shouldn't be affected by short-term market moves.

Sell-off in China A Share market due to speculation? With the market recently hitting new highs, firm's China Strategist Lan Xue notes that China's (domestic) A-share market has come under severe selling pressure spurred by 1) reporst the CSRC chairman is leaving; 2) a potential interest rate hike; and 3) a potential capital gains tax. However, they don't believe these hold much weight.

Valuation appears highly attractive ? Focus is trading at P/Es of 28x 07E and 22x 08E, highly attractive for a company that enjoys monopoly or near-monopoly status in its markets and the leverage of a fixed-cost model, benefits from the booming China Advertising market, can benefit from possible M&A in the Internet space in 1H, and has increasingly highly recurring revenue.

Reits Buy and $100 tgt.

Notablecalls: Do check out NC comments on FMCN from yesterday. The stock never even got close to the $86 level suggested but rather declined to around $78 and change on open. It was there where it bounced almost $5. I hope non of you got hurt buying the stock too high in pre mkt but were flexible enough to wait for the open. That's what trading is all about - flexibility.

Tuesday, February 27, 2007

Calls of Note Part 2

- Jefferies comments on OmniVision (NASDAQ:OVTI) ahead of results saying continued severe VGA pricing pressure is impacting revenue and gross margin as the shift to higher margin and ASP megapixel sensors has been slow to materialize. They would stay on the sidelines until there are indications of pricing pressure subsiding or a mix to higher ASP megapixel sensors.

Firm believes rev for CQ4 will likely be inline to slightly below St. and their estimate of roughly $140MM. Jeffco believes gross margin will likely be below their estimate of ~30% due to continued VGA ASP pressure, lower 2MP sensor mix (<10% from ~12% in CQ3), and the well documented test and packaging constraints. They believe EPS will likely be below consensus of $0.19 (vs. guidance of $0.16-0.23). Firm does believe there is an increased potential for a share buyback due to the elimination of $50MM in capex to XinTec.

Firm believes OVTI will likely guide CQ1 rev below their est and St. of ~$130MM (-8% Q/Q) due to greater handset seasonality and a continuing high mix of VGA sensors. They believe OVTI's EPS guidance will imply gross margin below 30% vs. firm's 31% as the sensor mix will likely continue to favor VGA (likely 70% of units in CQ1) and believe it will not be possible for OmniVision bring down costs fast enough to offset the ASP declines of 5-10% Q/Q.

Does this stock bottom here? Although OmniVision is trading close to its historic trough valuation of 2x cash (~$12) and the sensor mix will likely improve in 2H:07, with a likely negative earnings revision, they believe there will be a better entry point. Maintains Hold and $14 tgt.

While WR Hambrecht couldn't really do much damage to OVTI's share price yesterday, Jeffco's comments along with general market weakness will likely do the trick today. As regard to the results, no edge here.

Calls of Note Part 1

- Bear Stearns is negative on General Motors (NYSE:GM) saying they believe GM equity is increasingly complacent about four dynamics: 1) subprime mortgage exposure; 2) a Goodyear-type buyout; 3) the benefits of any potential GM/Chrysler merger; and 4) GM's inventories and risk of additional production cuts. Firm would take trading profits today ahead of subprime disclosure and February auto sales later this week.

Near-term, their biggest concern on the equity side is whether GM stock sufficiently discounts ResCap's subprime exposure. GM faces deadlines this week for its 10K filing and GMAC's Final Balance Sheet. Firm believes both force heightened scrutiny of the adequacy of ResCap's loan loss provisions. In addition to any true-up, on the equity side, they directionally believe ongoing subprime concerns may pose headwinds for GMAC. This is important because GM's 49% equity stake represents all of Bear's 2007-08 EPS estimates.

In Bear's view, a Chrysler merger would increase GM's exposure to the U.S. auto market (consumers, brands, dealers, suppliers, unions, daily rental fleet sales), and would potentially require divestiture of some of Chrysler's light truck assets for market concentration reasons.

Also, firm estimates GM dealers are carrying over 150 days of T-900 inventories. A production cut seems inevitable. Maintains Peer Perform.

Notablecalls: Not actionable but good to know category. Where were you guys 10 days ago?

Color on analyst event: Sandisk (NASDAQ:SNDK)

- Goldman Sachs notes SanDisk's analyst meeting on 2/26/07, featured "the good, the bad and the ugly" of incremental news:

1) Good news - SanDisk may add new licensees in 2007, which would be a significant positive given concerns about the sustainability of royalty sales. Margins are also expected to return to more normal levels in 2008/2009 post a very challenging 2007;

2) Bad news - near-term fundamentals remain very weak, with ASPs expected to fall in excess of 55% yoy in 2007. Firm believes the excess supply problem that is driving weak ASPs is well understood by the market. In the near-term, the problem is being addressed by NAND capacity being allocated to DRAM and NAND capacity additions being slowed. To that end, SanDisk has reduced its capex significantly versus earlier projections, which should have negative implications for the SPE stocks. In the intermediate/long-term, they expect excess supply to be absorbed by new NAND end markets, including PCs and video;

3) Ugly news - 2007 margin projections are worse than anticipated, with product gross margins guided to 12-23% and operating margins guided to -8% to 4%. Firm is cutting their 2007 EPS estimate to $0.95 from $1.30 on lower margins, but is raising their 2008/2009 estimates to $2.15/$2.70 from $2.10/$2.60 on an anticipated improvement in margins.

SanDisk remains Goldman's best buy idea over the next 9 months given their expectation of improving NAND supply/demand dynamics in CY2H07 and their view that the stock offers a favorable risk/reward trade-off. Maintains $46 tgt.

- Baird notes Sandisk's tone was unusually cautious during its analyst day held yesterday. Based on the forecast range provided by the CFO, downside exists to their 2007 numbers while 2008-09 figures suggest continued secular declines in profitability beyond the current cycle, which could lead to further multiple contraction, in firm's view. Longer term, Micron/Lexar could offer a first-time challenge to SanDisk's retail market share. Too early to buy, in Baird's view. Neutral rating.

Notablecalls: I continue to see very little reason to buy SNDK around current levels. Please see archives for further color.

Color on quarter: Marvell Tech (NASDAQ:MRVL)

Cautiously postive comments on Marvell Tech (NASDAQ:MRVL) after the co released Q4 results and Q1 guidance last night. While estimates are lowered, there is talk of this being the bottom:

- Jefferies notes Marvell reported CQ4 revenue slightly below and provided guidance below consensus as was widely expected. Despite another downward revision to St. estimates, the firm is maintaining their Buy rating as they see this as the last downward revision and believe investors will focus on the potential leverage in CY08.

Firm estimates CQ4 EPS was $0.06 (vs. St of $0.08) and are modeling CQ1 EPS of $0.07 (vs. St of $0.10), largely due to higher opex assumption. CY07 and CY08 EPS estimates are largely unchanged at $0.47 and $0.75, respectively (vs. St of $0.61 and $0.96). Jeffco expects St. estimates to be reduced closer to their estimates today, followed by additional revisions once Marvell makes its filings, which they estimate will be in the late March/early April time frame.

- CIBC says Marvell reported abridged F4Q07 results (January) with revenue roughly in-
line with expectations. The core business grew just modestly as demand trends stabilized. The Intel acquisition adds revenue while diluting profitability as expected. Inventory issues in storage and 802.11n are largely resolved and these businesses should resume more normalized growth in CY07. PC Ethernet is soft ahead of an anti-climactic Vista launch, though GigE switching and printing ASICs remain strong on robust enterprise demand.

Guidance for 3%-5% growth was encouraging against weak cyclical and seasonal conditions. Firm's estimates are coming down, though they believe this is likely the last numbers cut as demand improves. There remain many opportunities for upside in Marvell's diversifying business. They believe the runway is now clear for better growth and profitability in 2007. HDD should provide more stable profitability, while a full plate of growth including Ethernet switching, handset, wireless LAN, optical storage, printers, and enterprise storage solidifies. Maintains Sector Outperformer rating.

- Goldman Sachs maintains their Buy as they expect several positive drivers to ramp in the coming quarters, which they believe will help re-establish positive earnings momentum and investor sentiment. However, the firm expects near-term trading will remain choppy as fundamentals are weak and visibility into cost improvement of the acquired business is limited. Hence, they believe investors should build long-term positions with tight stop-loss or half positions now with full positions filled as overhangs such as cyclical choppiness and the options investigation are resolved.

- Merrill Lynch notes MRVL reported revenues of $622mn (+20% Q/Q), which was near the low-end of management's outlook for $620-630mn. The company's Apr-07Q outlook for
$640-650mn, or up 3-5%, was a bit below consensus of $650mn. Mostly inline results and optimism about normalizing channel inventory appeared to have helped to the stock in the after market. At this point, the firm thinks downward estimate revisions are more or less behind us but see potential headwinds for MRVL's XScale and storage businesses on the horizon.

Notablecalls: The stock ended up about $1 in after market action. I don't see any targets raised (most stand around $23) as ests get trimmed at several firms. Must say I find it difficult to see any major upside from levels reached in after market.

Color on quarter: Focus Media (NASDAQ:FMCN)

Couple of firms comment on Focus Media (NASDAQ:FMCN) after the co released in-line Q4 results but pretty much blew away 2007 guidance:

- Piper Jaffray is upping their tgt t0 $106 from $88 saying that while Focus Media reported an essentially in-line quarter, with the results aided slightly by lower-than-expected taxes, that performance is nearly immaterial to many investors given the strong outlook that the company projected for 2007, causing the firm to raise their estimates significantly, well above what they expected going into the quarter. The firm is raising their '07 revenue estimates by more than 10%, implying a y/y growth rate of 64% vs. their original 50%. Similarly, PF EPS goes from $2.75 to $2.83.

In Q4, the company continued to execute well, with Framedia slightly stronger than firm's expectations, while other segments were generally in line. Gross margins continued to demonstrate the leverage in the model with 344 bps of q/ q expansion. The highlight of the call, however, was a very aggressive '07 guidance which implies that the company has good visibility into advertising spending budgets in the second half of '07 and is confident about the overall economic climate in China as the Beijing Olympics approach. While the guidance implies a strong second half, which may be concerning to some investors, they note that the company has consistently met or exceeded its guidance.

Focus Media continues to be firm's favorite vehicle to capitalize on the growth of the broader advertising sector in China, especially as the Olympics approach. Reiterates Outperform.

- CIBC notes FMCN reported modestly better 4Q results, exceeding non-GAAP EPS by $0.01 on lower taxes and one-time income. However, as a result of significantly better '07 guidance, they are raising their target to $110, based on 30x revised non-GAAP '08 EPS est.

4Q revenues in line, as higher poster revs partially offset by lower comm network revs., reflecting timing of Channel B signings. However, EBITDA was 6% lower than they expected on higher G&A (incl. some one-time exp). GAAP EPS of $0.55 was $0.01 below firm's est on higher stock-based comp. '07 revenue guidance of $350-$360m above CIBC's $325m and Street's $330m. They are raising '07 non-GAAP EPS to $2.86 from $2.68 vs. guidance of $2.83-$2.90, and increasing '08 to $3.65 from $3.40. Expects positive Street revisions as well, as guidance is $0.20-$0.24 higher than First Call.

Maintains Sector Outperformer rating.

Notablecalls: The stock traded as high as $88 in after market action but was shot down by the shorts as talk of one-time gains helping the qtr started swirling. Also, EBITDA for Q4 was somewhat lower than expectations. The stock came down to around $85 but bounced a buck shortly after that, ending the day around $86. I suspect that given the strong 07 guidance and positive analyst chatter this AM (think there will be more of it), the stock may be a buy around the $86 level and have a some decent upside.

Paperstand (BKUNA, CFC, NEW, NFI, IHP)

The WSJ’s „Heard on the Street” column out saying that the worst may be yet to come for mortgage lenders. If subprime borrowers continue to have problems paying their debts, the lenders that tgt them likely will have to boost their reseves, cutting into their bottom lines. That could mean even lower stock prices. There also is a concern that if the real-estate mkt remains cool, some borrowers with better credit histories might also begin struggling to make payments on certain popular, but unorthodox, mortgages. If that happens, co’s such as BankUnited (BKUNA) and Countrywide (CFC) could suffer. When a co keeps its reserve low, it makes its earnings look better b/c it continues to increase its assets from loans it originates and sells off. Lenders need to set aside reserves to cover any possible losses when borrowers fail to make payments. Subprime-mortgage lenders generally sell most of their loans to investors, but many keep some loans as investments. These portfolios have grown as the number of new mortgages has risen. New Century (NEW) and Novastar (NFI) hold billions of dollars of loans for investment. While they have been increasing their loan-loss provisions, delinquencies have been coming faster than anticipated. NovaStar's reserves were 1.05% of its $2.1bn in loans held for investment in the 4Q, but still ranked among the lowest in the industry, according to Zach Gast, of CFRA. Subprime-mortgage lenders are likely to start reporting significant shortfalls in their loss reserves "as soon as the next several quarters," predicts David Honold, of Turner Investment Partners.

Barron’s Online “Inside Scoop” section reports that Third Point took a big bite into the richly priced shares of IHOP (IHP) with the hope that the co's International House of Pancakes restaurant brand will continue to stack up gains. So far this month, Third Point has spent $21.7M to purchase 400K shares on the open mkt. The Park Avenue hedge fund now owns 1.25M shares, or 7% of IHOP's 17.8M outstanding shares and has spent nearly $61.6M to accumulate this stake.'s Ben Silverman says that Third Point, when piqued by a co's performance, can become "unfriendly" in pushing mgmt to unlock shareholder value. So at IHOP, "if they choose to switch on that flip, it certainly would be interesting," he adds. In the meantime, Third Point's "buying into strength is a good sign that they believe the fundamentals in the co are solid," says Silverman.

Monday, February 26, 2007

Calls of Note Part 6

- Goldman Sachs is positive on Apple (NASDAQ:AAPL) after a recent handset branding survey conducted in the US, UK, China, and India. Even with the survey having taken place prior to the announcement of iPhone, there are four key positive takeaways for Apple.

1) The number of potential iPhone buyers is equivalent to 75% of the installed base of current iPod owners, with just under 1/2 of the potential buyers coming from respondents who have never owned an iPod.

2) Similarly, in the US, 71% of respondents indicated interest in a potential
Apple mobile phone.

3) In the US, Apple ranked as the number 4 most desired multimedia handset brand - again, coming before iPhone was even announced.

4) Some of the concerns about the unwillingness of consumers to switch carriers to get the handset they want seem misplaced, with 30% of UK respondents and 15% in the US suggesting that they would switch.

The buying intention survey gives the firm greater confidence in their initial iPhone forecast of 4 mn units in CY2007 and 10.5 mn in CY2008, driving Apple's growth to 20% levels, biased still to the upside. In fact, their preliminary base case analysis, assuming 25% video iPod cannibalization in calendar 2007 and 50% in 2008, concludes that iPhone alone could add an incremental 400-500 bp to Apple's revenue growth in those two years.

GSCO thinks that iPhone starts the next big growth phase for Apple, making it a core holding, and believes that the stock should be bought on dips prior to the product's launch in June.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 5

- Merrill Lynch is upping their tgt on NRG Energy (NYSE:NRG) to $80 from $72 saying TXU LBO has an implied valuation for TXU's Texas generating plants of about $1,763 per kilowatt (kW) vs. the $899 per kW they used in their sum-of-the-parts analysis for NRG. Higher weighting of nuclear in TXU portfolio (and other factors) argue for a TXU premium, but this wide a gap is unwarranted. Firm has raised their assumed value for NRG's Texas plants 12% to $1,010 per kW.

Conservatively, firm's higher valuation does not incorporate any read-across from Texas into other regions. Cross-checking their $80 price target on more traditional metrics, the implied 2008 free cash flow (FCF) yield would be 9.6% and the EV/EBITDA multiple about 8.4x.

The deal TXU apparently commits to scale back TXU's controversial coal plant build from 9.1 gigawatts (GW) to 2.2 GW. Some of this "lost build" may be offset by new gas plants or return of mothballed capacity, with higher heat rates and therefore positive implications for profits of baseload generators (TXU and NRG).

Notablecalls: NRG will most likely see strong buy interest today. Other names with merchant exposure include EXC, EIX and D.

Calls of Note Part 4

- Wachovia notes that generally speaking the electronic processing group looks to be very focused on M&A, with the number of companies being acquired appearing to accelerate as well as the size and scope of the transactions. What's driving the activity today? Firm would point to several factors including 1) slowing organic growth for many in the industry, 2) very healthy balance sheets, in their opinion, with lots of cash and very little debt, 3) increased interest by private investors could be forcing managements' hand to buy now or loose the opportunity later, and 4) scarcity value of assets to choose from. Firm continues to believe that '07 will prove to be one of the more pronounced M&A years in the group and could be the catalyst to drive higher earnings and thus share prices throughout the year.

Wachovia would continue to focus on companies with strong secular growth stories, require modest levels of incremental fixed capital to grow organically, strong balance sheets, and solid managements.

Micros Systems (NASDAQ:MCRS) fits the bill: MCRS is a play on the global IT spending in the hospitality industry for both hotels and restaurants, which is helping drive higher ROI's in these industries, has a significant upgrade cycle opportunity north of $600MM in the coming 5-7 years, low global penetrations rates in both markets (15% hotel, 10% restaurants), $7 bucks in cash today (buybacks or acquisitions both accretive), and a very client focused management (to the detriment of the Street).

Notablecalls: WACH also highlighted GPN as a Top Pick but I like MCRS' chart. May see some buy interest off of these comments.

Calls of Note Part 3

- Citigroup is previewing Focus Media's (NASDAQ:FMCN) quarter saying they believe that the Street has been expecting weak 1Q07 guidance for nearly 3 weeks, but with consensus numbers still too high, the guidance will likely be "weak." This could create volatility in after-hours trading that investors could take advantage of. The other issue that could drive the stock near-term is a possible acquisition.

They expect Focus to beat their US$67.6m revenue and US$0.62 non-GAAP EPS estimates when it reports today after the US close. Street is at US$68.4m and US$0.57 (GAAP); Guidance is revenue of US$67-69m and non-GAAP EPADS of US$0.62-0.64.

Guidance likely to be "mixed" ? Citi recently brought their 1Q07 numbers down to revenues of US$57.0m and non-GAAP EPADS of US$0.42 (GAAP EPADS of US$0.36), and expect Focus to guide in-line with their new estimates. The Street, however, is still modeling US$59.0m revenue and US$0.38 GAAP EPADS for 1Q. Offsetting this risk, they expect the company to provide full-year guidance at least in-line with the Street's US$329.4m revenue and US$2.46 GAAP EPADS estimates.

Given that the DotAd acquisition was announced on last year's 4Q call, and the ACL acquisition (Movie Theater) deal was announced on the 2Q call, there is a good possibility the company could announce another deal tonight, possibly in the Internet "ad serving" space.

Notablecalls: Good heads up on FMCN. The co reports 4Q06 results at 8:00pm U.S. Eastern Time on February 26, 2007 (5:00pm U.S. Pacific Time on February 26, 2007 and 9:00am Beijing/Hong Kong Time on February 27, 2007).

Calls of Note Part 2

- Merrill Lynch thinks one of the cornerstones of the bullish investment case for General Electric (NYSE:GE) is grounded in "reversion to the mean" theory (ie, as long as the earnings continue to increase the stock should eventually work). Firm thinks this argument potentially misses the point that lower earnings quality due to low tax rates and other items could incrementally negatively pressure GE's valuation multiple.

Given GE's tremendous size, portfolio breadth and high weighting within several benchmark stock indexes, they think that GE should be appropriately valued on a relative basis vs. the market. As such, GE's 15.7 times (2007E) P/E, or in-line with the S&P 500, seems fair
considering the stock's historical ~1% average market premium. Firm notes that this premium was derived with 1990s trading data when GE Capital constituted a much smaller portion of GE's earnings - financial companies trade for substantially lower multiples vs. industrial companies.

ML examined the valuations for industrial peer companies that also have low tax rates. It
appears that these companies have traded for 15-20% valuation discounts over the past 2 years compared with firm's adjusted diversified industrial benchmark index companies that have higher tax rates. They continue to think that GE could face possible tax headwinds over the coming years that could justify a valuation discount. Thinks think this could contribute to dampened investor sentiment toward GE. Maintains Neutral.

Notablecalls: GE has gotten hit lately in a pretty bad way. The high-vol gains the stock saw in December have been wiped out. ML's call won't help the sentiment but I suspect it will eventually set the stock up for a bounce. While there is no rational way to explain this, it's just how the markets work. May happen as soon as today. One to watch.

Calls of Note Part 1

- Citigroup notes the Congressional Budget Office (CBO) on Friday released a report on budget savings and spending options that it releases every two years. The "Budget Options" report is not a list of CBO-endorsed savings recommendations, but rather is intended to be an aid to Congress on the positive or negative spending impact that would result from enactment of various policy options. CBO culls the options from a range of sources: legislative proposals, the President's FY2008 budget, Congressional and CBO staff, government agencies, and private groups.

CBO devotes a section to potential Medicare savings, including Medicare Advantage. This caused a sell-off of managed care stocks late Friday, particularly Humana (NYSE:HUM) (stock dropped 3% in 8 mins & closed -2.3%); however, the Medicare Advantage savings options are no different from those that were contained in the CBO report two years ago.

Firm thinks sell-off on HUM was over-done. They expect a rebound on Monday when investors realize there is nothing new here. Reiterates Buy on HUM as the stock is trading at a forward P/E at the low-end of its historical range.

They also reiterate Buy UNH, WLP, CVH, HNT, and Hold AET.

Notablecalls: Nice call by Citi, although I must note I think most of the bounce already happened late Friday (up a point from lows). There may however be some shorts left to squeeze early on. One to watch. Not calling this outright actionable.

Paperstand (UTK, TXU) updates UTEK (UTK) story, which they originally ran in Oct’06. According to the article, the top co in UTEK’s securities portfolio has encountered a series of setbacks in its attempt to commercialize a powder-coating technology for kitchen cabinets, bathroom vanities and other wood products. Trio Industries Group (Pink Sheets: TRIG) has been evicted from its offices in Dallas. Its phone and fax numbers have been disconnected and it no longer has control of the 650K-sq-ft building that it hoped to convert to a wood products plant. UTEK licenses technology from govt and university labs and transfers it to other co’s. UTEK has done 5 such deals with Trio and has received 7.79M shares of Trio stock. UTEK valued that stake at $11.6M on Sept. 30, making the shares the biggest single holding in a stock portfolio it valued at $55.7M.

The WSJ reports that a total of 6 private equity firms have signed a deal to buy utility powerhouse TXU (TXU) for $32bn plus more than $12bn in TXU debt. TXU directors last night voted to recommend that shareholders approve the deal. In a creative twist, the firms have moved quickly to pre-empt opposition from powerful environmental groups while seeking support from various regulators and politicians. Already, the potential buyers have promised to cancel plans to build all but 3 of the co's proposed 11 coal-fired plants. And they are planning to placate consumers with rate reductions.

“Heard on the Street” column out on REITs, saying it is being uttered by many investors: "If Sam Zell is selling, I should, too." The real-estate legend's decision to sell his Equity Office (EOP) has been viewed as proof that office REITs were too richly valued. Adding to the anxiety is the word that several REIT execs exercised options or sold shares this month, including Boston Properties (BXP) Chmn Mortimer Zuckerman, who sold $75M of stock in a single day. Yet, investors shouldn't make too much of these signals. While they should be cautious, and refrain from flooding into the office-REIT sector, they don't need to worry about whether to hold their positions for a while. Some of the biggest portfolio managers of REIT funds took their cash out of Equity Office and plowed some of it right back into office REITs instead of choosing other kinds of REITs, such as hotels or shopping malls, or letting their cash levels rise. That is b/c, despite an incredible run in the stocks in the past 6 years, some upside may remain. With relatively few new office buildings under construction, rental rates in certain office mkts are expected to increase significantly in the next 2 years. That should give office landlords the opportunity to renew leases at higher rates, likely increasing future cash flow. These mkts tend to be where some highly regarded office co’s including Vornado (VNO), SL Green Realty (SLG) and Brookfield (BPO), have most of their assets.

Sunday, February 25, 2007

Barron's Summary

Barron’s cover highlights co’s that should benefit from the graying of the boomer generation. Those include AGN, AHS, EL, HIG, PHM, HOT, SRCL, UNH, WAG and WFMI. Wall Street consultant favors SAI and RJET, dislikes MHK, FOSL and HWAY.

Universal Electronics' (UEIC) 50% jump suggests a pause ahead. But there's still as much as 50% upside left for the next 12-18 months, says a bullish hedge-fund shareholder.

With profits and revenue up, Siemens' (SI) stock should climb at least 10% this year. But all bets are off if the scandal reaches Kleinfeld, the architect of the company's revival.

Shares of McDonald's (MCD), up nearly 25% in the past years, could easily rise another 10%, thanks to expanded breakfast offerings and double-digit profit gains.

Barron’s suggests that Brookfield Asset Mgmt’s (BAM) stock, now at 55, easily could approach 70 in the next few years. Brookfield enjoys several advantages over rivals. It is bigger than many, and can raise debt rapidly. It has experience with nontraditional assets, and perhaps most important, has built the operating structure around targeted industries, such as hydropower and Brazilian real estate.

Barron’s highlights Fifth Third Bancorp (FITB), saying that just 2 of the score of analysts following Fifth Third rate the bank's shares a Buy; the remainder are split between Hold and Sell. The Street's hardened consensus has obscured some key moves that Fifth Third wisely made in recent qtrs to fix what has ailed its performance and reputation. Before its troubles began, Fifth Third routinely commanded 18-20x expected earnings. While its P/E isn't likely to return to such lofty levels, "they can get some multiple appreciation," T. Rowe's Mike Holton says. "The new mgmt team is rebuilding credibility, and should improve results QbyQ," he says. "If they can continue to execute on plan, you'll see the Street go from hating the stock, to a more neutral stance, to liking it." The upside, Holton figures, is "into the 50s."

“International Trader” section discusses Reuters (RTRSY) growth opportunities, among other is acquisition. Potential targets include FDS, ITG, PSO and BK. Buying FactSet, best known for its Company Explorer and Marquee products, would be a major deal for Reuters, whereas acquiring ITG would be more strategic b/c its main asset is a broker-neutral trading platform.

Friday, February 23, 2007

Calls of Note Part 3

Piper Jaffray out with interesting comments on Idenix Pharmaceuticals (NASDAQ:IDIX), saying their checks suggest disappointing Phase 2 SVR data for NM283 without ribavirin. Since discontinuing high dose NM283 from the ongoing Phase 2 HCV treatment-naive study, IDIX has been optimistic that the efficacy of the low dose NM283 group would warrant clinical advancement. However, when firm compares 12 week data from the ongoing study for low dose NM283/Pegasys (PEG) (44% undetectable virus, UND) to data from recent U.S. based studies for PEG/ribavirin (RBV) (50%-60% UND), it suggests that low dose NM283 is no better than RBV, and may be inferior. Additionally, recent feedback from people close to the study has been discouraging, with one of firm's sources indicating 100% relapse, and two other sources indicating significant relapse rates.

Thus, not surprisingly, investors are keenly focused on the first ever clinical data for NM283 in combination with ribavirin (RBV), to be presented at the upcoming April EASL meeting. The primary endpoint of the study is at Day 36, although the study will dose 90 patients for 12 weeks, and will compare NM283/PEG/RBV to NM283/PEG to the standard of care PEG/RBV. While the early viral kinetic data will be presented at EASL, firm believes that the 12 week data is critical for assessing the future direction for this product based on the following (see page 2 for detailed analysis):

(1) the FDA required a full 12 week dataset for this study for a reason (VRTX and Roche have done only 4 week RBV interaction studies);

(2) 4-week data will be difficult to interpret given the small patient numbers UND at that time point (e.g. PEG/NM283 with 18% UND=5-6 patients)

(3) 12-week data will show greater UND rates making between group comparisons more meaningful (e.g. PEG/NM283 with 44% UND=13-14 patients)

Firm believes NM283 plus PEG/RBV needs to show improved anti-viral activity compared to PEG/RBV alone in order to advance into Phase 3 trials. Based on prior data as noted above, firm expects the minimal efficacy threshold for the triple combination to be UND rates of 65%-70% at 12 weeks. If there is no additive anti-viral activity for NM283 +PEG/RBV, firm questions the approvability of this regimen.

Notablecalls: Expect to see weakness in IDIX based on Piper's comments.

Calls of Note Part 2

- Baird is out in defense of Amgen (NASDAQ:AMGN) noting the shares have been buffeted recently by a wave of negative sentiment regarding Aranesp, with concerns about safety, biosimilar legislation, Mircera competition and reimbursement. For their part, they think the only substantive risk here relates to safety. After a comprehensive review, the firm sees that risk as both manageable and more than in the stock.

First, while AMGN has reported negative results in anemia of cancer (AOC), they believe any moderation in AOC use can be offset by share gains pre-dialysis for example. Second, in Aranesp's labeled indication-chemotherapy-induced anemia (CIA), they think clinical and commercial risks have been blown out of proportion.

Firm recalls, a survival trial in small-cell lung cancer is expected mid-year. While it is entirely possible that the outcome may be negative, the firm thinks the preponderance of existing data indicate at least an equivalent survival benefit between Aranesp and control.

Third, with heightened EPO scrutiny, they find it hard to support the additional bearish argument that Mircera will be imminently approved.

Reiterates Outperform rating, $90 price target.

Notablecalls: While I don't think the call is outright actionable from the trading perspective, it does highlight the right things. NC was outgamed in AMGN couple of days ago in a pretty classic way. If you check the comment posted under the AMGN call and compare the timing to the chart you'll see capitulation happened right around the bottom (as it always does, of course). I do suspect that some of you did make some dinero on the initial call but in case you're trading lots greater than say 10,000 shares it didn't go a long way in helping your performance. Was there a lesson here?

Calls of Note Part 2

Two notes out on Google (NASDAQ:GOOG) this morning.

- Cowen believes one of the reasons that Google is trading off its recent highs is a series of setbacks in non-search initiatives, especially in video. YouTube talks with Viacom and CBS ended unsuccessfully, and Viacom has made a separate deal with Joost (an online video startup backed by the founders of Skype). Firm believes these concerns are overdone because: (1) their DCF analysis indicates that YouTube will not have a meaningful impact on Google's valuation, even if it is highly successful (search advertising is the overwhelming driver of value in their view); (2) firm believes YouTube will eventually sign deals with major content owners; and (3) it is way too early to expect YouTube, which launched 22 months ago, to generate meaningful revenues (it took five years for Google revenues to begin to scale). Firm is maintaining Outperform rating.

- BofA notes that during a Q&A discussion at BofA's Tech conference today, Tim Armstrong, Google's VP of Ad Sales in North America discussed some of the growth opportunities for Google in both the near and long term.

Significant room for growth in the US.: Google believes it is well-positioned to capitalize on the disparity between the Internet's share of media usage (13% Pew estimate) and the % of ad dollars spent online (5.4% BofA estimate). Google mentioned growth in the US is being driven by increasing numbers of advertisers as well as incremental spend per advertiser through monetization of their respective long-tails.

Branded advertising share may be underestimated: Google noted its efforts in online branded advertising were progressing well and that it has a competitive market share. Google's multi-product campaign with Saturn Aura (including search, maps, and video) could be a model for future integrated branded efforts. In addition, Google is partnering with creative agencies to design and run similar campaigns at scale.

Yahoo!s Panama could lift all boats: Google noted that a successful launch of Yahoo!'s new search marketing platform (Panama) could be a net positive for Google and the industry as it offers search advertisers an additional advertising channel. Our channel checks indicate mostly positive advertiser feedback from the transition to Panama.

Notablecalls: Neither of the notes contains anything new. For you Google fanatics out there!

Color on results: Red Robin Gourmet Burgers (NASDAQ:RRGB)

Couple of firms out with interesting comments on Red Robin Gourmet Burgers (NASDAQ:RRGB) after the co issued surprisingly strong Q4 results last night:

- BofA notes the EPS of $0.53 was above their low-visibility consensus-estimate of $0.35. Results benefited from slightly better than expected sales coming from the extra week, in addition to a lower tax rate and the settlement of a class action suit with Visa and MC. Restaurant-level operating margins improved 90 bps due to an improvement in COGS (stemming from the new menu engineering and margin leverage from menu price increases), and labor (self-insured benefit costs).

For F07 the company expects 24-27 new company stores (seems like a lot, considering challenges with new unit openings and brand awareness in new markets).

RRGB no longer provides quarterly comp guidance, but based on management's statements regarding the challenges experienced so far in 1Q (winter weather, tough comparison and a challenged sales environment for casual dining) the firm has lowered their 1Q comp estimate to flat from +2%. Guidance for the full year of 2.0%-3.5% assumes a big benefit from national cable advertising in 2H; based on how long it took competitors to experience a boost from launching national media, they maintain somewhat conservative estimates for the remainder of '07 (2.0-2.5%)

Firm has lowered their EPS estimates for 1Q and the full year to $0.47 and $1.80, respectively (from $0.49 and $1.81). Tgt goes to $36 from $34. Maintains Neutral.

- CIBC notes that after adjusting for the greater than expected extra week benefit, lower tax rate and litigation settlement RRGB delivered $0.04 per share upside vs consensus. 4Q SSS +0.2% (in line) including a 3% decline in guest counts.

New unit productivity, a focal point in recent qtrs, still challenged with new units delivering just 87% of existing unit volumes--same as 3Q06. No quick answers with development focus still in new markets through '07. April '07 premier of national cable advertising could provide much needed traffic lift.

4Q results & '07 outlook, while likely to appease shareholders in short run, don't address LT issues facing RRGB including flagging new unit productivity stemming from lack of brand awareness. Still, over time, they find concept fixable & shares remain interesting (at 21X '07E) for LT investors. Maintains Sector Performer and $42 tgt.

- Piper Jaffray is clearly the most bullish firm out there this AM saying they reiterate their thesis that they expect Red Robin to be a successful turnaround story during the next 18-24 month period. Firm's model appropriately reflects the anticipated acquisition of 17 restaurants in California (end 2Q07) combined with a projected potential launch of the marketing campaign as early as March. They expect the accretion of the recent franchise acquisition as well as the potential strength of same-store sales in the back half of the year to offset the costs associated with the national advertising campaign.

In an effort to better analyze what the firm believes are a combination of operational, real estate and brand awareness challenges, the company has dramatically reduced company-owned development. They expect the company to launch a new prototype (as early as the first half of this year) as well as increase brand marketing as mentioned above. Finally, given the relevant brand positioning, they expect re-accelerated development (in firm's model accelerating in FY09). As a point of reference, they believe that both CPKI and BWLD, which have experienced issues similar to RRGB, provide a road map in terms of "how to" potentially implement a successful "turnaround" strategy.

Reits Outperform rating and ups tgt to $47 from $40.

Notablecalls: Do check out the short interest in this one as it stands close to 20% of float. That's the main reason why the stock was up 4 bucks in after market action. I find the analyst community to be neutral at best (apart from Piper, of course) following the results. Would not be surprised to see the shorts put up a decent fight around the levels reached in after hrs. Suspect they will prove to be successful in their attempt to shoot it down after the weaker hands have covered their positions.

Calls of Note Part 1

- Wachovia believes Cirrus Logic (NASDAQ:CRUS) could see revenue contribution for iPod by the September 2007 quarter. As a brief backdrop, Cirrus was late to market with a lower power CODEC product that is utilized in the iPod. Apple has utilized Wolfson Microelectronics as the sole source for a low power CODEC in every iPod generation. However, firm has been monitoring Cirrus's design efforts at Apple closely since last summer and their sense is that Cirrus is now in the position to take share. Firm believes that traction at Apple, one of the leading consumer electronic companies, could result in a meaningful improvement in sentiment in CRUS. They are increasing their revenue estimates by $1.5 million and $2 million in the September and December 2007 quarters, respectively based on our expectation of design traction in iPod.

Cirrus is generating a small percentage of revenue today from 2nd tier MP3 player OEMs. Given Apple's dominance in MP3 players, the ability to penetrate this key account could have large ramifications for Cirrus. Firm estimates that the ASP on low power CODECs is approximately $0.75 (although Cirrus could potentially manufacture the product at a cheaper price). Based on 60 million annual iPod shipments, this represents a $45 million opportunity. Even if we assume that Cirrus garnered only 25% market share in the first year, this represents a $11 million potential growth driver on the company's annual revenue base of $180 million.

Firm expects the GMs on products sold into Apple to be below the company's corporate GM of 60%, potentially approaching 50%. That said, they believe volume business at Apple would go a long way toward driving operating margin expansion at Cirrus.

Notablecalls: Actionable call alert! Back at my old trading desk I would have bought every stock within 10c of yesterday's close and sold'em 20-30c higher after the open.


The WSJ reports that a federal jury ordered Microsoft (MSFT) to pay $1.52bn to Alcatel-Lucent (ALU) for infringing patents on a fundamental technology for digital music. The decision found that Microsoft's Windows Media software had infringed two patents related to MP3. The patent verdict could have broad repercussions b/c of the widespread use of the MP3 audio format in technology and electronics products. Devices that employ the technology include Apple's iPod, software from Macromedia and Internet services from Yahoo. Daniel Harris, an intellectual-property attorney, said the decision "has great consequence for the industry as a whole, not to mention every co that implements MP3 technology."

“Heard on the Street” column out saying that as international interest in India's stock mkt has soared along with the country's economy, foreign investors have snagged more than half of the shares of India's 2 largest private-sector banking co’s: Icici Bank (IBN) and HDFC Bank (HDB). Stock prices for both co’s have tripled in the past 3 years. But recently some investors have called a time-out on the bull run as India's central bank has taken tougher steps to rein in lending growth and stanch inflation. Some investors say the fundamental prospects that made these banks smart investments in the first place haven't changed and that they remain attractive stocks. "India's largest bank is still only as big as China's 5th- or 6th-biggest bank," says Andrew Foster, of Matthews International Capital Mgmt. Mr. Foster says the fund's holdings included several Indian banks, including HDFC. Without being specific, he added that the fund hasn't recently changed the percentage of Indian banking shares in its portfolio. Like Chinese banks, Indian banks look expensive compared with other foreign financial institutions, he said, but may be worth buying b/c of their potential growth. Foreign banks are kept from expanding rapidly in India through acquiring Indian banks or opening many of their own branches.

Barron’s Online discusses high dividend yield stocks, saying that dividends have contributed more than 40% of the S&P's 500’s returns since 1926. Today, co’s with modest dividend yields, but a strong cash position and business model, can offer better total returns over the long term than stocks that simply beckon b/c of their fat yields. Examples include Paychex (PAYX), McDonald’s (MCD) and Prudential (PRU). All 3 have modest dividends but great outlooks for both their future dividends and their shares. "You will get more total return from a lower-yielding stock with a strong [business] outlook," says Richard Helm, of Cohen & Steers Dividend Value Fund.

“Inside Scoop” section reports that small-cap hedge fund Coghill Capital Mgmt is charging into Energy Conversion Devices (ENER), boosting its stake and taking an activist stance. Coghill has dillydallied as a passive investor in Energy Conversion since late ‘03. But news that the co will not be able to achieve "sustainable profitability" by the end of the fiscal year in June during the 2Q conference call earlier this month appears to have jolted Coghill into a more activist stance. Late Wed, Coghill disclosed that it has acquired warrants and options for a potential 8.6% stake, or more than 3.4m shares, in the co. The fund held 323K shares valued at nearly $11M at the end of ’06. Jonathan Moreland, of, mulls the current political support behind alternative-energy co’s. "We all love to be green investors," he says, "but there's got to be some green in it for you."

Thursday, February 22, 2007

Calls of Note Part 1

- CIBC notes that On March 2, the FDA s Circulatory System Devices Panel will discuss and make recommendations regarding clinical trial designs for Patent Foreman Ovale (PFO) closure devices intended to prevent recurrent stroke. NMT Medical (NASDAQ:NMTI) and AGA (private) will be the main participants, as they have the clinical trials that are furthest along (see CLOSURE I below). In fact, NMTI is furthest along and thus stands to most greatly benefit from this discussion. It is firm's belief that this Panel discussion will be positive for NMTI common, resulting in possible recommendations for a more achievable trial design. This could entail either 1) a reduction in patient enrollment requirement from 1,600 to somewhere around 1,000 or less or 2) a change in randomization to 3:1 from 1:1.

While they currently expect approval for the stroke indication in late 2010/2011, a change in the protocol of the trial may allow the company to achieve approval sometime in 2009, a significant positive. Notably, the firm has been hearing that enrollment in AGA s RESPECT stroke trial has also progressed very slowly, and they believe that company is several hundred patients behind NMT Medical.

CIBC believes the first half of the day will be open to the public, while the second half will be closed door meetings with the companies. As usual, the FDA will make background material available a day before the meeting.

Maintains Sector Outperformer and $21 tgt on NMTI.

Notablecalls: Nice heads up CIBC. Expect to see some buy interest in NMTI.

Color on news: Genentech (NYSE:DNA)

Genentech (NYSE:DNA) and its partner, Roche, announced that in the Phase 3 AVAIL study of Avastin in 1st-line lung cancer, both low and high doses were effective in improving progression free survival:

- Deutsche Bank notes that in their view, the AVAiL data while supporting Avastin use in NSCLC will likely cause physicians to strongly consider using lower Avastin doses. Maintains Hold rating.

- Goldman Sachs says the the cost of low dose is about $4,000/month versus $8,000/month for high dose Avastin. They estimate the sales potential of Avastin in lung cancer to be $0.5 - $1.0 bn. It would be reduced 50% if all patients were shifted to the low dose. However, Avastin may behave differently with different chemotherapy. Furthermore, physicians are attempting to prolong survival as much as possible with Avastin. Therefore, the firm does not expect more than 50% of the physicians to shift to low dose Avastin in lung cancer until there is further data on low dose Avastin plus carboplatin and Taxol. Assuming 50% of the Avastin use in lung cancer is at the low dose, the reduction in sales may be $200mn, or $0.10 in EPS.

The shares of Genentech may be under pressure based on the news. GSCO maintains their Buy rating as the potential EPS impact is manageable.

Notablecalls: Think the downside is somewhat muted in DNA. Would be keeping an eye on the stock for a bounce.

Color on news: Whole Foods (NASDAQ:WFMI)

Several tier-1 firms are out with excellent comments on Whole Foods (NASDAQ:WFMI) after the co issued CQ4 results and the acquisition of one of its main competitors:

- Morgan Stanley notes that as Whole Foods has a strong track record of turning around underperforming natural foods retailers, and they see significant opportunity for both overhead cost savings and store-level productivity gains, they believe this merger will be a significant earnings driver for Whole Foods over the next several years. Using what they view as conservative cost savings and productivity gains, firm's pro forma 2008 EPS rises to $1.88 from current levels of $1.74 and pro forma 2009 rises from $2.08 to $2.37. Applying a 35x P/E, they arrive at a $66 12-month price target (35x pro forma 2008 EPS of $1.88) and an $83 2-year price target (35x pro forma 2009 EPS of $2.37).

MS believes investors who have been on the sidelines should ramp back into WFMI shares as they see a multi-year period of significant merger-related earnings growth. Rates WFMI shares Overweight.

- Goldman Sachs says that based on 1Q results alone, they believe that shares would have traded lower. Not only did EPS fall short, but pre-opening expenses will increase as the year progresses. As such, 2007 estimates may need to come down further. Thus, they believe the Oats transaction is largely responsible for the shares' 5% after-market rise. Part of this reflects potential year 2 accretion and some may be short covering since an Oats deal was unexpected. That said, given how the quarter played out and that the next several will be choppy, short covering may not be as pronounced as usual and the shares could trade lower in the intermediate term. The firm therefore maintains their Neutral rating. In their view, however, the longer-term story is intact and they would take a hard look at the shares if they fall to the low-mid $40s.

- Some of the most interesting comments come from JP Morgan saying they obviously hadn't counted on an acquisition of competitor Wild Oats by Whole Foods. Normally, they shy away from acquisitions of these sorts. Nonetheless, the potential value of this transaction is evident as WFMI attempts to acquire its largest competitor and redefine itself as a large company with $12B of sales potential. They give the company the benefit of the doubt and reiterate Overweight rating on the stock.

Given the timing, this deal is likely as much defensive as much as it is offensive. Firm likens this to Walgreens purchasing Rite Aid, or if Best Buy purchased Circuit City - both lower margin, lower productive competitors. The truth here, though, is that given the addressable market potential ($400B+ food retail sector annual sales potential) and the onslaught of competition, particularly within organics, the FTC shouldn't be an issue here, in their view. It would likely be for those other sectors. So, Whole Foods is essentially getting the opportunity to purchase its largest competitor, which operates at 49% of the sales per square foot of Whole Foods. This is where the true synergy potential is, as OATS has been a significantly mis-managed company, in their view, with clear merchandising and cultural issues. Whole Foods, on the other hand, is known for its merchandising and its culture. Both companies are non-union. This compensates for the inherent risk with the deal (as WFMI currently has a full plate with an aggressive new store development target, for them).

Due diligence of the OATS deal by WFMI lacked substance, in JPM's view. John Mackey, CEO, apparently contacted Wild Oats within the last two months. Interim CEO, Greg Mays, replaced former CEO Perry Odak on 10/25/06 (Odak resigned on 10/19/06), while the old CFO (Bob Diamond) resigned on 12/20/06. John Mackey indicated that he contacted Mays after the CFO had resigned, which implies after 12/20/06. They announced the acquisition on 2/21/07.

Ron Burkle, who owns 18% of Wild Oats, has a history of selling his companies well, a la Dominicks (to Safeway) and Fred Meyer (to Kroger).

Notablecalls: Expect to see some short covering today and over the next couple of days. In the very s-t the rug was surely pulled out from under the bears. On the other hand, WFMI now has their plate full and acquisitions almost always cause operational disruptions.

Paperstand (GM, DCX, TIA, ECA)

The WSJ reports that General Motors (GM) is flirting with the idea of acquiring DaimlerChrysler’s (DCX) Chrysler Group, but it would face massive challenges if it were to take over its longtime rival. Both GM and Chrysler have excess manufacturing capacity in N-America, more US dealers than they need and enormous and rising health-care bills for union workers and retirees. For GM, a purchase of Chrysler "makes no sense to me," said Peter Nesvold, of Bear Stearns. Nevertheless, people familiar with the matter said to the WSJ, GM has had discussions about buying Chrysler and hasn't ruled out the idea. The two co’s also are considering working together under a less intensive relationship in a few specific areas, such as SUV and minivans. GM has made progress in the past year on streamlining its global operations and cutting costs, an effort that could be knocked off course if mgmt has to focus on integrating and righting an unprofitable operation such as Chrysler, said Mr. Nesvold. "Right now, GM's objective is to make its business less complex, not more complex," he said.

Barron’s Online discusses Telecom Italia (TIA), which shares are up only 1% in the last 12 months. But there is a sane way to play the co's future, and it hinges on a high dividend-yielding approach. Telecom Italia has not just one but two kinds of ADRs trading on the NYSE, and only one has voting rights. Those voting ADRs, referred to as "ordinary" ADRs, have appreciated 12% in the last 6 months as it seemed a battle for control of the co was afoot. The other class of ADRs, called "savings," has no voting rights but they pay a higher dividend, around 7.2% compared to 5.9% for "ordinary" ADRs. These higher-dividend savings ADRs are up only 4.37% in the last 6 months. The discount between "savings" ADRs and "ordinary" ADRs could narrow as the current drama over the future of the co fades. Combined with a heavy dividend yield, the total return of the "savings" shares could be almost 20%. "We suggest investors enter Telecom Italia through the saving shares given their higher earnings potential and dividend yield," writes ING Group analyst Javier Borrachero in a recent note to clients.

“Inside Scoop” section reports that Chmn of Encore Acquisition (EAC), I. Jon Brumley, purchased 40K shares of the co for a total of $988K. Jon's son and Encore CEO Jon S. "Jonny" Brumley bought 6K shares, for a total of $147K. "Obviously we think the stock is going to move higher," younger Brumley says. "Encore is hitting on all cylinders now. We have exciting projects going on.". Ben Silverman, of, says that the Brumleys' purchases are an encouraging sign, particularly b/c of the depth of the elder Brumley's experience in the sector. "[I. Jon] Brumley is a longtime industry veteran who has built a lot of shareholder wealth over the years, and his son seems to have followed in his footsteps nicely," says Silverman. The elder Brumley understands "the cyclical nature of the business."

Wednesday, February 21, 2007

Apple (NASDAQ:AAPL) - positive comments from two tier-1 firms

Two tier-1 firms are out positive on Apple (NASDAQ:AAPL) this AM:

- Bear Stearns notes the pending launch of Apple TV in February and iPhone in June has changed the Apple story for the better. Before, Apple launched "insanely great" products, but investors had no idea what, if anything, would come next and when it might happen, resulting in a "hit-driven" story that often pulled back as investors pondered timing and parameters of the next move.

In contrast, we now have some more visibility about where Apple is going with four "spheres" -- PCs, music, phones soon, and video next year (they think). And each of these spheres has four vectors of expansion -- platforms, wireless, storage, software -- although these spheres overlap with consistent software and user interfaces.

Another challenge is that one must view AAPL "non-linearly," e.g., successor to iPod mini was not a smaller mini but flash-based nano; iPhone was not just an iPod with a phone inside. AAPL leverages curves in technology trends, e.g., music, video. Also, one should not apply "Old Steve" behavior to AAPL today -- think "New Steve." The philosophy seems to be "say little, but do a lot." Steve Jobs, in firm's view, is the heart and soul of Apple, which is simultaneously its greatest opportunity and risk -- and not just relative to the option probe.

They are maintaining post-option EPS for FY07 at $3.25 and for FY08 at $4.10. The firm is also maintaining 2Q07 EPS of $0.65 on revs of $5.2bn, reflecting a 47% seq decline in iPod to 11.1mm and 13% seq unit drop in Mac to 1.4mm -- guidance is EPS of $0.54-$0.56 on revs of $4.8-$4.9bn.

Bear Stearns is maintaining their Outperform rating and $130 tgt.

- Prudential is also positive on Apple after meeting with co's senior management and completing a round of checks with industry contacts in the Mac and iPod supply chains.

iPods - Apple believes 4-6 weeks of iPod channel inventory is the appropriate level (excluding product transitions) and that it maintains control of inventory levels by receiving channel partner feedback on a weekly or bi- weekly basis. On the topic of NAND flash price declines, management stated that its supplier contracts extend through 2010 and that the contracts are structured in such a way that Apple is able to participate in the full extent of price declines.

Macs - Apple noted that its Education segment has been growing faster than its Consumer segment in recent quarters. The company believes that Adobe's launch of Creative Suite 3 in Q2 will help its Consumer segment, spurring higher sales of both MacPro and MacBook Pro, as the Creative market goes

Management said that it doesn't expect to broadly proliferate into any new product categories for a while outside the ones already announced.

Also, firm's recent checks with industry contacts suggest a solid MarQ with seasonal iPod unit weakness being more than offset by stronger Mac sales and higher margins due to a favorable component cost environment. They have reduced their MarQ iPod estimate to 9.9M from 10.4M, far
below the 21M units shipped in the DecQ.

Despite the introduction of Vista this quarter, firm' checks suggest that Mac sales are tracking ahead of company expectations led by strength in the Macbook and iMac lines. They believe Macs would even be stronger in the quarter, but sales of MacPro and MacBook Pro are weaker due to a pause ahead of Adobe's Creative Suite 3 release, expected in the JunQ. They are increasing Mac estimate to 1.6M from 1.45M for the MarQ, in line with DecQ results of 1.6M.

Pru thinks Apple is set to benefit this quarter due to significant declines in component costs. Net, they are increasing MarQ EPS estimates by $0.04 to $0.68, $0.07 ahead of the Street on stronger Mac sales and higher gross margin assumptions (31.5% vs. prior est. of 30.5%). This compares against Apple's MarQ guidance for $0.54-$0.56 and 29.5% gross margin. Maintains Neutral Weight and $100 tgt.

Notablecalls: The news from Sandisk (SNDK) sure backs Pru's view of reduced component costs. Also, I'm somewhat surprised by the checks showing Mac's are selling well. Provided Pru's checks are the real deal, I think the stock may have some upside from current levels. (Remember Piper saying Vista may hurt Mac sales?). I expect to see a positive reaction in the stock today. Actionable call alert.

Color on quarter: Crocs (NASDAQ:CROX)

Couple of firms comment on Crocs (NASDAQ:CROX) after the co reported strong results last night:

- Baird notes CROX reported another solid upside surprise and significantly raised its FY07 guidance. Yet the guidance remains conservative in our opinion. CROX is well positioned to have another outstanding year in FY07, especially considering continued distribution expansion, new licenses and recent acquisitions, particularly Jibbitz.

For FY07, CROX is raising its sales and EPS guidance from growth of more than 30% to growth of more than 45%. This now includes Q1 sales and EPS guidance of $113-$117 million and $0.47-$0.49. In short, the midpoint of the company's guidance represents 156% sales and 187% EPS growth. Although this may sound aggressive, consider that CROX will likely be in nearly 3x as many doors in Q1 as a year ago. The company has also more than doubled the number of its footwear styles from a year ago. Additionally, CROX is layering on incremental revenues from its various licenses and acquisitions. For Q1, they are modeling sales of $117.3 million and EPS of $0.49; however, they believe these are conservative forecasts.

For FY07, 45% sales and EPS growth would imply FY07 sales and EPS of roughly $514.4 million and $2.33, respectively. This is up substantially from the sales and EPS of $437.9 million and $1.98, respectively, implied by its old guidance. Yet the firm believes the new guidance remains conservative. Excluding the midpoint of the company's Q1 guidance, CROX is only guiding to sales and EPS growth of 29% over the balance of FY07. Based on the company's revised guidance, the firm raisedFY07 EPS estimate from $1.98 to $2.38, which they feel remains a conservative forecast.

Maintains Outperform and ups tgt to $85 from $80.

- Piper Jaffray notes they maintain a high degree of confidence in their estimates given improvements in visibility and product flow, early response to new spring styles, international door growth, and square footage gains at key retail accounts. Firm is raising their FY07 sales estimate to $526M (+48% Y/Y) and EPS to $2.35 (+47% Y/Y). They are introducing initial FY08 sales and EPS estimates at $630M and $2.94, reflecting 20% topline and 25% bottomline growth. $70 price target (up from $57) is predicated on 30x FY07E EPS, in-line with LT est. EPS growth and up from 26.5x. They think a 30x multiple is appropriate as it balances near-term sales momentum and profitability with valuation & execution risk inherent to newly public companies.

- TWP says that given the upside in 4Q, their positive view on new products, licensing arrangements and expectations for international growth,they are raising their 2007 estimates and introducing 2008 estimates. Firm's 2007 revenue and EPS estimates go from $475.8mn and $2.20, respectively, to $553.5mn and $2.50, representing 56% revenue growth and 55.6% EPS growth. They are introducing 2008 revenue and EPS estimates of $672.7mn and $3.00.

CROX shares are currently trading at 22.4x firm's new 2007 EPS estimate, a steep discount to their 2007 forecast earnings growth of 56%. Given the evidence of momentum into the strong seasonal months, the ongoing diversification of the business, and potential for earnings to outpace our estimates, they believe Crocs deserves an earnings multiple closer to the forecast growth rate, and see upside potential to CROX shares. Firm believes the shares are attractively valued at current levels.

Notablecalls: While I'm pretty sure the shorts will ultimately win the war, they're most likely going to lose today's battle.

Color on quarter: Hewlett-Packard (NYSE:HPQ)

Several firms comment on Hewlett-Packard (NYSE:HPQ) after the co issued it's FQ1 results last night:

- Merrill Lynch notes HP reported a beat and raise quarter that supports firm's thesis. They continue to recommend the stock. Revenue upside of 3.3% was driven by PCs and printing, currency, and to a lesser degree, channel inventory build (estimated 2% impact). EPS beat by $0.03. Printer unit growth was 18%. They are raising estimates.

Bears will point to inventory, both in the channel and HP-owned. Higher PC channel inventory weeks are distorted by artificially low sell out right before Vista (denominator depressed); firm estimates the true build was a benign $125mn. Printing channel inventory was up 0.5 weeks YoY (~$300mn), boosting IPG growth by an estimated 5%, a negative. Yet ironically it implies management is very bullish on April Q sell through as inventory is managed on forward basis (measured looking back), suggesting supplies may accelerate following printer units. HP-owned inventory (not channel) is a separate issue and needs work.

CFO was -$22mn and FCF -$601mn, way below net income of +$1.8bn due to bonus, poor working capital metrics, and capex in real estate and IT (to cause LR EPS improvements). ML expects a big snap back in cash flow in April. Maintains Buy.

- Bear Stearns notes that with another qtr of balanced performance and particular strength in PCs/Imaging, HPQ continued to execute on its turnaround (7th straight upside to results/outlook),and the firm sees potential for improvement into FY08 given cost actions and efforts to accelerate growth. They're raising their ests/target and would use aftermarket weakness (concerns on gross mgn pressure, inventory build and weak cash flow which all should be corrected in 2Q07) as a buying opportunity. Bear is raising ests for FY07 from $2.60 to $2.70 (above HPQ's raised guidance for $2.60-$2.65) and for FY08 from $3.05 to $3.15. Tgt goes to $59 from $58. Reits Outperform.

- Baird notes inventory increased 8% sequentially, primarily due to strategic buys, supply chain adjustments, and Vista preparation. Although the firm expects some improvement in inventory management, they believe inventory growth is primarily a reflection of strong growth in PCs/ Printing over the past 18 months and HP's willingness to use balance sheet strength to secure supply/lower cost and thus is not a major concern. Channel inventories remain in-check.

Maintains Outperform Rating. Although investors could be somewhat disappointed that more of the revenue upside didn't flow through to EPS, the firm continues to believe HP remains in the midst of a multi-year turnaround, with at least two-three years of improving operating metrics driving strong EPS growth. With the shares trading at less than 15x their likely conservative C08 EPS estimate and prospects for meaningfully better than 10% EPS growth over the next couple of years, they continue to recommend the stock.

- ThinkEquity's Eric Ross, one of the few remaining bears in HPQ notes the co reported better-than-expected 4QCY06 results yesterday after the close. The company benefited from strong momentum in the IPG and PSG segments as sales of notebooks and printers drove the quarter. HP is guiding April Q sales below normal seasonality. Firm believes HP will face tougher competition going forward as competitors fight to regain market positions in many of its key market segments. They reiterate Sell rating but raise price target from $25 to $30.

While they are impressed by the gains in the PSG segment, as the share gains have come mostly at the expense of Dell. However, they believe most of it has been at the low end. HP has also been able to maintain relatively stable pricing while it gains share. However, in an effort to regain lost market share, they believe Dell and other PC manufacturers will become more price aggressive in coming quarters.

The IPG segment had another solid quarter, benefiting from the strong holiday selling season. Additionally, printer pricing has remained stable. Similar to its PC business, we believe HP will likely face tougher competition ahead as competitors such as Lexmark, and Dell are likely to become more price aggressive in an effort to gain shares in this space.

Notablecalls: Firstly, I think that given the increasingly cautious sentiment around large cap tech names, one can be quite sure everyone will be looking for reasons to sell the likes of HPQ. Will the greater than expected increase in inventory, lower than expected gross margin or the fact that so little of revenue upside actually flowed through to EPS do the trick here? Judging from analyst commentary, I suspect not. Chinks in armor, that's all. Think it will take smth more to stop this train.

Paperstand (GOOG, MYL, GSK, ID)

According to the WSJ, 4 months after snatching YouTube, Google (GOOG) has encountered a bigger challenge: finding allies in the TV industry. With TV execs up in arms about the unauthorized posting of TV shows on the video site, Google is searching for a way to dial down the tension. It sees that task as vital to YouTube's profit potential. Until about a month ago, Google thought it might get a big boost from CBS. The 2 co’s were closing in on a multiyear deal to let YouTube users watch clips from CBS shows. The co’s also discussed ways to peddle CBS Radio ad spots to Google advertisers. Under the deal, Google would have guaranteed ad rev of more than $500M for CBS. But Google's relations with the big TV co’s have grown frosty of late. Google was working on a deal last year with Viacom. Now, Viacom has accused Google of copyright infringement and has demanded that YouTube remove some 100K clips of Viacom programs. Now, the hoped-for deal with CBS has unraveled as well. The co’s couldn't agree on such important issues as how long the deal would run. "The way to resolve this is not by suing ppl quickly but working together to create legitimate business models that respect copyrights," says Paul Cappuccio, Time Warner's general counsel. "Yet we will sue those who are irresponsible."

“Heard on the Street” column discusses Mylan (MYL), which has won several court cases that have given the co exclusive rights to sell generic copies of some blockbuster drugs. The co reported record 4Q earnings a couple of weeks ago, with net income nearly tripling. But there could still be room to run for Mylan and its investors. Next up for the co is a decision in the biggest court battle it has yet waged. Mylan may learn any day now whether it has won its challenge to Pfizer’s key US patent for Norvasc. Even among the battles common among big drug co’s and generics makers, the fight over Norvasc is high-stakes. If Mylan prevails, it could prove the most lucrative victory in the co's history. The prize: 6 months of exclusive sales of generic Norvasc. Given the unpredictability of patent disputes, analysts aren't counting a Mylan victory into their projections. But some analysts think if Mylan brings generic Norvasc to mkt exclusively, the coup could boost earnings this year by 50c a share. The co currently trades at 15.5x estd earnings for ‘07, moderately cheaper than its peers. Greg Estes, of Intrepid Capital Mgmt, which owns 230K Mylan shares, increased his position in Mylan after the co abandoned its bid for King. He has become more confident in Mylan as it has concentrated on its core generics business. "What they're really good at is being first to file" successful patent challenges, Mr. Estes says. He says Mylan is 20% undervalued, and that he is hanging on for gains. "I have no plans on selling."

Barron’s Online out saying that the Street isn't giving GlaxoSmithKline (GSK) enough credit. And no wonder. Sales of key drugs fell short last year. In Oct, the co junked 2 late-stage experimental drugs. And patents protecting several blockbuster medications have or will expire this year. In ‘07, profits could increase far slower than they did last year. Up 13% since late Nov, Glaxo has lagged the S&P 500 over the last 12 months. But Glaxo possesses what many rivals lack, an industry-leading pipeline and profits poised to pick up speed in ‘08. "The new drug portfolio is better than it has been in the last 5 or 6 years," says Jon Fisher, of Fifth Third Asset Mgmt. "The valuation is not expensive, and the co is positioned to exceed expectations."

“Inside Scoop” section reports that L-1 (ID) founder, Chmn and CEO Robert LaPenta has put his finger on more upside in the co despite a spate of mixed news. Late last week LaPenta plunked down $3M to purchase 200K shares on the open mkt. He boosted his direct holdings to nearly 1.39M shares, but he beneficially controls a total of 10.57M shares, or a 14.6% stake, through a limited partnership. Ben Silverman, of, says LaPenta's transactions are "certainly a bullish signal" by an insider with a strong pedigree in the defense and security industry.

Tuesday, February 20, 2007

Amgen (NASDAQ:AMGN): Buying opportunity!

Couple of firms are out in defense of Amgen (NASDAQ:AMGN) after the The "Cancer Letter" posted interim results of an investigator-sponsored Danish study (that itself was posted last December on the investigator's website) looking at Aranesp in head and neck cancer patients that showed more frequent treatment failure rates in patients treated with Aranesp:

- Baird says they are incremental buyers of AMGN after Friday's weakness which stemmed from a misunderstood result of a halted Aranesp trial in an off-label setting using a much too high dose. This trial has little to do with "real world" use, and they see little commercial impact.

First, this study was not designed to show Aranesp's efficacy in hemoglobin correction but rather looked at its therapeutic effect as a radiosensitizer, targeting a hemoglobin range (14.5 g/dL - 15.5 g/dL), which is far in excess of its labeled range which could be considered safe. The Aranesp dosing required to get hemoglobin levels that high also significantly exceeds recommended dosage.

Second, and more commercially relevant, management indicated Friday on its conference call that physicians simply do not use Aranesp in these patients, nor do they use the excessive Aranesp doses required to get hemoglobin levels that high. It should come as no surprise that using excessive levels of a drug in a patient population it is not indicated for may yield some negative effects.

Reiterates Outperform rating, $90 price target.

- Wachovia notes that while they believe negative clinical outcomes observed in DAHANCA 10 and the AOC trials should not be trivialized, it is unclear whether those attributed to Aranesp were due to underlying disease or ramifications of pushing hemoglobin levels too high. Importantly, adverse event rates in DAHANCA 10 were equivalent in both arms of the study. Although EPO receptor expression analysis from various tumor types may be inconclusive, studies investigating EPO signaling in tumor growth arrive at an array of disparate conclusions, by firm's interpretation.

The latest FDA warning applies to use of all EPO agents, which theoretically includes C.E.R.A. (Roche) whose BLA is currently under review at FDA for treatment of anemia associated with kidney disease. With a distinct pharmacokinetic profile from Aranesp and the unmodified erythropoetins, it is conceivable that FDA will analyze the C.E.R.A. safety data with increased scrutiny, potentially delaying approval, in firm's view. They believe such an outcome could lift a significant overhang also weighing on AMGN stock.

Reiterates Outperform rating. Decreasing '08 Aranesp sales estimates by 5%, AMGN now trades at only 13.6x firm's '08 EPS estimate of $4.92 on an estimated 2006-2010 revenue CAGR of 10%. Believing recent pressure on shares to be a result of a market overreaction and that these overhangs should lift following 1H 2007 quarterly results and anticipated news events, the firm would take advantage of this recent pullback to buy AMGN shares.

- JP Morgan notes that though the complete DAHANCA 10 results are not released, available information suggests that Aranesp may not be appropriate for this niche indication that is not in
our model. Indeed, very few if any oncologists treat non-anemic patients with Aranesp outside of a clinical trial setting. Current commercial treatment regimens utilize much lower Hb targets (11-12g/dl) in anemic patients only.

CERA remains the lever. Despite the noise on Amgen's anemia franchise, which has driven multiple contraction, the firm remains bullish on AMGN's risk/reward going into the May PDUFA for Roche's CERA.

Reiterates OW. Despite a <16 multiple on their 07 EPS est (biotech peers: 30X), AMGN still has a 06-10e EPS CAGR of 12%, in line with biotech peers (14% ex-MEDI, CELG) and actually higher than Genzyme (10%).

Notablecalls: OK, I must admit AMGN's management messed up by not disclosing DAHANCA 10 results soon after they were known. On the other hand, it wasn't a trial handled by the co. Judging by the way the analyst community is defending the stock this AM, I think investors will be back buying the stock hand over fist over the next couple of days. I just don't see the recent decline as justified.AMGN's dirt cheap here trading only 13x FY08 EPS. Buy it! The defenses are actionable!

Calls of Note Part 1

- Bear Stearns is positive on Dell (NASDAQ:DELL) saying that though it will take time to show sustained improvement, they see compelling risk/reward in DELL shares. Turnarounds are hard to see because the problems seem unfixable. But history shows that turnarounds are possible.

Formula for a turnaround is straightforward: stop doing the bad things that lose money, focus on improving the things that made you successful to begin with. And usually new management: a company has to break the denial mindset and shift to a sense of urgency to create a "can do" winning sense of morale.

To them, the opportunity at Dell is leverage on the gross margin, where every 100 bps is around $0.20-0.25 per share in EPS -- can enhance with better products/service, reduced drags on gross margin.

Though Dell's turnaround remains at an early stage, it's taking positive steps forward (i.e., de-emphasizing low-margin biz, improving services/support, replacing key mgmt).

While some view Dell mgmt dislocation as positive for HPQ, to the firm the issue has always been Dell vs. Dell (i.e., self-inflicted, execution and not competition). Recalls problems started in early 2005 when industry growth high, HPQ had no CEO, IBM selling PC biz to Lenovo. While visibility remains low, they are reducing ther estimates for 4Q07 (reported on 3/1) from $0.32 to $0.18 and for FY08 from $1.45 to $1.00, but maintaining FY09 at $1.75 -- not because they have great visibility but to highlight the operating leverage.

While ests will be in flux for the next several qtrs, they see mgmt changes as one key step toward successful turnaround. If firm's thesis is right, the stock has potential upside to their $35 target (20x CY08 EPS), and turnarounds often perform better than one expects/forecasts.

Maintains Outperform.

Notablecalls: Think this note may create some buy interest in DELL in the very s-t.