Notable Calls

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. InsiderScore.com'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.

- 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.

- 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).

Sharesleuth.com 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.

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.

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.

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!

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 InsiderInsights.com, 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."

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 InsiderScore.com, 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."

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 InsiderScore.com, says LaPenta's transactions are "certainly a bullish signal" by an insider with a strong pedigree in the defense and security industry.

The WSJ reports that the proposed $11.4bn merger of XM (XMSR) and Sirius (SIRI) sets up a crucial test for the nation's regulators: how to weigh the limits of consolidation against rapid changes in media technology. The deal is structured as a 50-50 "merger of equals," giving XM and Sirius shareholders an equal stake in the combined co, and potentially uniting a roster of talent. The agreement calls for Sirius CEO Mel Karmazin to serve as CEO of the new entity, which would have more than $2.3bn in long-term debt. XM Chmn Gary Parsons would be Chmn. But b/c XM and Sirius are the only 2 co’s licensed by the FCC to offer satellite radio in the US, the deal is likely to face significant regulatory obstacles. Broadcasters said yesterday that they will fight the proposed merger, and FCC Chmn Kevin Martin released an unusually grim statement saying that the 2 co’s will face a "high" hurdle, since the FCC still has a ‘97 rule on its books specifically forbidding such a deal which would need to be tossed. The transaction also requires the Justice Department's blessing. "The benefits to the subscribers are awesome," Sirius's Mr. Karmazin said in an interview. "We can combine [research and development] resources and come up with cooler, more advanced products that will satisfy them more. We're going to have the ability to negotiate better with our receiver manufacturers."

“Heard on the Street” column out on TravelCenters (TA), whose stock has popped 38% since Feb. 1, when the co was listed on AMEX. The co was spun off from Hospitality Properties Trust (HPT). Article suggests, investors should be aware of the relationship between the truck-stop operator and its former owner. TravelCenters warned in its own prospectus: "We were formed for the benefit of Hospitality Trust and not for our own benefit." As a result, the co continued, "some of our contractual relationships and the terms of our initial operations may provide more benefits to Hospitality Trust than to us." TravelCenters' spinoff is part of an increasingly popular trend among REITs. These trusts have been buying property-rich firms, keeping the real estate and setting up separate operating co’s that pay rent back to the REITs, which are exempt from paying taxes on that income. Barry Portnoy, Chmn of REIT Mgmt & Research, has set up similar deals in the past. He is a managing trustee of Hospitality, as well as a director of TravelCenters. "Barry Portnoy is a very smart investor, but all of his deals are fraught with conflicts, which frustrate a lot of institutional investors," says Rod Petrik, of Stifel Nicolaus.

The NY Post reports that satellite radio operators Sirius (SIRI) and XM (XMSR) are expected to announce their long-awaited merger today. The two sides were locked in negotiations over the weekend trying to hammer out a final agreement with an eye toward going public with the merger today. The transaction is expected to be structured as a merger of equals, but given Sirius' higher enterprise value, shareholders in the Mel Karmazin-led firm will likely come away with a larger percentage of a combined company. XM Chairman Gary Parsons will retain that title in the combined entity, with Karmazin likely taking the CEO role. It is unclear what role, if any, XM CEO Hugh Panero will play.

The WSJ reports that DaimlerChrysler (DCX) is moving forward with preparations to sell or spin off the Chrysler Group, raising the prospect that it could auction off the embattled US unit in the coming months. The co has already received several expressions of interest from around the world for Chrysler since saying last week that it was considering "all options" to turn around the unprofitable operation. DaimlerChrysler has also said it is interested in using alliances and partnerships to help Chrysler cut costs and expand sales in fast-growing intl mkts. It is already talking to General Motors about joining forces to develop a large SUV.

Fund holdings include CEN, CAG, UNM, SOV, NSM, BAX, HD and PRU. Another fund manager likes DCX, HMC, HBC, CS, UBS, PUB and BSY.

Bulls on Timken (TKR) think its stock, now around 29, is headed for the mid-30s. Eventually, that's likely, but it could head lower first until signs emerge that its restructuring is bearing fruit. Analyst Mark Parr of KeyBanc has a tgt of 35. "The co's sensitivity to autos in conjunction with all of its manufacturing-restructuring activities over the past couple of years clearly has hurt earnings momentum," says Parr. "But given the recent run-up in auto-supplier stocks, Timken looks very timely right now."

Electronic Arts (ERTS) isn't playing games. Its earnings could more than triple over the next 2 years, and its shares could jump from 51 to 65 within 12 months.

Barron’s thinks that the growing popularity of Jack Daniel's could propel Brown-Forman's (BFB) shares to 80 from a recent 66.

DaimlerChrysler's (DCX) shares, up nearly 40% in the past months, could climb above 80 if Chrysler fetched a decent price. But finding a willing buyer is sure to be difficult. The idea of a GM-Chrysler deal certainly strains credulity. "Take your pick - 'the blind leading the blind' or 'two wrongs don't make a right.' We ran out of clichés to use," wrote Shelly Lombard of Gimme Credit.

“The Trader” column out saying that Sony’s (SNE) stock has been dull and flat for so long a recent uptick warrants a closer look. Sure, predictions of a Sony revival have been consistently premature, and the electronics giant has become a cautionary tale about squandered opportunity. An unwieldy empire stretching from movies and music to financial services and insurance also makes it a symbol of bloat. But its push to improve efficiency will eventually pay off, and investors' decade-long disregard hints at the potential upside should they come around. "Nearly everyone hates it, nobody appears to have done any work on it, yet the stock continues to show technical improvement," says John Roque of Natexis Bleichroeder. Credit-Suisse, for example, says the sum of Sony's parts would value its ADRs at 64, 22% higher.

“Review” section discusses Nike (NKE), whose Air Force One turned 25 last month, and Nike celebrated by launching Air Force 25 and collaborating with MTV on a special highlighting the shoe's history. It's a sure bet AF25, like its predecessors, will fly off the shelves. That should help Nike maintain its dominant share of the athletic-footwear mkt, and keep its high-flying stock surging. In their plan to reach $23bn in annual sales by 2011, Nike officials last month called Air Force One "the most iconic product and loved basketball shoe ever...a cult of itself." Limited production and smart marketing have kept it cool: Prices of some collectors' edition models have hit $2K. As hot as Crocs (CROX) are right now, they are a long way from having their own MTV show or rap song. Nike stock's got game. The shares hit an all-time high of 106 last week. If Nike gains share and grows margins, the stock could reach 115 in a year, says BofA analyst Robert Ohmes.

Barrons’ “Follow Up” section speculates if BHP Billiton or Rio Tinto hopes to buy Alcoa (AA) they might have to pay a lot more than $40bn, the price tag attached to the rumors. John Buckingham, of Al Frank Fund, understands why BHP and Rio Tinto might be interested in a deal, especially at a bargain price. After all, he says, "the ugly duckling is now a swan." But he views a bid of $55 a share, or about $48bn, as a much fairer price for Alcoa holders.

According to the Barron’s, Adams Respiratory (ARXT) investors may have a bit more to worry about than the approaching end of cold-and-flu season, a potential generic version of Adams' popular mucus thinner Mucinex. Its shares, are up 142% since Jul05 IPO. But an application accepted by the FDA for a generic version of Mucinex by Pharma Holdings, Mutual Pharma and United Research Labs has remained largely off the Street's radar screens. Adams arrived at its patent by shrewdly taking a cheap compound that had been on the mkt for decades, testing it and gaining FDA approval and exclusivity. The rather routine challenge came Aug. 6. Adams, as is typical in such cases, sued the applicants in Federal District Court in Philadelphia to enforce its patent, gaining the requisite 30-month stay on any competing generic version. But a high-expectation stock with a multiple at 24x F07 earnings that sank 9% on a margin shortfall might not easily absorb the "headline risk" of a legal threat to its largest product.

“Technology Trader” out saying generic competition for biotech firms like Amgen (AMGN) and Genzyme (GENZ) drew a step closer Wed, when a bipartisan group in Congress introduced a bill to authorize FDA approval of generic biologic drugs. High prices for biologic drugs are welcomed by biotech shareholders, but not by health care's payers. The biggest biotech spender is Uncle Sam himself, under the Medicare program, which spent over $3bn on just 3 anemia drugs from Amgen in the F05. So after Amgen's patents expire, the govt and private insurers would love to see competitive pricing. Sanford C. Bernstein biotech analyst Geoffrey Porges said: "Amgen is obviously the big tgt here." Once biogenerics became law, the FDA would need a long time to draw up regulations. And even under those regulations, the "comparability" testing of some biogenerics could take years. And of course, patent claims must be put to rest. That long runway gives Amgen and Genzyme time to introduce new drugs. But it would also make the biogeneric game less competitive for those who can afford to play it. Those who've shown an interest include manufacturers like NVS, PFE, TEVA, BRL, ESRX and MHS.

RBC says datapoints from industry contacts suggest that Yahoo's (NASDAQ:YHOO) Project Panama algorithm change on February 5th progressed fairly smoothly. Datapoints aggregated from numerous sources suggest that the algorithm change was smooth and that there were no major technical glitches or setbacks in the initial two weeks. Firm view this as a major positive.

After some initial volatility in highly-trafficked keywords, Panama started to learn and re-rank advertisers based on brand relevancy and better ad creatives, showing that the system is working.

In the aggregate, firm believes advertiser spend should increase modestly from pre-to-post Panama levels. Ad spend increases for advertisers with high ROI-focus is more pronounced, as daily limits and budgets are flexible. Spend increases at brand-oriented advertisers may lag by about one quarter, as these marketers typical have to go through longer approval processes for additional budget. Firm reminds investors that it is still early, that some advertisers have temporarily increased max-bids to influence CTRs, and that budget adjustments happen slowly for many advertisers.

It is too early to definitively say, but firm has heard anecdotally of some advertisers with limited budget flexibility (brand-oriented) shifting some dollars from Google and MSN.

Firm has raised their estimates to reflect positive y/y monetization impact in 1H07. Firm's FY07 revenue, EBITDA and EPS estimates are now $5.3b, $2.1mm, and $0.71 vs. prior $5.24b, $2.08mm, and $0.70.

Notablecalls: Project Panama continues to be the most important theme for Yahoo. Expect the share price to advance further as the word on positive launch continues to spread.

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

- Bear Stearns notes that within the next 2 weeks, Google will unveil an updated quality-based bidding system. Google periodically updates its algorithm, with the most recent change taking place this past summer. Google announcement was issued here: http://adwords.blogspot.com/2007/02/quality-score-updates.html

The major change is in the quality score rank, where lower volume ads without much historical data (or new ads for that matter), will be given more leniency on the minimum bid requirements. This has the effect of lowering the threshold for activation of these ads, driving more ad placements than before. The other ranking metrics are not changed, as this change is aimed at the lower volume campaigns.

Google is helping advertisers with the change by adding a new quality score column to the advertiser's interface. This began yesterday, but has been tested since December by a small group of advertisers. The tool will show advertisers an estimate of their ad's quality -- in general terms like "great," "ok" or "poor".

In speaking with SEMs, firm has learned they believe there are 2 major implications of these changes: 1) Google will be able to monetize advertisements that were previously deactivated, driving more revenues for Google, 2) Advertisers should see a better ROI, as they will have more information to guide their campaigns.

Firm thinks the algorithm update could therefore boost Google's sequential revenue growth in Q1 from the current consensus of 11.6%.

- Citigroup reiterating their Buy and $600 price tgt on GOOG for seven reasons: 1) They view current valuation as implying a relatively very attractive risk-reward outlook. 2) They believe recent industry datapoints -- including this week's release of the SEMPO survey -- continue to indicate a very robust profile for search advertising. 3) Firm's review of the underlying drivers of Google's search revenue demonstrates growth that is more sustainable than the market realizes. 4) Their tracking suggests that Goog continues to gain market share. 5) They believe GOOG's option value is underappreciated -- with updated worldwide traffic analysis as support. 6) Firm's proprietary ROIC analysis highlights materially very high value creation by Google. And 7) They believe that the potential loss of the Ask affiliate deal is a manageable risk.

Notablecalls: These notes should bring some buy interest to the stock following recent weakness. I especially like Bear Stearns' comments.

Two firms out positive on Focus Media (NASDAQ:FMCN) ahead of 4Q results.

- Citigroup says they expect Focus to beat they US$67.6m rev and US$0.62 non-GAAP EPADS 4Q estimates when it reports on February 26. Guidance for FY07 should at least be in-line with the Street, and at least in-line with their new 1Q estimates. Firm reiterates their TP of US$100, which represents 28x our new ?08E non-GAAP EPADS of US$3.59.

While it is well known that the Commercial Location Network (60% of total revs) is shut-down for two weeks in 1Q due to CNY, last year, because the Target Media acquisition closed in late February, the qoq seasonality was significantly muted. To be conservative for 1Q07, firm lowers their estimates to US$57.0m and non-GAAP EPADS to US$0.42.

Despite trimming 1Q for seasonality and the 1.5m share dilution, firm has increased their 2Q-4Q07 estimates to reflect the strong demand environment and greater operating leverage assumptions than previously. As a result, their '07E remain unchanged at US$354m and US$2.75.

- CIBC expects Focus Media to report solid 4Q:06 results on 2/26 after the close, likely exceeding consensus and the company's guidance due to strong seasonality. Firm forecasts total revenues of $68.8M and non-GAAP EPS of $0.63, (vs. consensus of $68.5M and $0.62).

While they are hearing concerns that 1Q guidance may be weaker than expected due to seasonality, firm believes the company will provide FY guidance in line with Street estimates, making the 1Q forecasting exercise less meaningful. Based on strong pricing trends and higher margin assumptions, firm is increasing their '07 and '08 GAAP EPS estimates to $2.40 and $3.08, reflecting y/y growth of 53% and 28%, and our non-GAAP estimates to $2.68 and $3.40 (vs. consensus of $2.64 and $3.49).

Price tgt is raised to $100 from $76.

Notablecalls: Expect to see some buy interest today.

Citigroup out with interesting call on Hynix, saying that even "M9" fab has begun to switch back to DRAM - Following several order cancellations amid increasing NAND capacity, firm's channel checks suggest that Hynix has begun to convert NAND wafers into DRAMs even in its "M9" fabs in addition to "M7" fab. Firm estimates the initial size of switch back to DRAM in M9 at 10~15k WPM (about 10% of M9's total capacity).

Accordingly, they forecast that start up of switch back in M9 will likely lead to about a 10% QoQ fall in NAND wafer output to 255k wpm (vs. initial forecast of 270k wpm). Firm expect s such a switch back to DRAM in Hynix?s M9 to lead to about 25~30% QoQ DRAM bit growth at Hynix and cause: 1) greater oversupply to 5~6% (vs. Citi's 4% in 1Q07E); and 2) a steeper ASP fall to as much as 30% HoH in 1H07E.

Notablecalls: This should provide a relief to NAND names (i.e. SNDK) and put additional pressure on DRAM names (i.e. MU, QI; though MU to the lesser extent given its ~15% NAND exposure) due to shift in oversupply from NAND to DRAM.

Microsoft (NASDAQ:MSFT) getting plenty of comments following analyst briefing yesterday.

- Cowen notes that while management did not surprise investors with spending plans at yesterday's analyst meeting, management tempered revenue expectations around Vista. Firm believes retail upgrades (FPP) may be the issue, as well as some analysts that have aggressive assumptions around Vista SKUs. Firm has tempered their FPP assumptions but left their other assumptions unchanged. Firm expects the market to react negatively, but they don't believe investors should change long-term assumptions that drive the core business. These trends all continue to look positive. Firm sees 10-15% upside vs. the market over 12 months.

Firm says bears will argue that management tempering investor expectations around Vista within two weeks of launch is a red flag. With many investors looking at Vista as a catalyst, tempering of expectations could remove this catalyst.

Firm's view is one of less concern. There isn't likely enough information, even at Microsoft's fingertips, to predict how Vista will play out in FY08. Firm looks towards better visibility into PC unit dynamics, uptake of premium SKUs and developing world attach, all of which have the potential to add a positive bias to numbers. The company has a pattern of setting very reasonable expectations and then overachieving and firm believes the risk of further numbers correction is now out of the way.

- Goldman Sachs says they are more optimistic on PC unit growth/Vista demand for 2008 than implied by management guidance, which they view as conservative and setting the bar low for 2008. They are also assuming higher spending on customer acquisitions than assumed by management guidance, although their EPS appears about inline with management's comments. Firm believes this meeting, while characteristically cautious in tone, preempts the normal April guidance and likely alleviates investor apprehension that might otherwise overhang the stock in anticipation of the April guidance. Upside for the stock will likely need to come from better than expected consumer PC/Vista demand.

- JP Morgan says Vista commentary was not as bad as first sounded. Mgmt. noted that some analyst forecasts for Vista were too high, which was certainly not what most people wanted to hear at the outset of a product cycle-and the 2% pullback in the aftermarket reflects that. At a high level, mgmt. is generally conservative at the start of a year with guidance-and MSFT is trying to set a low FY08 bar. It is also important to note that Ballmer seemed comfortable with a modest lift in PC growth this year, which is not in firm's current forecast of 8% unit growth vs. guidance of 8-10%.

It does not appear that mgmt. is comfortable with the assumption Vista units accelerate in FY08, and firm's $16.5B rev. estimate is based on 9% unit growth vs. 8-10% guidance this year. More importantly, firm raised their numbers on Wed. to reflect the revenue recognition change which mgmt. is not considering in its comments, and it added $600M to our model-with the change, it appears consensus for FY08 is achievable.

- BofA notes that while mgmt's attempt to temper Client growth expectations could potentially cause some weakness in the shares today, they believe the more important takeaway was the very reasonable op-ex forecast for FY08, which was below most Street expectations and more than makes up for any modest trim to Client revenue growth expectations, in their view.

Firm would be buyers on any pullback in the shares this morning, as they continue to see room for upside vs. their FY08 earnings forecast, due to the combination of the company's strong product pipeline and reasonable spending intentions.

Notablecalls: Think BofA is right about the stock for today. Any gap down will probably be reversed as Ballmer being cautious is not too surprising and Street estimates are staying put.

Bear Stearns out with an interesting note, saying that they think both XM Satellite (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI) believe a proposed merger could likely pass the regulatory hurdles, which they think would push them to attempt a merger. However, beyond the initial warming public comments made by both companies in early January, the public potential deal talk has slowed, hampering both share prices (XM is down ~25% since its recent highs and Sirius is close to 52 week lows).

Firm believes any public progress of making a deal has been slowed by the economics of the exact split in a MergeCo. However, they think that the sheer value proposition of a potential deal for both sets of shareholders vastly overshadows any disappointment in share of MergeCo. Due to a closing window of opportunity (based on how long we think it would comfortably take to close a potential deal), firm thinks investors would implore the boards of both companies to avoid quibbling over a few share points, to capture the much larger value of overall potential synergies. This would maximize shareholder value for both companies.

Firm provides a sensitivity of potential value accretion to XM shareholders based on the split of MergeCo which they center around ~55% for XM Radio. They believe both sides would argue a higher percentage in any potential deal, but feel this center point is appropriate given the estimates in their model.

They think that upon the expectation of a successful deal, the ~$6-7B in synergies would take the value of XM's stock to ~$25, presenting significant upside potential. Hence they think both sets of shareholders would benefit greatly upon a deal. With XM trading at a lower percent of industry EV, firm thinks the stock will Outperform and recommend investors buy pre any potential announcement.

Notablecalls: The merger chatter has cooled off lately due to regulatory hurdles, taking the stock prices down as well. While this note warms up the chatter, I'm not sure it will do the same with the stocks.

Friedman, Billings, Ramsey out on Online Resources (NASDAQ:ORCC), reiterating Outperform after after stock weakness following CKFR's announcement of its intent to purchase Corillian. Of primary concern for investors is the relationship between ORCC's Princeton eCom division and Corillian. Investors may recall this was an issue when ORCC purchased PeCom last year. Some believed that CORI would stop reselling PeCom's product as ORCC (with PeCom) became more of a competitor than a partner. In firm's discussions with both CEOs, they did not believe there was much to that concern. Now, investors are again concerned that CKFR will "push" its way into PeCom accounts, yet again leaving ORCC in the cold. Again, based on firm's conversations today with both CEOs, they do not believe there are any risks over the next few years. However, without any clear evidence, the negative side of the story is an easy one to believe. Firm does not think much harm will come to ORCC and believe these are the times to increase positions.

Firm says that investors must remember CORI only has a true reseller arrangement with PeCom in just a few banks. That relationship covers approximately 1% of ORCC's revenue. The others have a direct contract with PeCom. Also remember the reason that many banks chose PeCom is because they did not want to go with CKFR. Additionally, most contracts are five years in duration and have termination fees attached to them.

Firm notes CORI will remain agnostic for some time. Based on their conversations, CORI will remain independent after the transaction (for a while). They consider this purchase a good deal for CKFR, as it will help defend its market share in the long term. CORI gives Checkfree a front end to integrate with its payment system. It will also be a good deal for ORCC. As CKFR pursues a full-suite approach, banks will start to realize the value of a complete application rather than piecing it all together; ORCC is already there.

Notablecalls: ORCC has been down on higher than usual volume in the past two days as smart money has been selling. This note from FBR may mark the beginning of covering, creating a nice bounce.

Barron's Online out on Elizabeth Arden (RDEN), saying that things are looking up for the co. Despite a sizable rally in recent months, the stock is more than 7% off its 52w high reached almost a year ago. And it's lagged the S&P's 500 over the last 12mo's amid worries about dilutive acquisitions and sales hobbled by dept-store closings and inventory cuts at Wal-Mart Stores. Yet Elizabeth Arden is sitting pretty. Though profits should accelerate and outgrow industry rivals, the stock still trades at a discount to the industry and the broader mkt. "The co's problems are reflected in the stock price, which is cheap compared to its growth rate," says Bill Chappell, of SunTrust, who recently upgraded the stock to Buy from Neutral. "Earnings should grow close to 15% annually over the next 3 years."

"Inside Scoop" section reports that Carl Icahn sold off nearly 2/3 of his stake in Time Warner (TWX) a year after the media conglomerate acquiesced to his demands in a proxy fight. Icahn and his vehicle Icahn Mgmt reported in quarterly filings on Wed that their combined stake in Time Warner stock shrank to 25M shares, or less than 1% of Time Warner's outstanding, at the end of the 4Q from the 68.7M shares, or 1.7% stake, held at the end of the 3Q. Joshua Hong, of OwnershipAnalyzer.com, says that while the percentage of Time Warner shares held by institutions has held steady over the past year, Icahn's sale may send out a bearish signal to other money managers. "It gives a negative signal that a major shareholder is selling off shares, given that the recent run-up wasn't based on fundamentals, and was pushed in part by the buyback program, which is coming to an end," says Hong.

ThinkEquity commenting MRU Holdings (NASDAQ:UNCL) following quarterly results.

Firm notes that MRU Holdings reported a loss of $0.42 on rev of nearly $2M in the DecQ06. This loss was in line with firms ests. Rev was below est of $4M b/c the co is not booking interest income from its Pre-Prime loans on the balance sheet, as these are off balance sheet pools in its Achiever Fund. In the qrtr, the co originated $35.7M of loans, compared to $45M in the seasonally strongest SepQ06.

Firm notes that MRU intends to do its first securitization in the JunQ07, with higher volumes, rather than in the MarQ, for efficiency. They estimate the June securitization will be $150M. They also think the co will do another securitization of $150M and possibly include about $75M of Pre-Prime loans in the DecQ07 quarter. As a result, analyst fiscal year ests have changed due to timing. The new rev and EPS ests for the Jun07 year are $25.75M in rev and a loss of $0.91 and for Jun08, rev of $48.63M and earnings of $0.16. On a calendar basis, firm est is a loss of $0.10 in C07 and EPS of $1.12 in C08. Firm believes after 07, loan volumes will begin to ramp quickly in all 3 categories and incremental margins driven by scale will push earnings up significantly as the year progresses. As a result, firm maintains $10 price tgt.

Firm says that due to strong demand from investors, the co intends to do a larger securitization in the JunQ07 than originally anticipated for the MarQ07. It may be a pre-funded deal in April for approximately $150-$175M in loans. They believe MRU is well on its way to establishing a strong presence in the private and govt student loan mkt for originations and securitizations, with a strong position in the mkt. Firm reiterates Buy rating.

Notablecalls: Delay in securitization is clearly negative, but may turn out to be non-event for long term investors. Holding my position.

Morgan Stanley out on Nektar Therapeutics (NASDAQ:NKTR), saying that Despite the expanded Exubera launch to the GP community, January prescription trends do not in any way reflect the much anticipated "inflection" point. For 2007, firm is cutting their forecast in half for Exubera and additionally bringing down 2008 because they believe that it will be almost impossible for the drug to hit firm's previous targets based on current trends. For now, firm is maintaining their peak Exubera forecast of $800 million, which drives their fair value of $12; however, they see further downside risk to this. To help investors follow Exubera scripts, firm is initiating a monthly tracker that will look at where scripts are versus where they would need to be to hit forecasts.

Script data for Exubera following the GP launch have remained weak with January TRxs coming in at 4,336 (compared to December 2006 TRxs of
3,500). While firm recognizes that they only have one month's data following the GP launch and that prescriptions could pick up sharply, especially following the DTC campaign anticipated in 2H this year, they are reducing our 2007 Exubera forecasts to $156 million from $300 million. As a result, firm's EPS estimates for 2007 and 2008 have been reduced to $(1.26) and $(0.73) from $(1.18) and $(0.64) respectively. To reach their 2007 estimates will require 831,000 scripts to be dispensed in 2007 in the US (in addition to EU sales, which they estimate to be 30% of US sales). Firm notes that according to their tracker, even to hit their new target prescriptions in the US might prove a challenge for Exubera.

Firm maintains Underweight rating.

Notablecalls: Must feel for NKTR shareholders as the Exubera launch has been really painful. I've been looking for any signs of pickup in Exubera for quite some time, but doesn't look like there will be any change in the n-t.

Several firms commenting NutriSystem (NASDAQ:NTRI) after co surprised positively with its results and outlook yesterday after the close.

- Lazard notes that NutriSystem raised the guidance range for 1Q revenues and EPS to $205-$215 million and $0.88-$0.92, respectively, from the prior range of $200-$210 million and $0.82-$0.86, due to momentum in the men's segment and reactivations, as well as improvements in CAC over the course of the quarter. The company also provided initial 2007 revenue and EPS guidance of $720-$740 million (+27%-30% year-over year) and $3.00-$3.10 (+31%-35%) vs. firm's estimates of $745 million and $2.85. Firm is also introducing above-consensus 2008 estimates of $875 million and $3.50.

Firm says that reactivations key in offsetting higher CAC. As it becomes more expensive to add incremental new customers, firm expects NutriSystem to increase focus on reactivating prior customers, who convert at a much lower marketing cost through direct mail/email campaigns.

Management has targeted $80 million in revenues and $25 million in after-tax profit from reactivations in 2007 (~$0.65/share). Importantly, reactivating customers are not included in the company's new customer count; as a result, firm believes marketing as a percentage of revenues is becoming a more accurate measure of efficiency than CAC.

Price tgt goes to $75 from $72.

- BB&T notes that the company raised Q1 07 guidance from its initial thoughts on January 31, 2007. It raised Q1 revenue guidance by $5 M, to a new range of $205-$215 M, and EPS by $0.06 to a new range of $0.88 to $0.92. These figures are up 40% and 47%, respectively, from Q1 06. Firm thinks the major difference in guidance between Jan 31 and yesterday was the company's pullback from some ineffective media buys, which both raised advertising costs and decreased conversion rates earlier in the quarter.

NutriSystem also provided its first take at FY 07 guidance, at $3.00 to $3.10, significantly above $2.89 consensus and firm's $2.95 estimate. Factors contributing to 2007 growth should include a roughly 20% increase in media spending, targeting new customer segments such as
seniors, while continuing to penetrate men's and women's markets. This should drive roughly 25% revenue growth and roughly 35% EPS growth, with cost of goods being the most significant leverage point in the income statement.

- Stifel is the most negative of the bunch, noting that they have, since the outset, been focused on the negatives and continue to do so. Firm believes the company uses marketing gimmickry to convince customers to use its program and they believe the company has been very successful thus far because the market is so large. Firm believes the satisfaction rates of its overall customer base is low (online third-party opinion surveys) and they believe that there are several components of the NTRI's advertisements that are not inline with management's comments in 4Q06 press release of having a singular focus on its customer. Firm knows companies that have a singular focus on the customer such as Amazon and Blue Nile, and the NTRI consumer value proposition does not qualify, in their opinion. NTRI ads suggest five meals per day yet only four of the eighteen components of daily diet are purchased from NTRI (4/17 for women), the three NTRI foods and snack amount to approx 700 calories daily, low cost of $294 becomes $400-$450 after adding supplements, and convenience (the non-NTRI foods require grocery visits and refrigeration in many cases). Also, the average customer stay is 8.9 weeks which means the company churns its customer base 1.5x per quarter.

- Kaufman says that while the company continues to grow and deliver, the stock has become a target of the expectations game. While this is unavoidable for growth stocks, firm believe the share buyback will help in reducing the volatility in the stock. With confidence restored by the new guidance, firm believes that the stock has acquired characteristics that can be appreciated by both growth and value investors.

Notablecalls: Strange turn of events in quite a short time as the company upped the Q1 guidance provided just few weeks ago. While the guidance for Q1 and 2007 is better than expected, the Q1 guidance fluctuation shows how exposed the numbers (and even more, the stock) is to marketing experiments by the mgmt. As such, don't think the stock will command the multiples it used to enjoy before outset.

Deutsche Bank out with interesting note on SiRF (NASDAQ:SIRF), saying that their checks with Motorola indicate that they are likely to ship SiRF-enabled GPS phones to Cingular as early as Q2,to support that carriers' LBS launch. This will include the Motorola Q9 smartphone,
part of what we think will be 2-3 phone models released at launch. These phones are part of the 10 models they believe MOT will ship this year with SiRF inside. Firm believes SIRF has been designed into the SCPL platform, MOT's next ultra-thin product line. They anticipate to see
these products at CTIA in March.

In their conversations with carriers at the show, firm thinks GPS is an important trend and a frequent topic of conversation. While not all carriers place as high a priority on LBS, they think GPS is likely to become an increasingly common feature in mid- and high-range phones. Firm thinks that by the end of next year GPS will be a standard feature in all smartphones, while some contacts think penetration will expand into more mainstream, mid-range devices in developed markets over the same period. They think carriers such as Cingular, Orange and China Mobile will all be drivers of the service this year.

Reiterates Buy rating and $35 price target.

Notablecalls: Nice catch by Deutsche! Phones may provide nice upside for the company (and the stock) l-t. S-t, this note should provide a pop in the stock early today, but would not overstay my welcome - just look at how the stock got faded yesterday after good GRMN results.

Couple of firm commenting RealNetworks (NASDAQ:RNWK) following 4Q06 report and 2007 guidance issued yesterday.

- Goldman Sachs notes that 4Q06 results beat their forecasts; however they are lowering 2007 revenue estimates by 4% and 12%, and maintaining their Sell rating. Areas of concern include: a slowdown with 100k net music sub adds (ex-WiderThan) vs. 125k in 4Q2005 and their 160k estimate; music ARPU fell for the 8th consecutive quarter; and other net subs (includes game subs) declined 25k vs. their forecast for a 25k gain.

Firm believes the lowered outlook is likely to be negative for the shares given that Street estimates must be reset lower. They also believe that slowing growth in music revenue and lower net other sub adds (including gaming) despite the still early stage of growth may increase concern regarding the growth potential as it may prove to be another initiative that matures at a faster rate than anticipated. Music growth has slowed from ~50% yoy in 2005 to 21% in 2006, and 11% in 2007E despite the lift from ad revenue, and a similar trend occurred with RealPlayer. In addition, visibility could be reduced across music, games, etc. as the company may not separate WiderThan metrics, which may mask the underlying ARPU and sub trends.

- Stifel notes that RNWK beat revenue and EPS 4Q guidance: Revenues of $125.6MM beat guidance of $117-123MM, while EPS of $0.22 beat guidance of $0.18-0.21. The upside to their estimates came mainly from WiderThan, which contributed $26.7MM in revs. vs. guidance of $22-24MM.

Firm says guidance was weak and implies significant sequential declines in 1Q07: 2007 revenue guidance was $540-560MM, below the Street at $577MM. They are lowering our 2007 EBITDA estimate from $60MM to $48MM.

Seasonality or deterioration? Management noted its business is more seasonal this year due to higher advertising revenues and WiderThan. While this seems reasonable, firm estimates the y/y growth rate for 1Q revenues excluding WTHN is just 5% and 2007 growth excluding WTHN is just 9%.

Firm believes changing EBITDA definitions/lack of EBITDA guidance could be a red flag: RNWK has changed its definition of EBITDA since 2005. The original definition included one-time equity gains which inflated 2005 EBITDA, which in turn helped show EBITDA growth in 2005. This quarter RNWK reported EBITDA for the first time in several quarters, which shows 2005 without those gains, which in turn aided 2006 EBITDA growth. To be fair, RNWK has a new CFO and they believe the newest definition makes sense. RNWK would not offer 2007 EBITDA/operating margin guidance on the call - why so secretive?

Reiterates Sell and $9 price tgt.

- Piper Jaffray says that while the quarter was in line, RNWK guided well below the Street for 2007 with revenue and GAAP EPS guidance of $540-560M and $0.18-0.23 vs. consensus of $573M and $0.40 (firm notes part of the EPS shortfall is due to higher non-cash charges). That said, they believe the financial accretion from WiderThan may have been overstated and it appears as if 2007 may be another year of investment for RNWK. As such, firm is lowering their EBITDA estimate for 2007 from $72.5M to $50.8M. Despite firm's more cautious view on fundamentals and estimates, they are maintaining Market Perform rating. Firm would expect shares to be down off the lowered outlook and note the company has a significant cash position (approximately $4/share which limits downside). Price tgt goes to $9.30 from $10.

Notablecalls: $10 seems to be line in the sand for the stock. Expecting the stock to trade below it today as the outlook seems to disappoint the Street.

Baidu (NASDAQ:BIDU) getting mainly negative comments following co's 4Q06 report.

- Goldman Sachs notes that 4Q2006 revenue of RMB271mn was below their RMB275mn estimate and the company's midpoint of guidance, while operating margin outperformed at 40.2% versus their 38.0% estimate, resulting in 5% and 8% upside to their EBITDA and EPS estimates (excluding a 1x tax benefit). The decelerating top-line growth is likely to continue in 1Q2007 with flat sequential growth expected vs. 18% in 1Q2006, their prior forecast of 11% and the Street's 11%. Baidu is experiencing frictional costs associated with its transition to a direct sales force in Beijing, its new monetization platforms, and a likely slowdown in the growth of the search advertising industry given just 6k new customers, down from 12k in 3Q2006 and ~10k in 4Q2005. Operating margin levels in 4Q2006 are likely to be offset in 2007 by the incremental USD$15mn of investment in Japan. Firm maintains Neutral rating and $128 price target, but they are incrementally more concerned with industry growth.

Shares could be flat to down given the significant deceleration in top-line growth and the third consecutive miss vs. expectations and the midpoint of guidance. Margin outperformance is likely to result in unchanged EPS estimates given the incremental investment in Japan. In addition, results, guidance, and recent strategic initiatives, namely Baidu's expansion into other markets (i.e. Japan) and other formats (i.e. branded, news), amplify firm's concern that the Chinese paid search market may be slowing until e-Commerce or other structural development accelerates.

- CIBC says the key concern is slowing customer growth and increasing churn rates. Baidu's transition from 3P distribution to direct, as well as algorithm updates remain disruptive. BIDU is the first Chinese search engine trying to pass local independent distributors. Firm is reducing their GAAP EPS estimates by $0.12 in '07 and $0.10 in '08, to reflect slowing customer growth, and '07 guidance of $15M additional spend to expand into Japan (more than firm's forecast). Management should continue to leverage SG&A.

Firm's thesis unchanged. Firm believes Baidu is well positioned to be China's search leader. However, it faces growing pains, near-term monetization challenges and an immature e-commerce market. Shares may be volatile, but could trade at$100-$130 based on 1.2X-1.5X PEG and 30-40X P/E.

- UBS notes Baidu reports Q406 EPS of US$0.45, higher than market consensus, mostly due to lower marketing and administrative expenses and the booking of tax income. On the negative side, Baidu guides for flat QoQ revenues growth in Q107 and US$15m spending related to its entry into the Japanese search market in 2007.

Firm is cutting their 2007/08 revenue forecast by 14%/11%. They expect spending related to Baidu's entry in Japan to offset higher-than-expected operational leverage. Firm's new EPS forecast for 2007/08 are US$1.57/2.58, down from previous forecasts of US$1.84/2.83.

Firm is upping price tgt to $99 from $96 but downgrading their rating to Reduce from Neutral.

Notablecalls: The EPS beat was mainly due to 1x tax benefit, so the qtr was not so great after all. Given the negative broker chatter this morning would expect the shares to trade down from afterhours prices.

The WS's "Heard on the Street" column discusses Jones Apparel (JNY), saying that designer Isabel Toledo may be just the accessory needed to spiff up the co. On a conference call with analysts yesterday, Howard Socol, CEO of the co's Barneys NY unit, called the hiring of Ms. Toledo "the 2nd-best thing" Jones CEO Peter Boneparth has ever done, after acquiring Barneys in '04. Barneys, which chooses its own designers, has committed to carrying the Anne Klein collection. Upscale competitors such as Nordstrom and Neiman Marcus are expected to carry pieces, too. Boutique owners like Ikram Goldman, owner of Ikram, also wrote orders after the runway show. But whether the revival of Anne Klein can change the fortunes of its parent remains to be seen. After yesterday's announcement of the 4Q loss the stock slipped. "The Anne Klein thing is worth watching and worth noting, but we are still far away from where it could be a needle-mover," said Bob Drbul, of Lehman Brothers. Ted O'Connor, of Cooke & Bieler, agrees with the Lehman assessment. But he is excited about the revival of Anne Klein, saying that lately the stock has moved only on deal speculation. "I think they are doing the right thing," he said. The money-mgmt firm, which has about $9bn in assets, owned 4.7M Jones shares as of Dec. 31.

Barron's Online highlights Principal Financial (PFG), saying that some on Wall St. knock the stock as an expensive player in the mature insurance industry. But 70% of Principal's earnings come from mutual funds, institutional asset mgmt, and 401(k) plans and other retirement services. The 401(k) business is expanding as small co's catch up to the Fortune 500 with retirement offerings, and as 2006 pension reform encourages greater savings for retirement. Plus, Principal's annuities should be attractive to Baby Boomers, who should live longer than previous generations. Trading near an all-time high, Principal shares reflect some of that potential. But future growth should allow its P/E multiple to expand and push the stock higher. "Principal has an attractive portfolio mix that benefits from the increasing longevity of the aging population," says Sterling McMillan, of Greenleaf Capital Mgmt. "We believe Principal has the continuing opportunity for steady growth of earnings and revenue that justifies its current multiple."

The WSJ reports that DaimlerChrysler (DCX) is set to announce that it plans to cut some 10K jobs and close factories at its Chrysler Group unit in the US. One striking feature of Chrysler's latest plan: The co is turning away from the big pickups and SUVs that powered its profits in the past. Chrysler is expected to close a SUV assembly plant in Newark, Del., and possibly another truck factory near St. Louis. DaimlerChrysler will again push to cut costs by making its Chrysler and Mercedes units cooperate more. The next generation Jeep Grand Cherokee and Mercedes M Class could ride on similar foundations. But many on the Mercedes side fear working too closely with Chrysler will hurt the luxury brand's sales by sullying its image. Analysts believe Chrysler will take a significant restructuring charge and report an operating loss when DaimlerChrysler reports its 4Q earnings today. Most also believe problems will linger throughout the year.

Barron’s Online out on Verizon (VZ), saying that the co hasn’t gotten the credit it deserved for running one of the most profitable wireless co’s in the world. That could start to change this year as Verizon starts to produce results from its fiber-optic adventure, called FiOS. The FiOS build-out is costing Verizon $10bn a year, putting a crimp on the co's cash and its valuation. Verizon's total value measured in equity and debt is just 5.1x its projected operating profit, well below the premium valuation of AT&T, trading at about 6.1x. But as FiOS' spending growth cools and profits start to pick up, investors may start to pay more attention to Verizon Wireless, which is growing faster and is vastly more profitable than either AT&T's Cingular unit or Sprint Nextel. A newfound appreciation for the wireless unit could help Verizon gain in valuation, to perhaps 6x operating profit, pushing the shares from $38 to the mid-$40s by year's end. Coupled with a 4.25% dividend yield, that means that investors could be in for a total return of more than 20% in the next year. "[Verizon Wireless] is one of the biggest and best-run assets in the world," says one portfolio manager. "The valuation for the wireless unit implied in Verizon stock is certainly below other wireless valuations in the marketplace."

“Inside Scoop” section reports that Blum Capital disclosed a 5.3% stake, or 3.04M shares, in EFI (EFII). Blum's shopping spree came immediately after EFI shares tumbled 9% following the co's disappointing 4Q earnings report. Ben Silverman, of InsiderScore.com, says it is "par for the course" for value-focused investors such as Blum to use a pullback in a stock's price following a disappointing earnings report to increase its stake in a co. "Considering that [Blum has] averaged up their cost basis [in EFI shares], I would think that they would be in the stock for multiple quarters, which for me means a couple of years," says Silverman. Blum isn't likely to quickly sell out of a stock once it has hit the 5% ownership mark. "Blum is one of the longer-life value investors still around, and I think that any value-oriented investors should pay attention to them," says Silverman.

Barron’s Online highlights an interview with T.Rowe Price Health Sciences Fund manager. Top 10 holdings include GILD, CEPH, DNA, AMGN, UNH, Roche, WLP, SEPR, STJ and ALXN.

The NY Times reports that Dollar Thrifty Automotive (DTG) is in early talks to merge with Vanguard Car Rental, which owns National and Alamo, in a deal valued at more than $3bn. If completed, a deal would create the 3rd-largest rental car co in the US behind leaders Enterprise Rent-a-Car and Hertz (HTZ).

Merrill Lynch is raising their price objective on Biomarin Pharma (NASDAQ:BMRN) stock to $25 from $19 for four reasons: 1) higher estimates for Phenoptin in the treatment of phenylketonuria (PKU); 2) higher peak sale estimates for Naglazyme; 3)multiple shots on goal for the BH4 program and 4) attractive acquisition value. BioMarin expressed great confidence in its products and pipeline programs at the recent Merrill conference and at a dinner they hosted for management. Reiterate Buy.

The WSJ’s „Heard on the Street” column discusses Crocs (CROX), saying that the co is quietly planning a surprising strategy aimed at avoiding fad status: a bold step into everything from women's fashion footwear to apparel. Yet many on Wall St. aren't convinced Crocs can continue at its torrid pace. As of last month, roughly 30% of its shares were held by short sellers. Even bullish investors concede that the stock will have difficulty this year matching last year's 105.7% gain. Crocs' plan marks the footwear maker's most significant departure yet from the funky, perforated clogs for which it is globally known. The new line will feature little of the co's proprietary Croslite material. Rather, Croslite is relegated to the foot beds of the 9 new fashion styles, which feature wedge heels, leather, suede and lamb's wool. The fashion models are expected to sell for $70-200, well above the $30 price of Crocs' standard clogs. Such a bold move is necessary to perpetuate Crocs' explosive growth. The co has embarked on several efforts likely to take it further from its roots. Among the other styles Crocs will debut this year are women's strap sandals, women's flats, tennis shoes and men's and children's apparel incorporating Croslite or material like it. Crocs' primary models, the Beach and the Cayman, now represent less than half of its sales, down from nearly 87% in ‘05. Crocs CEO Ronald Snyder concedes that Crocs' early shoes may prove to be a fad. "That might be the case, but we probably won't know that for a number of years," he says. "By that time, Crocs will be a very large co with a lot of different brands under the Crocs umbrella."

- UBS comments on MGM Mirage (NYSE:MGM) saying industry sources indicate the MGM/Pansy Ho Macau joint venture (JV) will go before Nevada Gaming Control 2/27 to determine Pansy's suitability as a partner. Firm believes there is good likelihood for a favorable outcome and expect the partnership to receive formal approval from Nevada. The partnership is still also under investigation in New Jersey, and resolution could follow shortly after Nevada.

The WSJ’s ”Heard on the Street” colum out saying that Bristol-Myers’ (BMY) days as an independent co may be numbered. The smartest bet to place on a possible takeover, however, might be to sell the co's shares now. Bristol-Myers's pipeline of promising new drugs has made the co an attractive tgt. Moreover, problems that had kept bidders at bay appear to be lifting. A federal patent trial on the Plavix appears to be breaking Bristol’s way, and strict federal oversight of the co in the wake of an accounting scandal several years ago is on the verge of ending. Analysts also note the co's interim CEO has a reputation for making deals. Still, some investors say the bulk of any transaction premium already is priced into the stock. Bristol-Myers shares recently rose about 10% after a report in the media said Sanofi-Aventis (SNY) may be taking steps to make a deal. "The stock has had a huge move in the last 2 weeks on takeout speculation, not on fundamentals," says Jami Rubin, of Morgan Stanley. "What if Bristol announces a new CEO in the next month?" Ms. Rubin asks. "That means the likelihood of a deal coming down is reduced, and then the mkt starts to view Bristol from a purely fundamental perspective." She rates Bristol-Myers Equal-Weight.

“Ahead of the Tape” column discusses hedge fund industry, saying that some recent research reports point to trouble lurking for the $1trln hedge-fund industry. Hedge funds generally charge their clients fees amounting to 2% of assets under mgmt and 20% of profits. Add in trading costs, and funds need to generate gross annual returns of 18-19% to deliver a 10% return to investors, according to a Dresdner Kleinwort. These days that is no easy task. One worry relates to hedge-fund trading strategies, which look low-risk but could be dangerous if the mkt turns quickly. Many hedge funds employ strategies that involve betting on one asset against another asset. One catch. Brett Gallagher of Julius Baer Investment Mgmt has shown that the difference in annual returns across stock sectors around the world has narrowed recently. James Bianco of Bianco Research has shown the same is true across world stock and bond mkts. That suggests it is become harder to make money on hedge fund "relative value" bets. Moreover, emerging-mkt and corporate-bond prices have run so high, it is hard to push them further. "If you're trying to impress on people that you deserve '2 and 20,' it's really hard to do in this environment," Mr. Bianco says.

Barron’s cover discusses Costco (COST), whose determination to deliver value and innovative products to its 23M members has made it one of the country's top retailers. Article suggests that Costco shares are no longer dirt-cheap, but in view of the co's superior mgmt and opportunities for growth, neither are they rich. "Retailing isn't rocket science. Costco has figured out the big, simple things and executed with total fanaticism," says Charles Munger, a Costco director. Munger is better known as Warren Buffett's long-time partner at Berkshire Hathaway (BRKA). Crucial to the chain's success is CEO Jim Sinegal, who co-founded Costco in 1983. "Jim would be on any intelligent list of the top 10 retailers of the past century," Munger says. While some retailing analysts deem Costco shares expensive, the co seems to qualify under one of Buffett's investment dictums. Buffett has said he'd rather buy a good business at fair price than a fair business at a good price. Berkshire owned 5M Costco shares at the end of Sep.

Energy research firm pick’s include: APC, CHK, APA, ECA, CNQ, LINE and EVEP.

At around 51 a share, UnitedHealth (UNH) fetches an inexpensive 15x future earnings. With sales and profits up smartly, the stock could climb to the 70s in 12-24 mo’s. "UnitedHealth has great prospects and potential," says CEO Stephen Hemsley, noting that spending on health care is expected to double to $4trln by 2015. "You can hardly find an enterprise in the health-care space that is better positioned and has our diversification." "All of UnitedHealth's metrics are significantly ahead of the mkt," says David Mandelbaum, of Omega Advisors. He points to the co's 7.5% FCF yield, 22% ROE and strong earnings growth.

“Sizing up small cap” section out saying that in the lucrative business of drug and alcohol testing, the venerable plastic collection cup is being challenged by an impressive upstart, the oral swab. Testing saliva increasingly looks to be faster, cheaper and less invasive than examining urine. But that doesn't mean that co’s selling gear for saliva test are worthy investments. To the contrary, most of them are, well, spitting into the wind. Oral swab co’s mentioned include ABMC and AVTI.OB. Co’s dependent on spit tests are ahead of their time, and getting clobbered. The best bets are urine-tester Medtox (MTOX) and OraSure (OSUR), an HIV tester with a saliva drug-test in waiting.

“The Trader” section speculates on possible LBO candidates. Zhiping Zhao, of CreditSights, flagged co’s like ADI, LLTC, MXIM, ALTR XLNX, STM and IFX as potential LBO tgts. If telecom-equipment co’s fluctuating cash flow gives buyout investors pause, heavyweights like Motorola (MOT), Ericsson (ERIC), and Nokia (NOK) that have under-leveraged balance sheets could face shareholder pressure to unlock value. So too could fallen angels like Sycamore (SCMR), and smaller equipment vendors like Tellabs (TLAB).

“Technology Trader” section highlights Novo Nordisk (NVO), which has been the leader in sales of insulin-related products everywhere in the world except the US. If Novo's well-regarded products can take more mkt share here, as they have abroad, the co's ADRs may continue their climb. "The US is the only country where we were not leaders," said Novo's CEO, Lars Rebien Sørensen, the other day in NY. "For many years, we were the underdogs." But Novo has been on a roll, winning patients and doctors over to its "insulin-analog" products. These variants of the human-insulin molecule work somewhat better, sell for about twice the price and enjoy patent protection for a number of years to come. Novo and its rivals, Eli Lilly (LLY) and Sanofi (SNY), have gotten about half of insulin-using diabetics to change to analog products. Yet Novo's winning more than its share of those converts, b/c its product line is the most complete and its prepackaged injection devices the most convenient.

Two offering their views on Nvidia (NASDAQ:NVDA) ahead of earnings due February 13th.

- Bear Stearns remains comfortable with their Jan-Q and Apr-Q estimates heading into earnings. They are looking for Jan-Q revenues of $862M (+5.0% QoQ), GM of 43.9% (up 100 bps) - both in line with guidance - and EPS of $0.43. Firm believes there could be slight upside to Jan-Q margins due to an improved GPU product mix.

Firm believe NVIDIA faced some headwinds in the earlier part of the quarter as its channel customers backed away from orders, due to an inventory build in the prior quarter and due to incrementally weaker overall desktop builds. This weakness in the early part of the quarter was primarily in the white box segment, while demand remained strong on the OEM side. Both of these issues were clearly temporary, and firm believes NVIDIA saw a solid rebound in late December and January as customers resumed normal ordering and replenished their inventory. Firm believes notebook builds ahead of the Santa Rosa platform launch also positively impacted NVIDIA's notebook GPU sales in January. In addition, their checks indicate an improvement in NVIDIA's desktop GPU product mix last quarter.

- Deutsche Bank notes that NVDA's guidance was for revs to be up 5% QoQ (i.e. $862m) and GMs of 43.6% (up 100bps QoQ). Given the weak Desktop build (still the primary driver for discrete graphics) in C4Q, meeting the revenue guidance will be a challenge (DB at $865m; Street at $866m). However, firm believes biz has picked up in 2H-Jan and there is likely some upside to GMs. Overall, they expect EPS to be in-line or slightly weaker than DB's 35c (including 7c ESO impact) and street's 43c (excluding ESO).

Firm's current expectation for F1Q (April Qtr) is for revs to be +1.8% to $881m (street at $851m). Given weak PC datapoints, they expect NVDA's 1Q
guidance to be tepid (closer to street than DB). Firm believes Vista-related PC demand has not yet kicked-in. GF8800 is cleaning up the plate at the high-end, and we are yet to see a competitive response from AMD/ATI. Despite AMD/ATI's intention to launch its flagship R600 in C1Q07, firm's checks indicate that many system builders haven't yet seen samples and so they do not expect any impact to NVDA's April Qtr.

Note that both firms' (as most of the street's) numbers do not include impact of PLAY acquisition.

Notablecalls: The street is used to see NVDA beating and guiding up on revs so Deutsche's cautios view on Jan-Q revenue is somewhat alarming. Not actionable though.

Merrill Lynch raises estimates for General Dynamics (NYSE:GD) well ahead of mgmt's initial outlook for 2007 given on its 4Q earnings call. Firm now forecasts 07E EPS of $4.85, up from prior estimate $4.80. 08E EPS is now $5.45, up from $5.30, and their outyear EPS estimates reflect similar changes. Firm notes that GD is not baking in potential contracts from the Army's supplemental spending, due to mgmt's view that timing of such contracts is highly unpredictable. While firm believes it is prudent for management to take a conservative stance, they believe significant earnings upside could result from the supplemental.

Firm expects Combat Systems to significantly benefit from exposure to the Army supplemental, which may be better than our previous expectations. According to the latest budget documents, they believe GD stands to benefit from a $3.0bn budget tailwind. Firm expects Congress to pass a total of $160 to $170bn in FY07 supplemental funding ($70bn bridge funding and $90 to $100bn GWOT funding). Through Combat Systems, GD has greater exposure to the U.S. Army than any of the other large cap defense primes. Firm believes this should fuel greater-than-peer top-line growth in defense businesses over the next several years.

Firm's price objective goes up to $87 from $80.

Notablecalls: Highlighting it because it is Merrill and I happen to like the chart.

Acme Packet (NASDAQ:APKT) is getting some comments this AM after the co issued results last night:

- JP Morgan notes Acme Packet posted strong Q4 results beating their ests. across the board. Revs of $23.7M, up 6.3% q/q and 87.0% y/y, beat firm's $22.5M by $1.2M while EPS (ex. stock comp) of $0.11 exceeded est. by $0.02. While Acme only reaffirmed its prior FY07 guidance rather than raising it, they continue to believe carriers are in the very early stages of an industry transformation leading to multiple Tier 1 services providers making broad and deep VoIP deployments with Acme poised to capitalize having a 1-2 year lead over its competitors and further entrenching its SBCs each day. Hence they reiterate Overweight rating.

They are raising their Q107 and FY07 EPS ests. (ex. stock comp) to $0.08 and $0.34 from $0.07 and $0.32 due somewhat to slightly higher Q1 revenue of $24.5M vs. firm's previous estimate of $24.1M, but mainly due to slower gross margin erosion from the increasing mix of international revenue through channel partners than previously expected.

Acme appears to be further entrenching itself in carriers' networks. JPM'sbiggest takeaways from management's commentary this quarter were 1) Acme saw greater sales of larger line-size SBCs leading to an increase in ASP, 2) the take-rate on additional features was stronger this quarter also contributing to the ASP increase, and 3) Acme saw no significant increase in competition.

They continue to believe the next leg up in Acme's revenue is a "when" not an "if" story.

- ThinkEquity says Acme Packet (APKT) beat 4Q slightly but solidly, as revenue and gross margin were ahead of plan. Guidance was unchanged. Firm continues to believe that APKT benefits from the broadest SBC product range, widest market coverage, and deepest network understanding, especially in Tier 1 accounts. Firm is not increasing their estimates, although they believe there is upside to model if APKT can maintain market share.

Firm's optimism is based on the expectation that the market continues growing briskly-between 50% and 100%-while Acme approximately maintains market share. They still see no consistent competition to Acme in the largest Tier 1 networks. Ultimately, they believe that Acme's clients will fire added growth both by building out more infrastructure within their networks, and also within their clients' and partners' networks.

Maintains Buy and $25 tgt.

Notablecalls: The stock was down 2 pts in after hrs action. I suspect the stock will retrace some of the decline over the trading day as things continue to be bright for the co.

Barron’s Online discusses Teva Pharma (TEVA), saying that despite challenges in ‘07, the co could win back its crown. Skeptics have reason to pan the co's ADRs, which fell 28% last year despite the co's skyrocketing profits, says Thomson Financial. After all, top-selling drugs responsible for last year's windfall face competition, fueling an earnings slump. Falling generic prices and fewer expiring drug patents has slowed growth in the US generic mkt this year. Meanwhile, Teva's decision to replace retiring CEO Israel Makov this month with an industry outsider has raised eyebrows. Yet with its multiple near a 5-year low and profits climbing in ‘08, Teva looks compelling. "For the highest reward, you have to be willing to buy Teva in ‘07, when earnings are likely to fall from last year's high levels," says Peter Schofield, of Knott Capital. "But once the mkt looks ahead to ‘08, it will start to reward Teva."

“Inside Scoop” section reports that Chmn and CEO Sohaib Abbasi, of Informatica (INFA), spent $510K on 40K shares of the co. Abbasi's latest purchase is notable for two reasons. It is only his second purchase of shares since joining Informatica and the stock has nearly doubled since Abbasi made his first purchase shortly after joining the company, says Ben Silverman, of InsiderScore.com.

Couple of interesting comments on Kendle International (NASDAQ:KNDL) that issued 2006 and 2007 guidance late last night. It's a clinical research oganization (CRO) that provides services to the pharma and biotech industr. Peers include CVD, PRXL, ICLR and even PPDI.

- Jefferies notes the obvious negative here is that management's credibility may be tainted by this surprise guidance revision. The co had reaffirmed firm'sunderstanding of the guidance and management expectations as recently as a few weeks ago. For 4Q06, management is lowering revenue by a few million dollars, but basically cutting EPS in half (down $0.27 at midpoint). The reduced guidance is a result of "delays associated with anticipated signings of changes in scope." In their conversation with management offline, the firm was told that 2 large contracts had experienced delays, but were back on track. The negative leverage to EPS is certainly remarkable.

For 4Q06, KNDL reported a net book to bill of about 1.73, well above our estimate of 1.33. Net bookings were strong, coming in at $150MM - this is well above our $120MM estimate (the cancellation rate was about half of our high-teen estimate). On the call with management, we were told that business is strong and that the CRL CS unit continues to ramp nicely. We believe that investors may be skeptical of management's projections.

New business and backlog was above firm's estimate, and guidance for 2007 is actually OK, however they believe the multiple will compress. Expects a 12-15% KNDL sell-off in KNDL.

- Baird is much more positive saying that while 2006 ended on a disappointing note, and Kendle shares will likely lose a sizable portion of the recent move, and heighten CRO investors' overall consternation about the sector and about Kendle. There is nothing in Kendle's news that contradicts firm's bullish investment thesis on the sector, but this may not be immediately apparent to many observers. Kendle's 2007 outlook is better than expected and they continue to apply lower valuation inputs to Kendle than they would typically ascribe to a company with similar growth, margin and bookings metrics, given the inconsistent performance of the recent past and the Higher Risk rating that the firm ascribes to Kendle. Since 2006 is water under the bridge, and since their forward estimates are increased, and since their NTM- based valuation model now rolls forward to CY07, firm's price target for the next twelve months increases to $43 from $40. Baird thinks that their valuation inputs are fair to conservative, updated model realistic to conservative, and they expect Kendle to outperform the market over the coming year, though they would wait for a pullback to put fresh money to work. Firm is aggressive buyers below $33.

Notablecalls: Take a look at TZIX yesterday. They guided Q1 down but had a nice upswing in backlog. That saved the day. The stock gapped down but rebounded sharply. Not the same space but you do get the drift, right? I think KNDL's a buy if it declines past the $33 line in the sand drawn by Baird. There is still lots of appetite for CRO services in the drug development sector, as evidenced by the hefty btb reported by KNDL.

Several firms are commenting on Cisco Systems (NASDAQ:CSCO) after the co managed to report strong results and provide strong guidance last night:

- JP Morgan notes that at the risk of sounding like a broken record, Cisco reported YET ANOTHER extremely strong quarter, with revenue upside AGAIN coming from BOTH the core business AND SFA. Revenue growth was again very strong nearly across the board, driving core Cisco revenue growth of 17.7% y/y to $7,800M, $144M ahead of firm's estimate and guidance for 14-15% y/y growth, the fastest pace of core Cisco revenue growth since the July 2004 quarter, TEN quarters ago. Cisco saw strong growth across geographies, product groups, and customer categories.

Firm's one area of concern in the quarter is the health of the U.S. enterprise business, as order growth in the U.S. enterprise business slowed to "mid-single digits" y/y from 20% in Q1. They believe the slowing could be just as much a function of the tough >20% y/y comp from Q206 than anything, since mgmt expects growth to accelerate to 10% y/y in Q3 based on customer conversations and its sales pipeline. Furthermore, management also mentioned that it is seeing more orders from global companies placed internationally rather than the U.S., implying a mix-shift could be distorting the U.S. order growth trends.

Astonishingly, Chambers also said he expects the torrid 40% y/y order growth pace in emerging markets to continue for the next 18-24 months, and that emerging markets order growth could continue to be double developed markets.

The pace of hiring actually accelerated in Q2, further proving management confidence in the longevity of the company's growth spurt, as Cisco hired an astonishingly high 2,732 people, up 42% from the 1,914 hired during Q1, and more than doubled its sales adds from Q1 to 650. Management said it continues to see near-term payback from hiring, implying that as Cisco has more feet on the Street, revenue growth could actually accelerate.

JPM notes they believe now more than ever that their thesis is playing out, and that the combination of the SFA acquisition and Cisco's renewed appetite for growth from both new technologies (video) and new markets (emerging markets, commercial market) continues to accelerate earnings growth. They continue to expect multiples to expand as Cisco remains on the offense, and with Cisco trading at 16.8x new CY08 EPS est of $1.62 (ex-stock comp), nearly at parity to peer JNPR at 17.3x, they remain Overweight.

- Morgan Stanley notes that strong results and guidance driven by routers, video and set top
box demand, reinforce their view that recent concerns over a potential slowdown in near-term revenue growth were overdone. Firm continues to believe that Cisco is the best-positioned company in the sector to benefit from transitions across enterprise, service provider, and increasingly consumer networks, raise price target to $32, and reiterate Overweight-V rating.

Results easily beat expectations driven by better than expected router and services revenue and broad strength across almost all geographies and end markets. A book to bill above 1.0 in both the core Cisco business and Scientific Atlanta, increasing deferred revenue, and guidance ahead of firm's estimates lead them to raise their F2007 expectations. Firm now models organic revenue growth of 16.4%, up from prior estimate of 14.7% and calendar 2007 adjusted EPS estimate moves up 3 cents to $1.42.

Notes they were buyers of shares ahead of the quarter and they are buyers today. Shares trade at 19x C2007 EPS and 17x C2008 EPS (excluding options) relative to group averages of 24x and 19x respectively.

- Merrill Lynch says they were impressed with the resilience in gross margin, even as low margin segments (mainly SFA and Advanced Svcs) grew well. Cisco also demonstrated cost discipline, with operating margin expanding from 29.2% to 29.8% QoQ. Nevertheless, the firm believes margins are peaking and should be flat to down in April as sequential growth will again be driven by SFA and Advanced Services, both of which carry mid-40% gross margins.

It's hard not to like Cisco's stock after such a solid result. Yet, despite some near-term upside potential, they are maintaining their recently instituted Neutral. Firm believes that a few of the growth drivers will start to moderate after the July Q, such as SFA, routing, and the impact of a larger sales team. They also believe shares are already trading at fair value.

- Banc of America has cautious comments on CSCO noting that although revenue guidance was strong, there was not much EPS pull through. Cisco reported solid 2QF07 results and revenue guidance, with SFA representing a little more of the upside and the product book-to-bill over 1.0. Firm remains Neutral on the stock as they expect slower growth in coming qtrs, with only limited leverage remaining in the model.

Unlike some of its smaller competitors, CSCO only grew its US enterprise orders by mid-single digits. While the firm believe timing of revenue recognition could be to blame, they view this performance, coupled with 10% growth guidance for April, as a sign that mkt share gains are becoming more challenging.

A growing contribution from the company's advanced service business, particularly in the emerging markets. This effort has been placing pressure on the company's service margins which have declined from nearly 68% during 3QF06 to 64.4% during the current quarter. The company expects these margins to remain near current levels through F07.

The company added ~650 new sales people during the quarter and reiterated its commitment to these hiring and product development efforts. As a result, the company expects opex to tick up, causing operating margins to dip back below the 30% level over the next several quarters.

With Y/Y growth rates for the overall company expected to decline in each of the next six quarters (Core business is expected to follow a similar trajectory) and margins near peak levels, the firm sees limited opportunity for multiple expansion from current levels. Maintains $30 tgt.

Notablecalls: The slowdown in U.S. enterprise business orders is likely going to hold back the stock. Not saying it's an outright short but I wouldn't be buying it either.

The WSJ reports that Tivo (TIVO) and Amazon (AMZN) are joining to help bring movies and television shows from the Internet to TV sets, in the latest move to bring online video into consumers' living rooms. In a deal to be announced today, TiVo and Amazon plan to announce a new way for consumers to watch movies and TV shows downloaded from Amazon's Unbox service on their TV sets via their TiVo digital-video recorders. Under the program, TiVo subscribers can rent and purchase TV shows and movies from networks and studios such as CBS and Viacom's Paramount Pictures, among others.

“Heard on the Street” column discusses European telecom mkt, saying that co’s have been competing against emerging-mkt rivals in places such as Southeast Asia and Africa. Now they are facing off against them in a new territory: their home turf. Financiers from India and Russia to the Middle East are sniffing around European assets. India's Hinduja Group and Russia's Sistema recently expressed interest in Telecom Italia (TI). Pirelli has said it wants to sell some of its 18% stake in Telecom Italia, which it controls. Pirelli recently said several interested parties had been in contact but no agreement had been reached. For investors in Europe's telecom co’s, such interest can provide a boost to the stock prices of potential tgts. Neil Galloway, of ABN Amro, considers as possible tgts: midsize firms such as Belgacom, KPN, Telekom Austria (TKA) and Hellenic Telecom (OTE).

“Inside Track” section highlights Phoenix Technologies (PTEC), whose CEO Woodson Hobbs made his first purchase of Phoenix stock last week even though a proxy fight with the co's largest shareholder is pending. He said he isn't very concerned about the outcome. Mr. Hobbs bought $456K of his co's shares even as the co prepares for a contested board election. Ramius Capital, which owns about 13.7% of the co's stock, is seeking to place 2 representatives on the co's board. Mr. Hobbs described the current proxy fight as "not that big of a deal," but said he would prefer for the co's nominees to be re-elected. He noted, however, that if Ramius is successful it will gain only 2 seats on Phoenix's 6-member board.

Barron’s Online highlights Citrix Systems (CTXS), as a bet on Microsoft’s Vista. Citrix's software programs let a computer user run Windows without actually owning Windows. Shares of Citrix could jump from their current $31 to $40 or more as the co becomes increasingly central in Microsoft's product plans later this year. Microsoft has yet another OS due this fall, named Longhorn. It could let a co run all its computers from a central copy of Windows running on the server without loading software on each PC, a feat known in software circles as "virtualization." But to do so, buyers of Longhorn are going to need Citrix's software, which has been developed in conjunction with Microsoft and which unlocks some of Longhorn's features. "Virtualization is a change that's going to be important to individual users of the software and to businesses large and small," says Martin Reynolds, of Gartner. "It's really going to change Vista from what we know it as today."

“Inside Scoop” section reports that a Norwegian venture capitalist is hooked on Trico Marine (TRMA). Kistefos AS spent $4.6M on 149K shares. The buys were made by Christen Sveaas, who is the sole owner of Kistefos. The purchase by Kistefos is the first time a co insider has bought shares of Trico Marine since Mar’06.

JMP Securities is maintaining Market Outperform rating and $22 price target on Juniper Networks (NASDAQ:JNPR) in the wake of learning about the company's expanding role in Verizon's managed service offering. Contacts close to Verizon indicate that the service provider is preparing to make a major push to expand its managed WAN service offerings throughout 2007. With integration of Verizon and the former MCI largely complete, firm's checks indicate that Verizon is about to step up its presence in the enterprise managed services market.

The WSJ reports that Triad Hospitals (TRI) was expected last night to announce a deal as early as this morning to sell the co to private-equity buyers for about $4.4bn. The likely buyers of the co were CCMP Capital Advisors and the private-investment arm of Goldman Sachs. Rival Blackstone Group also was in the hunt and might still snatch Triad at the last moment.

According to the WSJ, Simon Property (SPG) and hedge fund Farallon Capital Mgmt yesterday lobbed in a roughly $1.56bn offer for Mills (MLS), a move designed to derail a $1.35bn agreement with Brookfield Asset Mgmt. Investors had for weeks been expecting a higher offer for Mills, as co's largest shareholder, Farallon has aggressively pushed for a higher offer for the co.

“Heard on the Street” column discusses Harley-Davidson (HOG) saying that riders of Harley motorcycles tend to be a loyal bunch. The co's mgmt team, however, has shown less fidelity, judging by its recent history of selling shares. Together with a slowdown in Harley's US motorcycle sales and its aging leather-clad customer base, the trend of insider-selling may be a reason to gear down expectations for the co's high-octane stock price. The stock is up 129% over the past 5 years. "We would become more aggressive with the stock in the mid-$60s," says Craig Kennison, of Robert W. Baird. Apparently the share price also is rich for Harley's mgmt. As the stock rocketed to dizzying levels in Oct and Nov, 7 execs, including Chmn Jeffrey Bleustein, CEO James Ziemer, the general counsel and the chief accountant, sold a record number of shares, which represented the highest amount of insider selling in dollar value in Harley's history. "When you have consensus-selling, it's definitely more telling of how investors should play the mkt than when just a few insiders sell," says Jaseem Hasib, of Thomson Financial.

“Preview” section highlights Cleveland BioLabs (CBLI), which is developing treatments against radiation exposure. Any day now the Department of Defense will put out a request for a proposal for a contract for a drug to treat exposure to radiation. A pre-announcement from DoD emphasized treating gastrointestinal exposure, which Cleveland BioLabs is equipped to handle through the drugs it is developing, says its CEO, Michael Fonstein. "When radiation goes up, you die from GI syndrome," Fonstein told. He says the drug has been successfully tested on monkeys. The contract will be awarded in July. While its value isn't known, Fonstein notes that a similar contract recently awarded for a nerve-gas antidote was valued at about $200M. He thinks the radioprotector could be sold to DoD by year's end. Meanwhile, the co expects to start human trials on its drug to protect good cells during cancer radiation this fall.

Notablecalls: Barron’s mention of such a small co might cause a pop in the shares on Monday morning. CBLI mkt cap stands at $75M.

Fund manager picks include ANAD, DISH, WFR and SIFY.

Microsoft's (MSFT) shares shot up 40% in the months before Vista's launch. Some bulls think Vista could deliver a further 20% gain, but the downside, at this point, looks even greater.

The shares of Mohawk Industries (MHK) are primed to climb at least to 90 and probably above 100. The stock looks to have been unduly punished by worries about the housing mkt.

While the stock of Ceridian (CEN) has run up some 20% since William Ackman, of Pershing Square Capital Mgmt, started buying, more gains lie ahead. If Ceridian is split up, investors could reap another 20%, or far more.

“The Trader” discusses Allstate (ALL), saying that the co continues to effectively put its capital to work. Last qrtr, it generated an annualized ROE of 22.4%, the 5th straight qrtr it steered ROE above 20% and well in excess of the industry avg of 15%. Bear Stearns analyst David Small expects this outperformance to continue in ‘07, given its strong profitability, the aggressive pace of share buybacks and the prospect of increased dividends. His price tgt: 69.

“The Trader” column highlights SVB Financial Group (SIVB) as takeover tgt. The co’s shares popped last week after Merrill Lynch announced a $1.8bn deal to acquire First Republic Bank. If Merrill was willing to pay a 44% premium to reach First Republic's coterie of wealthy clients, then prospects look bright for SVB's niche business and its coveted clientele. At 47, shares trade at about 15x ‘07 earnings. Oppenheimer's Christopher Nolan reckons the stock should be worth 54, or 61 if SVB were bought, based on what a potential acquirer can pay and still have the deal earnings-accretive in the 2nd year, or about 20x ‘07 earnings.

“Technology Trader” column discusses Dell (DELL), saying that the return of Michael Dell means no quick fix for the co. The return of Dell doesn't signal any great shift in strategy or operations at the struggling computer maker. The fact is, Michael Dell has never strayed far from the controls, even while Kevin Rollins was CEO. Over time, however, Michael Dell, as the single leader of the co, could help restore confidence among employees, investors and others. Though often brusque and not particularly well liked within the co, he has always commanded respect as the visionary founder. "That can go a long way to help," says Cindy Shaw, an independent analyst. "He faces a host of challenges, but he is tenacious and he has a very good feel for what needs to be done." Article suggests that with his name above the door, and his fortune in the stock, Michael Dell has every incentive to succeed. But his co's position and the industry's conditions aren't going to make it easy.

The WSJ’s ”Heard on the Street” column out saying that for the scores of co’s swept up in the options-backdating scandal, repercussions have included financial restatements, regulatory investigations and exec resignations. In what would ordinarily seem like bearish news, however, there may be some buying opportunities. A number of bets have paid off as many stocks have dipped on adverse disclosures about possible backdating, only to bounce back within weeks, days, or even hours. Gartmore Small Cap Fund had nearly a 30% return last year partly b/c it purchased stocks when they fell on backdating news, says Charles Purcell, senior portfolio manager of the $937M fund. "The underlying businesses were the same, and we were going to get past this eventually," he says. "It's taking advantage of the 'groupthink.' "

Barron’s Online discusses Cameron Intl. (CAM), which is the 2nd-largest maker of "subsea trees," the contraptions that help bring oil from ocean-floor wells to the sea's surface. Cameron's order backlog for deep-sea exploration products is growing and should bolster earnings in the next several years. The global oil-field-services co makes other products that help control oil and gas flows, contain pressure and separate impurities, on land and offshore. They should largely do well even if oil prices fall below $50 per barrel. In addition, Cameron shares might not be getting credit for the higher prices on its newly-acquired Dresser valve business. "I'm very excited about the stock b/c Cameron should exceed earnings expectations in ‘07 due to a record order backlog, rising margins, a clean balance sheet, excessive cash flow and fewer shares outstanding," says Timothy Call, of Capital Mgmt.

“Inside Scoop” section reports that Meridian Bioscience’s (VIVO) Chmn and CEO is leading a slew of insider-selling as the co's stock trades at record highs. William Motto, now rounding up his third decade as Chmn of Meridian's board, sold 200K shares for $5.85M on Tue. Last month's proxy filing indicated that he directly held a 2% stake with 523K shares. Overall, seven execs and directors sold about 326K shares on the open mkt for $9.3M over the past 90 days. Jonathan Moreland, of InsiderInsights.com, says Meridian's "stock has done fabulously over the past 5 years, so you would expect a lot of selling, particularly options-related selling."