Tuesday, July 31, 2007

Apple (NASDAQ:AAPL): RBC Capital comments on iPhone

- RBC Capital held a discussion with Greg Joswiak, Apple's (NASDAQ:AAPL) VP, Worldwide iPod and iPhone Product Marketing. While Apple did not disclose specific product plans, the discussion sharpened our views on iPhone momentum and strategy. Topics covered included 3G, hardware/service pricing, carrier expansion (incl. Europe), iPhone roadmap, and new features and applications. Apple appears well positioned to achieve/ exceed its stated iPhone sales goals, and the firm affirms Outperform rating.

Apple appears firmly committed to EDGE/GSM and its Q4CY07 European launch (initially UK, Germany, France, in RBC's view). However, despite 3G's greater prevalence in Europe, 3G iPhones may not arrive until Spring CY08, given battery life and form factor challenges. Apple may promote Wi-Fi as its high-speed strategy for now, offsetting slower EDGE.

While not facing pressure to do so, the firm speculates initially Apple will differentiate its iPhone lineup not by features, but by price and memory capacity, similar to its iPod lineup, simplifying market positioning. This affirms RBC's view of a lower priced ($349-399) iPhone CYQ4/ Q1, with a higher priced version at higher capacity, to expand its market opportunity.

Reiterates Outperform and $175 target.

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

Paperstand (WEN, BLK)

According to the WSJ, Nelson Peltz said his Triarc is willing to offer $37-41 a share to buy Wendy’s (WEN), but the billionaire investor is balking at Wendy's request to sign a confidentiality agreement as part of the sale exploration process. Yesterday, Mr. Peltz sent Wendy's Chmn James Pickett a letter pressing the board committee considering the Wendy's sale to accept a confidentiality agreement that is more favorable to Mr. Peltz, who is Chmn of Triarc and CEO of Trian Fund Mgmt. Mr. Peltz has previously said Triarc is interested in exploring a bid for Wendy's. Yesterday's letter marks the first time he has given any indication of what Triarc might pay. And his pushback on the confidentiality agreement hints he may pursue a less friendly purchase or other type of shake-up at the chain if Wendy's directors won't negotiate with him on his preferred terms.

According to the “Heard on the Street” column in recent days, the so-called spreads on pending merger deals have widened drastically over concerns that tighter financing could put the transactions in jeopardy. In a report issued Fri, Goldman Sachs recommended that investors bet on a basket of 22 pending LBO transactions. David Kostin calculated a 36% avg annualized return for the group based on current spreads. Among the deals included in Mr. Kostin's basket are a proposed LBO of SLM (SLM). SLM's stock was trading at a nearly 20% discount to the $60 takeover price. Goldman's basket also includes Ceridian (CEN) and FNF (FNF). Buyouts of Hilton (HLT) and ADS (ADS) are also part of the basket. Investors may want to demonstrate some restraint, however, on betting on the next likely deal. "We est 'mega-cap' LBOs of 20+ bn euros [$27.3bn] are off the table until the existing pipeline of loans can be repriced and placed and leveraged credit mkts stabilized," wrote UBS analyst Daniel Stillit. In the US, takeover traders cited real-estate stocks such as Starwood (HOT) and Post Properties (PPS) as among those that recently have fallen after rising on speculation they would be LBO bait.

Barron’s Online “Inside Scoop” section reports that BlackRock (BLK) insiders have sold a record number of shares of the co this year as the stock hovers near record highs. So far this year, 5 top execs grossed more than $82.4m by selling 486K shares on the open mkt. The largest seller was Keith Anderson, vice chmn and global CIO of fixed income. He sold 201K shares for $34.2m. Among the most recent sellers, Laurence Fink, chmn and CEO, disposed of 53K shares on the open mkt for $9.07m. Mark LoPresti, of Thomson Financial, says that BlackRock is run by ppl who are "very knowledgeable about the mkt and are savvy about technicals." The lack of excessive selling as the stock retests a resistance level indicates insiders are "more fearful than greedy" in capturing profits.

Monday, July 30, 2007

Marriott Intl (NYSE:MAR): Watch MAR for a bounce

- Jefferies believes the recent sell-off in the overall market given credit concerns has created an attractive investment opportunity in Marriott Intl (NYSE:MAR) shares. MAR remains Jeffco's top pick in the lodging space based on the company's multiple growth drivers, including incentive fee growth potential, international unit expansion opportunities and a significant return of capital story.

While private equity activity in the lodging space has been one of the primary drivers of stock returns over the past year, they believe the takeover premium implied in MAR's valuation was de minimis. The firm never considered MAR to be near the top of the list in terms of takeover candidates as it does not own the underlying real estate at its hotels.

They continue to believe the fundamental operating environment is favorable for the major lodging companies. Supply growth in urban and resort locations, areas where these companies generate a significant portion of EBITDA, remains below historical levels and demand remains strong. On MAR's 2Q07 earnings call, management indicated group bookings are solid, which should continue to drive pricing power in 2H07 and 2008. Fundamentally, the firm sees little risk to 2007 and 2008 "core" EPS estimates of $1.96 and $2.34, respectively.

Reits Buy and $59 tgt.

Notablecalls: Jeffco's comments make sense. MAR has gotten hit and I would watch the stock today for a bounce. Tough to say when it will happen but keep an eye on MAR intraday.

NRG Energy (NYSE:NRG): Goldman Sachs defends

- Goldman Sachs notes that with NRG Energy (NYSE:NRG) down approximately 15% last week, this presents an attractive buying opportunity for longer-term investors, even with continued volatility in the shares expected. Concern regarding a new holding company structure, bond market turmoil and expected dividend payout remains. However, NRG's long-term hedges enable it to create significant free cash flow. Firm expects free cash flow of approximately $1.0bn annually for the next 3-4 years, giving NRG flexibility to either 1) buyback roughly 30%-40% of its existing market capitalization or 2) reduce outstanding debt by almost 50%.

Firm's 12-month $49 Sum-of-the-Parts valuation assumes $/kW values for NRG's specific nuclear, coal and gas plants and long-term upside to their target price exists.

Notablecalls: NRG upped guidance in May and told investors they intended to restructure their senior credit agreement to relieve restrictive covenants from the restricted payments basket and increase flexibility for return of capital to shareholders. The stock is now down 10% from these levels.

I think the 50 day MA may come to play today (around $36) and represents a solid buying oppy. GSCO's isn't the only firm out there with a $50 tgt, representing hefy upside from current levels.

Paperstand (FUN, ADBE, VMED, IR)

The NY Post has learned that Cedar Fair (FUN) has entered into quick-moving talks with investment firm Destiny Capital Solutions about a $4.1bn takeover. While the talks with Destiny Capital are at an early stage and could break down, and while other bidders could emerge, the spokesman said the two sides have had constructive negotiations since first making contact 2 weeks ago. The deal Destiny Capital proposed calls for paying $4.1bn, or a 20% premium over Cedar Fair's current mkt value, to acquire all of the theme-park operator's shares. The firm also said it plans to commit at least $500 million, and as much as $800 million, to upgrade Cedar Fair's 12 amusement parks, six water parks and six hotels.

According to the WSJ, Adobe (ADBE) faces a wave of criticism from printing co's protesting a deal that gives FedEx Kinko's stores a prominent link on Adobe software. The brouhaha could hurt Adobe's standing with important customers and partners and also throw a wrench into FedEx's plans to revitalize Kinko's. At issue is a new button on some Adobe software, released in June, that lets ppl electronically transfer documents directly to a FedEx Kinko's store to be printed. The button appears on new versions of Adobe's Acrobat and Reader software. "Our members frankly feel betrayed," says Joseph P. Truncale, President and CEO of the National Association for Printing Leadership.

The WSJ reports that Liberty Group (LBTYA) is considering bidding for Virgin Media (VMED), which put itself on the block earlier this summer after receiving an unsolicited bid from private-equity firm Carlyle Group that valued Virgin's equity at roughly $8-10bn. Michael Fries, Liberty's CEO, cautioned in an interview yesterday that Liberty's interest in Virgin Media was preliminary and the co hadn't received detailed financial information yet. He also noted that Liberty typically prefers cable assets in mkts that have more growth potential than the UK. Nevertheless, he said that Liberty is in the business of buying overseas cable co's, so Virgin Media would naturally be of interest. "We owe it to our shareholders to look at this type of co given its size, scale and unique financial attributes, including its tax position," he said.

Doosan Infracore last night said it agreed to acquire the Bobcat construction-vehicle business from Ingersoll-Rand (IR) for $4.9bn. The deal also represents a higher-than-expected price for Bobcat, which some analysts had predicted would fetch around $3bn. Ingersoll said it would sell or spin off the business after weak results tied to the housing downturn. Ingersoll intends to use the proceeds for share buybacks.

The WSJ reports that ABN Amro (ABN) Mon said it no longer recommends a takeover bid from Barclays (BCS), meaning the British bank and a European consortium will compete to buy ABN without the advantage of a recommendation from ABN's boards. Until now, ABN Amro had supported the friendly bid from Barclays, effectively opposing a competing bid from a consortium of three banks led by bank od Scotland and including Fortis and Banco Santander. ABN Amro said it had made changes to its merger protocol agreed with Barclays and is now free to discuss the competing offer.

"Heard on the Street" column discusses energy stocks, saying that high energy prices have meant big profits for this sector, and that has accounted for roughly 1/3 of the mkt's earnings growth in the past 2 years. But rising costs, increased intl taxes and a dearth of good exploration opportunities are shrinking margins. There is a growing sentiment that the energy sector's profits, while remaining strong, won't grow much from here. "We have seen the peak in the earnings power unless we get another significant increase in the commodity price, and we don't see that being supported by the fundamentals," says R. Lewis Ropp, of Barrow, Hanley, Mewhinney & Strauss. The firm holds large positions in Occidential Petroleum (OXY) and ConocoPhillips (COP), but went from being "Mrkt Overweight" in energy last year to "Mkt Weight" this year. A major reason for the shifting sentiment is that while rising commodity prices over the past few years have boosted earnings and stock prices, the large publicly traded energy co's have struggled to increase daily production of oil and natural gas. Last week, Exxon Mobile (XOM) and Shell reported global production was down 1% and 2.3%, respectively. Moreover, rising costs have nibbled away at margins. Renting a state-of-the-art floating drilling rig in '01 cost about $200K a day; the same rig now fetches more than $500K a day. "The earnings of big producers are plateauing, and they're really growing their earnings through share repurchases," says Chris MacDonald, of WHG Funds.

Sunday, July 29, 2007

Barron's Summary (INAP, BSC, AMZN, RJF, MSFT)

Barron’s cover out saying that some bargain-hunters have been attracted to financial stocks. JP Morgan (JPM) and BofA (BAC) are trading for under 10x estd ‘07 profits, and BofA carries a bond-like dividend yield of 5.3%. The major Street firms all command less than 10x ‘07 earnings. Bear Stearns (BSC) could be the biggest bargain on the Street b/c its shares now trade for just 1.3x BV. Even if the firm fails to meet the consensus profit forecast of $14 a share for the current year, Bear could see its BV approach $100 in ‘08. Bear is known for taking limited financial risks. Even when its 2 mortgage-hedge funds collapsed, the firm's financial exposure hasn't been significant. Bear shares could get back to $150 or higher if its earnings hold, and it might fetch $175 or more in a takeover. The firm is very digestible b/c its mkt value is less than $20bn.

JP Morgan Chief Credit Strategist holds AET, UHS, WLP, MMC, JNS, KMP, GP and SPG bonds.

According to the Barron’s, Amazon (AMZN) shares are too expensive. Best to take substantial profits and wait for a better deal later on. Amazon's sky-high P/E multiples suggest investors' enthusiasm has gotten ahead of the co's growth potential. Late last week Amazon traded for 78x ests for ’07, and 56x '08 ests. Even if the co achieves this anticipated 41% jump in earnings next year, it's hard to justify such a premium to its growth rate, especially when Internet peers such as eBay (EBAY), which fetches about 21x ‘08 earnings ests on EPS growth of 16%, boast higher net operating margins. Hamed Khorsand, of BWS Financial, has a price tgt of 65 for Amazon shares.

“The Trader” column says that tgts of already-announced buyouts saw shares drift well below their offers. To Goldman Sachs strategist David Kostin, this is both an irreconcilable inconsistency, and opportunity. "Stocks cannot both melt down b/c the mkt fears that financial institutions will have to fund and hold leveraged loan commitments, while at the same time [see] shares of tgt co’s sell off on the belief that the same transactions will not close," he notes. The mkt assigns a roughly 62% chance that existing deals will close, but he thinks the likelihood is much higher. He suggested buying a basket of 22 tgts, including FDC, HET, HLT and TXU.

“The Trader” also discusses Raymond James Financial (RJF), saying that its subprime-free aura isn't the only appeal. CEO Thomas James has been building its banking and asset-mgmt operations, and that shift is "starting to click," notes Wachovia analyst Douglas Sipkin. RayJay also will benefit from rival AG Edwards' (AGE) agreement to be acquired by Wachovia (WB). Edwards brokers dissatisfied with Wachovia's retention packages have begun to prowl for greener pastures, and while any defections to the likes of Merrill Lynch (MER) or UBS (UBS) won't budge these behemoths' bottom lines much, they could bump up RayJay's commission haul noticeably. At about 31, the shares trade at 13.5x forward earnings and 2.4x the book or accounting value. That's not obviously cheap, but it has more than $3 a share in excess capital, and tangible equity roughly 11% that of total assets.

“Technology Trader” section discusses Microsoft (MSFT) that still seems to be a growth co. As CFO Chris Liddell pointed out, investors often assume that the co's size will make double-digit growth tougher. But, Liddell asserts, the co won't be contained by the law of large numbers, at least not yet. It sees F'08 top-line growth of 11-13%, operating-income growth of 12-15% and EPS gains of 13-16%. In effect, Microsoft expects to create another $5 or $6bn co this year. Still, the Street seems unconvinced. Mark Stahlman, of Gartner, remains wary of Microsoft. He thinks the coming departure of Bill Gates as a full-time employee, with a shift in development responsibility to chief software architect Ray Ozzie, will not be a smooth one. Stahlman thinks the kinds of systems you need to roll out products in the cloud actually require the services-centered thinking of computer scientists like Ozzie. But the hacker culture at Microsoft, embodied in Gates, runs deep and could resist a change in approach.

“Plugged In” highlights Internap (INAP), which takes aim at Akamai (AKAM). The co has predicted 30% earnings growth for ‘07, higher profits and gross margins of about 50% for all of its businesses, and higher margins in CDN. Internap is slated to announce earnings Tue, and based on its recent turnaround and penchant for raising tgts under new mgmt, it wouldn't be a stretch to see the co cast a rosier outlook for the 2H07. That could lift the stock. "We're really moving in the right direction," says CEO Jim DeBlasio. Only 10% of Internap's $192.3m in sales currently come from CDN. The rest is from its core Internet-routing optimization and data-center hosting businesses. The co differentiates itself from the others by bundling its services and selling them to customers that already outsource their data-center operations with Internap. Internap also can fetch higher prices b/c it offers better quality and reliability, contends DeBlasio. "My plan is to go after [Akamai]," he says. "We offer what they can't deliver: reliability."

Friday, July 27, 2007

CNET Networks (NASDAQ:CNET): Color on quarter

Couple of firms comment on CNET Networks (NASDAQ:CNET) after the co released its Q2 results and guidance last night:

- RBC Capital notes they remain neutral on CNET, as they think the stock remains range-bound
between $7-$10. The company is in a transition year in 2007. It has a similar audience attrition problem as Yahoo - its core base is declining and it is not participating in any of the web 2.0 growth trends (user generated content and social networking). Core PV growth (ex Webshots) has turned negative at CNET for the first time this quarter, and the company probably won't have an easy y/y comp until 1Q08. CNET is starting to see its sell through rate improvement tap out, and growth deceleration is setting in. Advertisers are resistant to price hikes, as they generally have more options on how to deploy budgets than in previous years and can target the same CNET audience on other networks for a lower CPM. The company may look to make acquisitions to re-invigorate growth, and the firm would wait for related pull-backs before getting more aggressive. Target to $9 from $10. Firm notes they would get more agressive below $7.50.

- JMP Securities is taking their tgt to $7 from $8 saying weakness in the quarter was attributable to weak advertising trends for PC manufacturers, as well as a faster decline in Webshots revenue.
Both the advertising spending environment for premium inventory and the organic growth of CNet's core sites are facing challenges. After the first quarter's results we reiterated our concern about the weakness in PC manufacturer advertising budgets. According to their research, PC manufacturers are not only pulling back their total ad spend, but also reducing their online allocation as a percent of the total spend due to a number of challenges within the PC industry. As management indicated on its conference call, growth in PC sales has not been stellar this year even with the Vista upgrade cycle.

In terms of the broader environment, the firm believes that CNet is also facing the same negative secular trend that Yahoo! mentioned on its earnings call, which is the explosion in user generated content that is providing advertisers more alternatives, even if the available inventory was not as premium in quality.

Notablecalls: CNET missed on almost every metric. I think it's an increasingly tough environment out there (confirmed by YHOO and TSCM's lousy subs numbers) for original content providers that rely on advertising to drive revenue.

I think CNET's best hope here is to get bought by a larger player. But who would want to buy CNET around current valuation?

Anyway, I think that if you can get some stock short tad below the $8 level, you'll make money shorting today.

Celestica (NYSE:CLS): Color on quarter

Several firms comment on Celestica (NYSE:CLS) after the co released its Q2 results last nigt:

- Citigroup notes Celestica’s June results and outlook were better than expectations. The stock was up +3.5% in after hours trading (after trading down 4% during market hours) as some investors had expected a large miss this quarter, but instead the company showed slow and steady progress.

Firm says CLS saw q/q growth in most of its end markets including telecom, server, industrial/defense/aerospace, & consumer/auto/medical; Also closed 3 additional Mexico inventory warehouses bringing its number in this location from 7 in March to 4 in June; & decreased inventories in Mexico by 45%; Inventory work down of -11.6% or -$126m compares favorably to SeptQ sales outlook of +3-16% q/q.

On the negative side, despite significant restructuring & employee reductions Celestica's profitability has not improved much — operating margins at 1.1% (up from 0.3% last quarter) remained below EMS average of 2.3%; Mexico operations continue to disappoint and are a quarter behind management’s expectations.

Firm maintains Hold rating and $7.50 tgt representing 31.6% upside.

- Banc of America notes they believe management is making progress streamlining operations despite continued challenges in Mexico and Europe. 2Q07 revenue of $1.94B was in-line with our/consensus view, while EPS of $0.02 (ex-items and pre-options) beat by one cent on a slightly better-than-expected operating margin of 1.1% (versus BAC's 0.9% estimate and 0.3% in 1Q).

Celestica guided to 3Q07 revenue/EPS of guidance of $2.1B/$0.08 (midpoints) compared to BAC's $2.05B/$0.04 and consensus of $2.06B/$0.06. Management confidently stated that the company would deliver Q/Q improvement through year-end, even in Mexico, and seems unconcerned about losing business with top ten customers. They watch for further improvement. Firm's 2007/2008 EPS estimates increase to $0.17/$0.60 from $0.09/$0.46 (pre-options) on lower operating expenses. Tgt is upped to $6.50 from $6.

Notablecalls: Looks like CLS managed to squeeze out results that were better than expected. The stock has taken a bad beating and I think that at least some shorts were caught off guard.

While I aknowledge the lack of improvement in Mexico and Europe, I think CLS may be in the early stages of margin recovery. They are closing down warehouses and cutting inventory. Management sounded optimistic regarding Q3 saying they hope to realize some relief in Mexico during Q3/07 due to benefits from programs that have been shifted to Asia, higher consumer revenue from existing programs and the elimination of several million dollars in Q2 customer disengagement costs.

I expect to see upside on CLS today. Note that CLS's tangible book value is $5.20. Tangible book value has historically represented a trough valuation during chellenging times.

Paperstand (INTC, AMD, TKC)

The WSJ reports that Kohlberg Kravis Roberts may have to postpone its IPO. As flagging debt mkts bring the private-equity boom to a halt, the likelihood that KKR will have to postpone its IPO is increasing. Jeff Arricale, of T. Rowe Price, said he doubts KKR will be able to find enough investors to pull off an IPO if current mkt conditions continue. "Sure, at some price it is possible to do it, but I'd be shocked if they end up doing this IPO."

According to the WSJ, European antitrust authorities charged Intel (INTC) with illegal tactics in competing against AMD (AMD). AMD has filed its own antitrust suit against Intel, while trying to persuade govt regulators to intervene. The European Commission Friday said Intel's offerings of cash payments, rebates and discounts to manufacturers who use its chips was part of a "single, overall anticompetitive strategy."

Barron’s Online discusses Turkcell (TKC), saying that with a valuation not much higher than Verizon Comm', but with considerably higher growth prospects, Turkcell seems to be a property that will remain desirable for some time to come. "It's a high growth asset over the long term, it's important to have that kind of asset," says Joergen Vrenning, of Catella Fonder.

“Inside Scoop” section reports that Douglas Mackenzie, a Safeway (SWY) director since Mar’05, plunked down roughly $980K to purchase 29K shares on the open mkt on behalf of the venture-capital firm he manages. His purchase was the largest in dollar value and share count among insider buys since ‘01. This spate of buying appears to stand in opposition to the robust insider selling in recent mo’s. In the past 90 days, CEO Steven Burd and 4 other top execs grossed $15.4m by disposing of 441K shares. Before the sales the execs had exercised $8.4m in options for 451K shares. Mark LoPresti of Thomson Financial, says that for a co where its mkt cap has gained more than $3bn since ‘02, the $15m in sales look meager.

Thursday, July 26, 2007

Mattson Tech (NASDAQ:MTSN): Amtech downgrade

American Tech Research has downgraded Mattson (NASDAQ:MTSN) to Sell from Buy saying weaker bookings outlook vs. its fab toolmaking peer group, reflects discretionary bookings from memory chipmakers given shortened tool lead times and niche dry strip and RTP product. Firm notes it is too early to tell if MTSN could be viewed as the new canary in the coal mine for this industry.

Notablecalls: Looks like Amtech gave up waiting for GM expansion. The stock is trading below yesterday's close in pre-market. Please scroll down for more color.

Apple (NASDAQ:AAPL): Piper Jaffray on Q2 results

- Piper Jaffray comments on Apple (NASDAQ:AAPL) following results saying the co shipped 1.76m Macs in the June quarter, and the Street was expecting 1.61m units. Clearly, Apple's core business, the Mac business, is strong.

Apple shipped 9.8m iPods in the June quarter, and the Street was expecting 9.87m units. It is clear that Apple's second core business is also strong. Surprisingly, iPod ASPs remain flat at $160. This is evidence that the digital media player market remains healthy.

Apple reported sales of 270k iPhone units in the last two days of the quarter. While the firm believes this number is in line with revised Street thinking, they view the result as a positive. More importantly, Apple expects to ship 1m total iPhone units by the end of the Sept. quarter and reaffirmed its expectation of 10m iPhone units by the end of CY08.

While they are lowering their iPhone unit numbers for Sept. from 1m to 800k, they are not changing outlook for iPhone sales beyond the Sept. quarter. Firm's belief all along has been that there is a surge in iPhone sales coming, but that the inflection point is hard to predict.

Several times on last night's conference call, Apple indicated that there are product transitions coming in the Sept qtr. Firm believes there is an 80% chance that this product transition is the new iMac and a 40% chance it is related to both the iMac and the iPod.

Maintains Outperform and ups tgt to $211 from $205.

Notablecalls: I don't see a trade here. As Piper is the most important firm covering AAPL (they always seem to be at least one step ahead with their est/tgt raises. Take their $205 tgt a week back while others were still around $150-$160. Deutsche is taking their tgt to $200 today, btw) I thought NC readers would enjoy the deets.

Mattson Tech (NASDAQ:MTSN): Color on results

Couple of firms comment on Mattson Tech (NASDAQ:MTSN) after the semiconductor equipment maker released its Q2 results last night:

- Citigroup maintains their Hold rating and $11 tgt saying EPS (GAAP) $0.22 was a dime ahead of their $0.12 model and still a few pennies better ($0.15 GAAP, ex-charges) after normalizing for onetime DNS royalty revs and tax charge. Upside driven primarily by combination ofbetter revs and opex partially offset by slightly lower margins. Orders $71MM (-13% Q/Q) or slightly better than Citi's $65MM model, but guidance light as they previewed (although not quite as bad) as orders down 5-10% Q/Q. Particularly disappointing is margins (a recurring theme here).

New strip/RTP prdcts simply do not appear to have very good margins as MTSN’s core prdct margins in F2007 on pace to barely exceed peak margins from F2004 on much better revs; big memory exposure hurts near-term and probably a drag on C2008; competitive landscape in strip stronger w/new offering from NVLS + PSK getting even stronger in Korea.

While MTSN should grow faster than most peers in C2008 due to new markets, margin performance has failed to convince the firm that there is much leverage here. Does not see the $1 in EPS power that is needed for a more constructive view.

- Deutsche Bank also maintains their Hold rating and $9 tgt saying Mattson reported 2Q07 revenue and EPS that were largely better than expected, but fell short on bookings as the memory spending slowdown dampened equipment demand. The company's outlook was notably lower than expectations for the second half of 2007. Firm believes Mattson is leveraged to memory chipmakers in both major product lines (RTP and dry strip), and expects business to slow meaningfully over the near-term.

Notablecalls: MTSN stock traded up over 10% in after hrs action in reaction to seemingly good revenue and EPS/Gross Margin performance. Yet, it looks like most of the upside was due to a non-sustainable royalty payment from DNS.

To me it looked like daytraders looking for a quick buck on a "beat" bid up the shares. That is, until poop hit the fan as the conf call started. The tone of the call was pretty cautious, with management actually taking down their revenue guidance. The haircut in guidance looks pretty massive (60-65 mln in revs, $0.05-0.07 in Q3 vs. consensus of 78.4 mln and 0.15). To make things worse, management yet again had a cautious tone regarding gross margins guiding Q3 to 41-43% saying new products just didn't have the expected margin profile. That's bad because MTSN has been a GM story for the past 18 months. The rest of the group has GM of around 50-60% and MTSN has been lagging badly. Investors have been waiting for new products to help GM but now it looks like no help coming from there.

MTSN does not command a sky-high valuation, but based on commentary provided by management and comments by the analyst community, I see no reason why the stock should be up today. The stock had run up with the rest of the semis and I expect the results to retrace some of these gains.

My call today is to short MTSN above yesterday's close of $11.19 (last prints were around $12 in after hours) as I suspect it will see red today. Adjust your stops based on this risk-reward profile.

Paperstand (KFT, AXP, ELY, IBM)

The WSJ reprots that Berkshire Hathaway (BRKA) has acquired a small stake in Kraft Foods (KFT), joining veteran Wall Street raiders Carl Icahn and Nelson Peltz as investors in the co. The Berkshire stake, which is less than 5%, predated news of Mr. Peltz's activist position last month. It is unclear whether Mr. Buffett sides with the activists or with the mgmt, but he has a history of betting on co’s that have strong brands and are comeback stories.

“Heard on the Street” discusses American Express (AXP), saying that the co is growing at a record pace, and that is making some investors nervous. Although most credit-card issuers would salivate to achieve the 21% loan growth that AmEx notched in the 2Q, the leap contributed to a steep selloff in its stock this week. The concern is that the co is increasing its exposure to consumers at a time when some of them may have trouble paying their bills. But many investors and analysts remain bullish on the co's prospects, saying the recent drop doesn't reflect AmEx's ability to attract the nation's most-creditworthy consumers who are putting more of their purchases on plastic. And as spending levels on AmEx cards continue to rise, they say, the co's core business of processing transactions will keep churning out strong results. "Has American Express made a massive mistake on evaluating the creditworthiness of their borrowers? I don't think that's likely," says Henry Asher, of Northstar.

Barron’s Online discusses Callaway Golf (ELY), saying that while the stock has soared to its highest levels in a decade in response to consumer demand and restructuring initiatives, it could swing lower as the peak summer season wanes amid continued concern about overall consumer discretionary spending. Discounting of golf-club prices, delayed in part by the 1-mo recall of Nike's new square-shaped driver, is also expected to tee off in the coming mo’s. In addition, Callaway is still in the midst of turning around Top-Flite Golf. Callaway execs have also made their first and largest insider stock sales in years, indicating that there may be limited upside in the near term. The stock is up 39% in the past 12 mo’s, vastly outperforming peers. The stock is trading 19.8x ests for the next 4 qrtrs. Tim Conder, of AG Edwards, says the lackluster reaction is because "2007 will create tough comparisons for 2008, and ppl are just noticing the significant amount of YTD insider selling."

“Inside Scoop” section reports that while Wall St. saw the IBM (IBM) qrtrly results as a catalyst for further gains, two longtime IBM execs used the postearnings window as a chance to sell stock. SVP Linda Sanford sold nearly 75% of her IBM stake, or 12K shares. Sanford took in over $1.4m through the sale. Additionally, Steven Mills, SVP and group exec for software group, sold 20K shares for $2.3m. Mills is one of IBM's most predictive sellers, which indicate that Big Blue's shares have fallen by an avg of 5.1% in the 6 mo’s following Mills' seven prior sales. Yet, Ben Silverman, of InsiderScore.com, says the recent sales are not large enough to raise concern. "This is one of those situations where the activity is modest. It's trumped by the stock performance and the co's results," Silverman says. "And by who the co is."

Wednesday, July 25, 2007

Nutrisystem (NASDAQ:NTRI): Citigroup defending

- Citigroup is out on Nutrisystem (NASDAQ:NTRI) reiterating their Buy rating and raising their 07-09 EPS ests by 10c, 11c, and 12c, given updated guidance.

On conf. call, mgmt mentioned some weakness during last few wks of Price (24 Jul 07) June/first few wks of July possibly due to launch of the OTC drug Alli. As a result, 3Q EPS guidance was 77c-82c vs FC of 89c. Citi thinks these concerns will be short-lived due to the potential side-effects of Alli. NTRI trends have improved over the past week. In addition, they believe that mgmt has historically been conservative and have consistently delivered on results.

NTRI was down over $9 in aftermarket last night. They would use return this opportunity to aggressively acquire shares based on their belief in the long-term business model, management's historically conservative guidance and attractive valuation.

Tgt is cut to $90 from $96 due primarly to multiple contraction by peer group.

Notablecalls: Scroll down for initial comments.

NutriSystem Inc. (NASDAQ:NTRI): Expect the stock to bounce

- NutriSystem Inc. (NASDAQ:NTRI) reported a higher quarterly profit mainly on growth in its core women's market but guided third-quarter below analysts' view, sending its shares down over 15 percent in after-market trade. In a conference call with analysts, the fitness products company said it saw some slight softness in demand starting in late June and carrying into early July. The launch of a new over-the-counter weight loss pill from GlaxoSmithKline Plc has had an effect, it added:

- First Albany notes that while they are disappointed to see the aftermarket action in NTRI shares, they are relieved to see more cautious guidance than management offered for 2Q:07 (granted, which it went on to beat.) Aggressive 2Q:07 guidance no doubt created momentum and expectations for 3Q:07 that were unrealistic.

NTRI shares will likely be very weak today on 3Q:07 guidance perceived as weak. However, financial and operational trends evident in 2Q:07 results speak of exceptional fundamentals. Revenue, gross profit, operating income, EBITDA, and net income exceeded firm's forecasts by 8%-12% each. First Albany's 2007 revenue and EPS estimates go to $826.4 million and $3.49 from $800 million and $3.39. respectively. 2008 revenue and EPS estimates go to $1.062 billion and $4.55 from $953.5 million and $4.01, respectively.

Also, NTRI trades like a fad diet, when in fact, it's a viable weight loss service. NTRI shares currently trade at approximately 14x 2008 EPS estimate (and may open today at 12x) vs. 17x for a peer group and 18.4x for Watchers International (WTW). NTRI's P/E/G ratio is 0.5x vs. 1.2x for the peer group and 1.3x for WTW.

Firm notes they don't know when the market will reward NTRI the premium multiple it deserves vis-à-vis WTW, but they can't see NTRI shares trading ata sub-0.6x PEG ratio if the company achieves 2H:07 expectations.

Maintains Buy and $75 tgt.

Notablecalls: This stock is cheap compared to its growth rate. You have a momo stock trading 12-13x next years EPS this morning. I suggest you grab it.

Not only is it cheap, it has catalysts ahead: 1) The men's & seniors' line is still in its infancy 2) NTRI is only starting its Canadian expansion 3) They are coming up with new kinds of foods.

NTRI has been around over 25 years. It's not a fad. It does not deserve the discount vs. other diet plays that are growing WAY slower.

I would pay $56 for it this morning and have a big smile on my face. It's going to bounce! I think the stock remains in Actionable territory until $58-$59.

PS: I'm hearing Lehman is out with a downgrade on NTRI taking their rating to Equal Weight from Overweight. That's just stupid but may get you a nice price early on!

Apple (NASDAQ:AAPL); RBC comments on iPhone numbers

- RBC Capital comments on Apple (NASDAQ:AAPL) saying their channel checks suggest sustained iPhone momentum. Current checks at Apple and AT&T retail stores in major US cities suggests, contrary to concerns, iPhone demand/sales momentum remains steady, following the huge initial surge in iPhone sales 1st weekend of launch. Replenishments appear to have restored Apple store iPhone inventory to 90%+, and checks show AT&T stores have stock. Early activation issues appear largely resolved and returns appear to have been minimal to date.

AT&T Reported 146k Activations Q2, implying sales only slightly light to RBC's 450-500k Q3 Sell-in Estimate. AT&T reported 146k iPhone activations Q2 (June 29 and 30). However, this may not reflect Apple's true Q3 sales, as AT&T excludes iPhone buyers who experienced activation delays (up to 40% - 50% of est. buyers), as well as additional units sold but not activated until after the weekend, as well as those purchased for gifts, and non-US buyers. Incorporating these factors suggests Apple may have sold 350-450k iPhones to users the first weekend.

Given Apple will report iPhone sell-in Q3 (i.e. sell-in to AT&T, sell-through online and Apple stores), Apple may report 400-500k iPhones sold Q3 (2 days ended June 30).

They would accumulate the stock; expect Apple to resolve the connectivity/pricing issues and subsequently reinvigorate iPhone sales through new launches at attractive pricing and faster network technology; as well, they expect subsequent Mac/ iPhone momentum to overcome margin concerns.

Notablecalls: RBC's comments regarding AT&T excluding iPhone buyers who experienced activation delays from their yesterday's iPhone number make sense. I suspect these comments will generate some covering/buy interest in AAPL stock early on but I'm not entirely convinced it's enough to generate a meaninguful bounce today ahead of earnings.

Paperstand (DADE, DCX, CFC, HD, MAR)

According to the WSJ, Dade Behring (DADE) has been sounding out potential buyers of the co and could be close to striking a deal. A number of strategic buyers are possible for the co. One co that is a likely candidate is Siemens (SI). The situation remains fluid and could well fall apart. Dade is scheduled to report 2Q results today.

According to the WSJ, Chrysler's (DCX) attempt to tap debt mkts for $20bn hit a critical juncture as bankers began discussing the likelihood that they will have to step up with a large part of the money because investor demand hasn't been strong enough. The financing is being watched closely in Detroit because the Big Three and a horde of auto-parts suppliers have depended on tapping debt mkts for low-interest loans and bonds in a wave of restructuring and asset sales. "Low interest rates and plentiful capital are the key enablers to Detroit's restructuring," said John Casesa, of Casesa Shapiro Group.

According to the WSJ’s “Heard on the Street” column, the dips, twists and turns taken by Countrywide Financial's (CFC) share price over the past year and a half would make even the biggest roller-coaster fanatic a bit squeamish. And that was before yesterday's plunge, which sent stock of the nation's No. 1 mortgage lender down to its lowest point since late ‘05. Behind the ride has been a faith among many investors that Countrywide's lending smarts would protect it from the worst of the mortgage mkt's woes. Every time the stock fell, investors jumped in and drove the price back up. Yesterday, when Countrywide reported a 33% drop in 2Q earnings and said the losses were due to defaults of prime, rather than subprime, loans, investors' belief was shattered. Now, Countrywide is being lumped in with the rest of the battered mortgage industry, and many investors are betting it has further to fall. The co's CEO, Angelo Mozilo, said the mortgage business won't recover until ‘09. "It's clear the worst is likely still ahead of us and not behind us in terms of the mortgage credit environment," says David Honold, of Turner Investment Partners.

Barron’s Online out saying that while US housing mkt remains troubled, efforts to fix up Home Depot (HD) could get the retailer back on track. Certainly, critics have reason to hammer the stock, which has fallen over 13% in the last 2ys amid crumbling co sales and profits, rising competition and shoddy customer service. Yet, at its current valuation, Home Depot offers a compelling opportunity for patient investors. The co's shares could even double in value in the next 3ys, thanks to a mammoth corporate stock-repurchase campaign, store upgrades, and cash flow and profits starting to grow again. "If you look beyond the current housing environment, Home Depot remains a solid co," says Allison Fisch, of Pzena Investment Mgmt. "The share repurchase will support the stock short term, while efforts to improve the retail experience pick up steam."

“Inside Scoop” section reports that 2 Marriott (MAR) insiders sold nearly $5m in stock last week. Stephen Weisz, president of Marriott Vacation Club Intl, on Fri sold 55K shares for $2.5m. Also last week, Richard Marriott, a former director and officer of the hotel co and the brother of Chmn and CEO J.W. Marriott, Jr., sold 54K shares for $2.4m. Recent sales by Weisz and Richard Marriott have kept insider sentiment at Marriott below that of peers. Marriott scores a 2 on Thomson Financial's 10-point insider-rating scale vs 4.9 for the lodging sector.
And Thomas Weisel Partners analyst Jake Fuller sounded a note of caution recently. In a note Fuller wrote, "We maintain an Underweight rating on the stock, reflecting concern that slowing RevPAR could lead to further multiple compression and est revisions."

Tuesday, July 24, 2007

Apple (NASDAQ:AAPL): According to CIBC iPhone has seen a significant decline

- CIBC's Ittai Kidron is out with monster call on Apple (NASDAQ:AAPL) saying based on their store checks, they believe that demand for the iPhone has seen a significant decline in the past 10 days. CIBC has noticed decent inventories at stores, and thin demand at best. In fact, most Apple store visitors were not looking at the device and only a very small subset bought it.

With the weakness, they wouldn't be surprised to see AT&T and Apple step up their marketing efforts. Firm's channel checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected.

Recent survey of iPhone buyers suggested that the key shortcoming of the current device is its poor data connectivity (EDGE). This isn't a surprise and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. CIBC now believes the "improvement" could come soon.

Notablecalls: AAPL stock is going to get hit today. Big time! Positive iPhone flow has driven AAPL up 50 bucks over the past months. CIBC's call will erase some of this. I expect to see 5 bucks of downside today! Actionable call! Short at will!

PS: Note that ThinkEquity upped their tgt on Synchronoss (NASDAQ:SNCR) yesterday to $44 from $36 based on increased expectations for the iPhone. The stock was also added to Think's Top Picks list. SCNR has enjoyed a nice run, fueled by iPhone flow. I would not be surprised to see weakness in SCNR following CIBC's call.

Monday, July 23, 2007

Cymer (NASDAQ:CYMI): Two firms out negative

Two tier-1 firms are negative on Cymer (NASDAQ:CYMI) this morning:

- Banc of America is cutting their revenue estimates, assuming CYMI's 2008 shipped market share will erode to the 60 percent level in 2008 from 75 percent in 2007. Gigaphoton, the Japanese competitor, is now competitive in the high end of the market, in firm's view. They think the company has qualified its immersion laser at several of the large chip makers. ASM Lithography and Nikon are also pushing Gigaphoton harder to deflect price increases and less favorable spares and service deals now being offered by Cymer. FY08 revenues go from $555 million to $515 million ($596 million consensus).

CYMI's strategy of increasing its technology leadership is not working, in BAC's view. Needless to say, CYMI's target of achieving mid-50's margins is probably unrealistic as it loses market share. Tgt is cut to $38 from $39. Neutral.

- Morgan Stanley notes their checks at the SEMICON West last week reaffirm their Underweight rated thesis on the stock. With the stock underperforming significantly since early March, they were hoping to hear constructive news flow at the show on market share, XLR500i adoption, and 2H07 DRAM immersion opportunity. However,checks were incrementally more negative on all these fronts. Consequently, the firm sees further downside to their/consensus estimates in the near-term.

Checks suggest that Cymer's market share loss is still far from reaching a trough with Gigaphoton likely to expand its share to ~40% this year. MSCO believes Gigaphoton's new GT61A immersion laser has been qualified at both ASML and Nikon. This shows that Gigaphoton has further closed the technology gap with Cymer in their view. In addition, checks also reveal poor adoption of Cymer's next generation XLR 500i laser at the OEMs. Firm recalls that XLR500i is Cymer's 45nm volume production laser intended to leapfrog competition.

Notablecalls: These comments are likely to hurt the stock today. While CYMI has underperformed the sector over the past 6 months, it increasingly looks like there will be sizable downside to current consensus estimates. Also note that ASML Holding (NYSE:ASML) a large customer of CYMI's posted a significant miss in terms of new machine order intake for the quarter.

CYMI isn't exactly expensive here but I do think we may see couple of bucks of downside today and over the next couple of days.

RadioShack (NYSE:RSH): Jeffco calling for a bounce

- Jefferies is out with an interesting call on RadioShack (NYSE:RSH) saying consensus estimates for the electronics retailer are likely too low. Firm thinks we could see as much as $0.05-$0.10 upside to the consensus 2Q07 EPS estimate of $0.24 their estimate is $0.30. Also, the consensus FY'07 EPS estimate of$1.49 and their $1.55 forecast could be as much as $0.15-$0.20 too low. It should be noted that management has provided little insight and did not update its original "low-ball" EPS guidance of $1.00-$1.20 for FY07.

As a result of a recent 13% sell-off and the potential for 2Q07 EPS to beat current consensus expectations, they think Shack shares could rally around next Monday's (7/30) earnings report. That said, in the days following Shack's 2Q07 earnings report, as estimates are revised and future earnings expectations are reassessed, the firm thinks that many of the momentum investors driving the stock will be more inclined to look for the exits than to add new positions.

Maintains Underperform rating as they continue to believe that the majority of opportunities to improve profitability have been identified. Moreover, RadioShack's competitive positioning and customer relevance are likely to continue to erode.

Notablecalls: This is certainly one controversial call. But I love the chart! I love the comments regarding the possible sizable beat. The thing has a 23% short interest! It's down 13% in a relatively short period of time.

Despite Jeffco's cautious comments regarding valuation and lack of opportunities to improve ops, I think the stock goes up from here. The firm is just looking to cover their backs in case the stock should go down. It won't. I expect to see a nice bounce.

NavTeq (NYSE:NVT): TomTom to buy Tele Atlas!

Dutch navigation systems company TomTom plans to buy its main map supplier, Tele Atlas, for 1.8 billion euros ($2.5 billion), hoping tight integration of maps and products will give it an edge over competitors. The offer is supported by Tele Atlas and represents a 32 percent premium over the Tele Atlas average share price in the last three months, the companies said. Tele Atlas had generated around 40 percent of revenue from TomTom in the second quarter.

The companies said they could effectively turn TomTom's installed base of more than 10 million navigation devices into automated map surveyors, which would improve maps and allow new features such as daily map updates and intelligent routing. Tele Atlas will act as an independent business unit and continue to supply other manufacturers with digital maps and related data, the companies said.

Notablecalls: The news will likely have positive effect of NavTeq's (NYSE:NVT) stock price. Despite the initial turmoil, NVT has managed to rally nicely following my Actionable call alert on June 25 (see archives). I'm hearing UBS is upping their rating to Buy from Hold this morning, which should put some additional fire under the stock.

I think TomTom's aqcuisition of Tele Atlas shows that the navigation device makers have realized that the co's that control the mapping business will control the whole PND business. NavTeq is the largest provider of maps and I think today's news will put it in play.

Likely suitors include Microsoft, Google, Nokia among others.

Considering NVT's recent run, I would not be surprised to see the stock pull back after the strong open. But overall, it looks like upside from here for NVT.

Paperstand (URI, DISH, DNA)

According to the WSJ, Barclays (BCS) will use cash infusions from China Development Bank and Temasek Holdings to increase its offer for ABN (ABN) and offer more cash. Barclays is increasing its offer for ABN to €67.5bn ($93.34bn), an increase of €2.9bn. Additionally, Barclays, which had made an all-stock offer, is changing its offer to 37% cash. In total, Barclays is offering €42.7bn in Barclays shares and €24.8bn in cash.

The WSJ reports that Cerberus Capital Mgmt was near a $4bn deal for United Rentals (URI) late yesterday. A deal has been widely anticipated, given that United said in April it was seeking a buyer. Cerberus will pay $34.50 per share for United.

According to the WSJ, today, Microsoft (MSFT) will announce new policies and technologies to protect the privacy of users of its Live Search services, say execs. The co, along with IAC/InterActiveCorp's (IACI) Ask.com, will also announce plans to try to kick-start an industrywide initiative to establish standard practices for retaining users' search histories. Meanwhile, Yahoo (YHOO) this week will begin detailing its plans for a policy to make all of a user's search data anonymous within 13mo’s of receiving it, except where users request otherwise or where the co is required to retain the information for law-enforcement or legal processes.

According to the WSJ, EchoStar (DISH), estimating that its signals are pirated at 2m residences across N-America, has gone on the offensive by filing suit against a Southern California distributor of set-top boxes and others it accuses of masterminding such schemes. The suit accuses the defendants of selling equipment and software designed to circumvent the co's security systems. Industry analysts est, that stolen programs may result in lost rev of more than $1bn annually for EchoStar.

“Heard on the Street” column discusses Genentech (DNA), saying that the stock of the co could languish for mo’s as sales growth slows for Avastin. And new rev opportunities for its existing stable of medicines likely won't materialize until at least the end of the year. What investors once viewed as a potential catalyst, Genentech's first acquisition, also has turned out to be more of a pain than a salve. Stumbles over regulatory issues have delayed the closing of the agreement to buy Tanox. And some bearish investors have speculated that the transaction might never get done. While Genentech is inexpensive on a historical basis, "a cheap-looking valuation can be a trap before new growth drivers emerge," warns Jim Reddoch, of FBR. High biotech-stock valuations are "like a fire that needs more wood to keep it going," says Tom Vandeventer, of Tocqueville Asset Mgmt. "A lot of the catalysts that might move the stock higher are visible but aren't close at hand before year's end."

Sunday, July 22, 2007

Barron's Summary (PBCT, AKAM, IBM, SXT, KAMN, AMAT)

Barron’s “The Trader” column discusses People’s United Financial (PBCT), whose stock has slid 16% over 3 mo’s. Article suggests that this is good-entry point for many reasons. Its stronghold in Connecticut's moneyed, suburban sprawl is miles from the housing woes of Florida, Nevada and California. "Excellent core deposits and strong funding rates make it a lot less dependent on interest rates," says Anton Schutz, of Burnham Financial Services Funds. Valuation also is attractive, with shares trading at 1.8x BV, or 19.6x forward earnings. Those profits will be further boosted next year after People's absorbs Chittenden, which has 133 branches throughout New England. Stifel Nicolaus says the stock is worth 24.

“The Trader” highlights Akamai (AKAM), whose shares are down 15% since Feb. Recent competitive concerns are valid, but overdone. Rivals like the newly public Limelight (LLNW) offer a viable, cheaper alternative. But Akamai has a vast global network of more than 20K servers that often sit on providers' premises, and offers speedy and guaranteed delivery for which customers willingly pay a premium. That's one reason why clients turn to Akamai. At about 49, Akamai shares trade at 29x forward earnings, still reasonable given its product sweep and early-mover stronghold in this fast-growing mkt. Analysts see profits rising to $1.28 in ‘07 and $1.71 in ‘08. FBR has a price tgt on the stock of 64.

“The Trader” also sees more gains ahead for IBM (IBM), whose shares last week soared to 116, its highest level in 6ys, after Big Blue reported that 2Q earnings. More gains lie ahead. Spending is growing in the US and trailing 12mo signings is up 18%, Sanford C. Bernstein observes. "The 2Q07 showed the best growth in Sam Palmisano's 5y tenure at the helm," Bob Djurdjevic, of Annex Research, wrote. "IBM is likely to sustain its growth for some time to come." What's the stock worth? At this very moment, Bernstein's A.M. Sacconaghi pegs fair value at $125.

Fund manager likes LVS, BBY, BBBY, KSS and VIA.

The shares of Macy’s (M), now about 42, could fetch more than 52 in a takeover. And there's ample room for the current management to improve marketing and cut costs.

Kaydon's (KDN) shares, up smartly this year, could climb another 20% to 155 in the next 12 months, powered by high-margin products in growth markets. The dividend may rise, too.

Buyers have paid rich premiums for stocks recommended by some of Barron’s Roundtable members. The sellers are reinvesting in other favorites, or staying liquid. Roundtable member Mario Gabelli says that Sensient Tech. (SXT) could be bought within a year and Kaman (KAMN) bearing business could draw suitors. For Citigroup (C), John Neff Sees 20-25% upside in a year.

According to the “Plugged In” column, in a research note entitled "Solar Review: The remaking of Applied Materials (AMAT)," Credit Suisse analyst Satya Kumar argues the co has the "makings of a bn-dollar [solar] business." After meeting recently with the co's solar division head, Kumar says he came away "more confident" about Applied's solar prospects, and predicts it will become a $1.5bn business by 2010. The analyst is assuming AMAT will capture about 30% of what he predicts will be a $5bn solar-equipment mkt. Even for a seasoned tech giant that would be a pretty ambitious ramp for a relatively new business. Kumar concedes that today's investors in Applied essentially are buying futures on the co's solar business of tomorrow. "Applied Materials' solar [business] doesn't deserve an exorbitant multiple today, but this comprehensive growth strategy has the potential to drive multiple expansion over time," he says. Kumar argues it is "not unreasonable" to pay 20x earnings for Applied's shares. Today Applied trades for about 16x ‘08 estd earnings.

Friday, July 20, 2007

Polycom (NASDAQ:PLCM): Kicking myself...

Kicking myself for not highlighting Polycom (NASDAQ:PLCM) as a shorting opportunity this morning. General expectations were high coming into the qtr and product revs were worse than expected.

Oh well...


Apple (NASDAQ:AAPL): Piper ups tgt to $205!

- Today is an important day for Apple (NASDAQ:AAPL). Piper Jaffray is out with a call upping their tgt to $205 from $160 saying they have developed a model that includes iPhone booked revenue and AT&T revenue sharing that results in an additional $2.49 to their published CY09E EPS of $4.82 for total estimated EPS of $7.31.

Firm believes Apple and AT&T have an iPhone revenue sharing agreement. Although they do not know the details of the agreement, the firm estimates that AT&T gives Apple $3 per month (during the 24-mo. contract) for every customer using the required data plan and an additional $8 (total $11) for every new subscriber that transfers service to AT&T.

Piper emphasizes that their revised target is based on Apple's ability to do 45m iPhone units in CY09 and has little to do with iPhone sales in CY07 and CY08. One thing they learned with the iPod is that when a device is game-changing, the demand will come. However, it is difficult to predict the inflection point. For example, in December 2004, Street expectations for iPod ran wild with investors anticipating 8m iPods, but Apple only sold 4.6m. It was feared at the time that the iPod would never go mainstream.

Conversations with investors over the past month suggest awareness of potential for iPhone units is high, but awareness of potential resulting impact to earnings is low. If Apple can sell 45m units in CY09, the earnings power and historical multiple ranges suggest $205 price target is reasonable.

Notablecalls: This is the first above-$200 tgt on AAPL. The stock is in a strong uptrend and I think Piper's call will be greeted positively by traders this morning. The call may be worth several points of upside as iPhone flow continues to be the main thing moving the stock. Be ready to pay up early on.

Google (NASDAQ:GOOG): Color on quarter

Several firms comment on Google (NASDAQ:GOOG) after the co reported its Q2 results last night:

- RBC Capital has one of the best notes out there this AM saying GOOG's solid revenue growth was overshadowed by higher operating expenditures from aggressive hiring and a change in accounting for employee bonuses. However, management's decision to surprise investors with the accounting change drove the stock's negative reaction. It served as a reminder that Google remains an unconventional company with chronic investor communications miscues and unorthodox decision processes. RBC's revenue estimate for 2008 increases marginally, while our EBITDA and FCF estimates fall 2% and 5% respectively. On the bright side, international growth remained robust, capex was down modestly, and market share gains continue. Firm's price target remains $560.

Google apparently now accrues its bonus payments evenly throughout the year, instead of allowing the percentage accrual to ramp towards 4Q. That change was enough to shift an incremental $60mm to 2Q07 costs, mostly in the R&D and sales and marketing lines. Unfortunately, the management team did not endeavor to inform investors of this change until the 2Q07 report.

Maintains Outperform rating but expects shares to fall back to the 200-day MA of around $480 while investors debate the long-term implications of the earnings miss.

- Citigroup notes a very significant opex ramp as THE key issue - Core Opex (excluding a 1-timeish $60 bonus accrual adjustment) grew 16% Q/Q vs. the 7% net revenue growth. GOOG mngmt said they exceeded headcount plans, but the company is clearly investing aggressively. All opex lines were up big, but especially R&D.

Why NOT a Thesis Changer? - 1) Because GOOG's rev. results were intrinsically positive; 2) Because GOOG appears committed to greater opex discipline going forward; 3) Because GOOG is clearly increasing its Search dominance; 4) Because the markets GOOG is investing against (display advertising, Net apps, etc...) are large; & 5) Because valuation (32X '08 GAAP P/E) is reasonable.

Firm reits Buy and $600 tgt saying they are incrementally less positive as GOOG involves more opex Beta than expected. They expect GOOG to trade sideways near-term from $500 level. But GOOG remains Citi's #2 Large Cap Net stock Long idea.

- Jefferies notes that in typical fashion, management declined to give much visibility into margins going forward. Nevertheless, the firm believes that 2Q levels are a low water-mark for FY07 and beyond, since: 1) the change in bonus accrual yields a smoother distribution of payroll costs throughout the year, implying lower levels of operating expenses in 4Q vs. last year, 2) 2Q opex included a non-recurring catch-up of bonus accrual costs associated with 1Q07, and 3) CEO Eric
Schmidt uncharacteristically stated that the company will "keep an eye" on hiring going forward, implying a more balanced growth in hires and in revenues.

Reits Buy but cuts tgt to $595 from $610. Would buy on pullback.

Notablecalls: Looks like wage inflation is catching up with GOOG. The stock took a 40-50 pt haircut in after hours action, yet we have almost all firms defending it this morning.

I think this is the type of stuff the buy side has feared for some time already. While in s-t I think GOOG may get a bounce and retrace upto half of yesterday's decline, the 200 day MA will come in play over the next couple of weeks.

Paperstand (SLB, XOM, AA)

The WSJ’s ”Ahead of the Tape” column out saying that many energy stocks are still cheap. It's true b/c investors all along have been pricing these stocks as if the surge in energy prices was temporary. Investors also have been wary of hot sectors after getting burned by the dot-com bubble. The avg forward P/E ratio for shares in the Philadelphia oil equipment and services index is 15. That's below the 10y avg of 21x. The overall P/E multiple for stocks in the S&P 500 index is 16. Schlumberger (SLB), one of the biggest components of the oil-services index, reports 2Q earnings today. Analysts expect it to post net income of 95c a share, up 30%. Schlumberger's stock is more expensive than its peers, valued at 19x the next 12mo's earnings. But it's still below the co's 10y avg of 22. Exxon Mobil (XOM) has a FP/E multiple of 14, below the 10y avg of about 18. The energy stock rally might not be over if energy prices remain elevated. The IEA says oil supplies in the next 5ys will be tighter than it once thought, with global oil demand rising at a 2.2% pace per year. That forecast is based on the assumption that the world's economy will grow at an annual pace of 4.5%. A wild card in all of this is China, whose phenomenal growth has been a big contributor to the surge in energy prices. If China cools off, that could change the energy-demand dynamic. But China doesn't show any signs of slowing down, its economy surged 12% in the 2Q. If that pace keeps up, it should keep the fire lit under energy prices, and the shares of energy co’s.

Barron’s Online “Inside Scoop” section reports that the withdrawal of Alcoa’s (AA) offer to purchase Alcan (AL) has sparked a slew of insider selling at Alcoa. From July 13 to 17, four senior execs grossed $41.3m by selling 877K shares on the open mkt. The sellers were: Lawrence R. Purtell, general counsel; Bernt Reitan, group president of Alcoa's Global Primary Products; Joseph Lucot, corporate controller; and Paul Thomas, group president of Alcoa Packaging and Consumer Products. Ben Silverman, of InsiderScore.com, notes that Alcoa insiders tend not to be big sellers, and the sales over the past week have been the largest since ‘03. While the dollar amount of these sales was large, "what was interesting was the strike prices on the options were pretty high" and they still had a lot of life yet, Silverman adds. Most of the options had expiration dates stemming from 2009 till early 2013. With options priced into the low-$40 range, the premium was "certainly not as big as you are used to seeing." The selling of pricey options by insiders means that it is "probably not a bad idea for investors to take some profits" as well, says Silverman.

Thursday, July 19, 2007

Quick color on Sprint Nextel/Clearwire WiMAX deal

Sprint Nextel (NYSE:S) and Clearwire (NASDAQ:CLWR) said they plan to jointly construct a nationwide mobile broadband network in the United States using WiMAX technology. Sprint Nextel expects to commence the initial stage of its mobile WiMAX network deployments by year-end 2007 and both companies expect to launch commercial service in the first half of 2008.

Notablecalls: This news is going to put fire under the WiMAX equipment makers such as Alvarion (NASDAQ:ALVR) and Airspan (NASDAQ:AIRN). In FY06, Airspan was the second largest supplier of WiMAX equipment, behind Alvarion, with an estimated market share in excess of 26%. The WiMAX market is expected to experience significant growth over the next several years. Sky Light Research estimates that the total market for WiMAX products in FY06 was $158mm. However, Gartner projects that the market for WiMAX equipment will increase to $6.2bn by 2011. Airspan has projected that its WiMAX revenues in FY07 will advance by 80% YoY to $75mm. WiMAX now accounts for 55% of the company's revenues.

Do note that Alvarion has not yet been named as a domestic supplier to either Sprint or Clearwire. Alvarion does supply products to the international subsidiaries of Clearwire and hopes to eventually win business with Sprint. Motorola is the principal domestic supplier to Clearwire. So there is not going to be any immediate impact on ALVR's results.

Playing ALVR and AIRN from my perch would look like this: Buy up to +4%-5% but short above the +10-15% level.

IMS Health (NYSE:RX): Color on quarter

Baird comments on IMS Health (NYSE:RX) after the co released its Q2 results last night:

- Firm notes 2Q results met but were hindered by unexpected European sales challenges, preventing sales upside and limiting margin somewhat surprising following the bullish May 24 IR event.

Revenue variance vs. firm's model was primarily Sales Force Effectiveness performance, resulting from unexpected June-end timing and sales execution delays in Europe, primarily U.K. and Germany, as clients responded to challenging reimbursement and regulatory events, by refocusing marketing efforts. IMS has introduced new solutions to address this and has a strong 3Q marketing log, though this situation suggests some caution into 3Q.

IMS remains comfortable with guidance, but the European slowdown raises some challenges and IMS must continue to hold data and delivery cost growth to continue to show leverage in Consulting & Services, leverage recent M&A, generate new product uptake, and continue to generate strong FCF through among other items DSO improvement. The tone on the 2Q report was slightly more cautious than recent experience, and the firm is lowering estimates to be within guidance as they no longer expect upside in 2007. These adjustments leave 2007 EPS target at $1.58 (the midpoint of guidance) vs. prior $1.63. 2007 adjustments also carry into 2008, with 2008 EPS target declining by $0.09 to $1.74 (10% Y-Y growth).

Maintains Outperform but cut tgt by $1 to $37.

Notablecalls: RX's management has done admirable job over the past 6-7 years, restructuring ops and making the co grow again at a healthy clip. The stock has responded well, currently trading at eight-year highs.

Also, RX has not missed ests for the past 3 years or so. That's until yesterday. The co came in below consensus despite favourable FX. I think everyone was expecting an easy beat. Both GM and OM declined, indicating there will be no expansion in 2007. This also means there isn't going to be any upside to guidance. In fact, we have Baird taking down their ests which suggests other firms will do the same. With the stock trading around 18-19x FY08 EPS (based on closing price of $31.82), I don't think the news will be well receieved.

I expect to see some downside in RX stock today and over the next couple of weeks. I continue to like RX's business but given the tough environment seen by many of its clients (big pharma), I think the valuation multiples need to contract somewhat. The stock needs a breather.

Although I would not want chase RX on open, I think the stock offers a quick shorting oppy.

Paperstand (C, LEH, PEP, DJ, CLWR, S, CBK)

According to the WSJ, federal tax authorities are seeking data from Citigroup (C) and Lehman (LEH) to determine whether complex derivatives trades they engineered for hedge-fund and other clients were designed primarily to avoid taxes. Citi and Lehman have received information document requests, or so-called IDRs, from the IRS relating to the use of derivatives by offshore investors, including some big hedge funds, to sidestep withholding taxes on US stock dividend. At stake is more than $1bn in withholding taxes on US stock dividends that are sidestepped by derivatives trades structured by a number of Wall St. firms.

The WSJ reports that PepsiCo (PEP) explored a merger with Nestlé in late spring, which would have created an immense global food concern with increasing emphasis on "wellness" products. The effort was ultimately scuttled over a host of complications. PepsiCo made the initial approach, but Nestlé resisted the idea for fear that Pepsi's reliance on snacks such as potato chips and soft drinks would dilute its mission of building a business around more-healthful food and beverage products. There was also an array of issues in combining PepsiCo with the larger Nestlé.

According to the WSJ, the SEC intends to file civil charges against a Dow Jones (DJ) board member in connection with an unfolding insider-trading case. In recent days, the SEC has notified Dow Jones director David Li, Chmn and CEO of Bank of East Asia, through a Wells notice, that it plans to recommend filing civil charges against him. It isn't clear exactly what the SEC case against Mr. Li is built on or what law they might charge him with violating.

The WSJ reprots that Clearwire (CLWR) and SprintNextel (S) are nearing an agreement to provide roaming service to each other's customers as the two co’s deploy broadband networks with WiMax technology.

Barron’s Online “Inside Scoop” section reports that Christopher & Banks (CBK) stock is near 52w low, but insider selling at the retailer suggests shares have further to fall. On Fri, CFO Andrew Moller sold $668K in stock, or 40K shares. The reduced earnings outlook, combined with the recent insider selling, has caused Michael Painchaud, of Market Profile Theorems, to revise his view on C&B. Painchaud notes that the prior 6 mo’s without insider sales had improved his view of the co. But "given this most recent sale I have to revert to classifying this as a sell [from a hold]," he says. Painchaud adds that insiders have been "very accurate sellers" in the past.

Wednesday, July 18, 2007

ThinkEquity's Eric Ross comments on Intel (NASDAQ:INTC)

- ThinkEquity's Eric Ross comments on Intel (NASDAQ:INTC) following results noting margins were lower than expected, and w/o a lower tax rate, the company would have been in line with consensus. Guidance was essentially in-line as well. They weren't expecting a strong quarter from Intel despite consensus, and are not changing their stand: firm believes AMD is gaining share in consumer desktops and laptops, forcing Intel to fight with lower pricing and tempering some of its growth until 2008. ThinkEquity expects Intel will do okay, but not outperform through 2007. Reiterates Accumulate rating and $26 tgt.

The big question: why were margins lower than expected? Gross margin in the second quarter was 46.9%, short of the company's forecast of 48%. The co attributed it to lower ASPs for processors and chipsets, and to a much-worse NOR flash business. If Intel piled on the 45nm start-up costs during the quarter and can reduce these in 3Q07 and beyond (while ramping 45nm faster), this was definitely worth it. However, the firm plans to wait to see if 45nm is ramping faster before getting more aggressive on their model.

Notablecalls: I think INTC goes sub-$25 today.

Yahoo! (NASDAQ:YHOO): Color on quarter

Several firms comment on Yahoo! (NASDAQ:YHOO) after the co released its Q2 results last night:

- Goldman Sachs notes that while 2Q2007 results were generally in-line with recently-lowered estimates, they remain concerned about the trends that are driving the underperformance versus original expectations for EBITDA and the limited visibility in the company's ability to achieve 2H2007 and 2008 numbers despite the significant cut in guidance. Specifically, the firm believes that a mix-shift in ad buys to lower-CPM inventory as well as potential pressure on premium pricing could be creating a more difficult operating environment. Based on the cuts to EBITDA guidance without corresponding revenue trimming, it appears that Yahoo!'s margin profile could be changing or the level of investment is increasing meaningfully.

GSCO expects shares to trade down given the 11% lower EBITDA guidance that should also reset 2008, while several uncertainties still exist (pricing on premium display inventory, ramp in search, audience growth, level of investment, margin of AT&T sub biz, and margin profile as affiliate revenue deteriorates) that could result in further estimate cuts.

- Jefferies notes the areas of weakness in 2Q07, namely growth in display ads (due to poor monetization of non-premium inventory and lack of any meaningful perfomance-based products), affiliate revenues (impacted by rising TAC rates, tepid search volume, and a clean-up of the network) and international search revenues (where Panama has not yet been rolled out), should continue to hamper growth for the remaining of 2007.

One of two things is likely to happen within the next 12-18 months, in Jeffco's view; either management is successful in executing against its (and Street) expectations -- of accelerating growth in both dispaly advertising and search revenue (they are modeling for ~25% Y/Y growth in search and mid teens growth in display advertising in FY08, up from 7% and 13%, respectively,) or they're not, in which case the chances for a sale increase significantly. The firm continues to view YHOO as a "value" pick, given its valuation, its strong brand and its unique set of assets that make it an attractive acquisition target for a large technology or media company.

At the after hours price of $26.40, the stock is trading at EV/EBITDA of 12x on FY08 estimates (adjusted for Yahoo! Japan and others) vs. eBay at 13x and Google at 17x.

Maintains Buy, lowers tgt to $34 from $35.

- Citigroup highlights lowered margin outlook due to increased marketing & R&D spend, significant headcount ramp, and impact of RightMedia and Rivals.com acquisitions. Details on new investments were skimpy, but a fresh approach -- including more funding of strong assets & removal of weak ones – is probably the right approach.

They are incrementally less positive. And there could befurther downside – firm would peg trough valuation at approximately $23 (10X 08EV/EBITDA). But if margins truly trough in H2:07 (likely), revenue growth accelerates from these levels (probable), & YHOO continues to buy back stock, then YHOO could perform very nicely in 2008...the AMZN of ’08???. Maintains Buy.

Notablecalls: I think that the investors that buy YHOO here have immense belief in management's ability to perform. I certainly lack this belief. It looks to me Yahoo! has stopped innovating. The web users are generally a disloyal bunch, hopping quickly to the next cool thing. Yahoo had the first mover advantage but has certainly lost it. Do you use Yahoo for search? I used to but now I use Google. Do you use Yahoo for news? No! We have CNN, TSCM, WSJ etc for that.

I do use Yahoo Finance, though. Especially the message boards. But these are of entertaining value at best.

I also have no view on the s-t movements.

Paperstand (BSC, ITY, SHLD, GGP, BDK)

According to the WSJ, investors in two troubled Bear Sterns (BSC) hedge funds that made big bets on subprime mortgages have been practically wiped out. Bear said one of its funds was worth nothing and another worth less than a 10th of its value from a few months ago after its subprime trades went bad. The Wall Street investment bank has had to put up $1.6bn in rescue financing.

The WSJ reports that Spanish cigarette-and-cigar maker Altadis has agreed to be acquired by Imperial Tobacco (ITY) for about $17.9bn. The deal is expected to be announced as early as today. The deal, if completed, would create a European tobacco co with leading mkt shares in the UK, France, Spain, Germany and many Eastern European countries. An acquisition of Altadis would also give Imperial the world's largest cigar business by sales, a fast-growing niche of the tobacco industry that operates at much higher profit margins than cigarettes.

“Heard on the Street” column discusses Sears (SHLD), whose investors got a reminder of the retailer's precarious state last week. Shares had climbed sharply earlier this year on the belief that the co's Chmn, E. Lampert, could turn the retailer into a Berkshire Hathaway-like investment vehicle. But the stock price tumbled 10% after the retailer warned that profit this qrtr would be half that of a year ago. Some investors think the stock has further to fall. At its current price, Sears carries a significant premium to the value of its underlying retail business, they say. Sears trades at about 18x projected earnings for the next 12mo’s, richer than rivals JC Penney, which has a P/E ratio of almost 14, and Wal-Mart's multiple of about 15. "This got to a valuation that had nothing to do with retail," says Peter A. Sorrentino, of Huntington Asset Advisors. Some believe that what is keeping Sears's valuation afloat is the "Lampert premium," a confidence among investors that the Chmn will spin gold from Sears's threads.

“Inside Track” section reports that investors have abandoned REITs lately, but REIT insiders have been rushing in. REIT execs and directors spent close to $60m on their co’s stocks in the 2Q, the largest amount in the past 26 qrtrs. After performing strongly in recent years, REITs have come down sharply this year. The result is that REIT stocks are trading at a significant discount to the value of their underlying real-estate assets, said John Lutzius, of Green Street Advisors. "There is a big disconnect between prices on Wall St., REIT prices, and prices on Main St., private mkt pricing, and I think that to the extent that insiders are buying, that's probably what they're looking at," he said. The bulk of last qrtr's purchases were made at 5 co’s, with General Growth (GGP) leading the pack with $38.4m of stock purchases. The other four are Colonial Properties (CLP), Alesco (AFN), Ashford Hospitality (AHT) and Capital Trust (CT).

Barron’s Online discusses Black & Decker (BDK), saying that investors may now want to lock in some profits and avoid getting hammered. The US housing mkt will take much longer to recover than many initially expected. Cash-strapped homeowners are postponing renovation projects, while orders from retailers could take a hit. And investors betting on a takeout by GE or some other co may get disappointed. "For the next 18mo’s, the environment surrounding most of Black & Decker's end-mkts appears weak," says Alex Roepers, of Investment Mgmt. "Power tools will sell, but the question is how many. The home-improvement mkt looks soft. I do not see much of an earnings-growth story near term."

Tuesday, July 17, 2007

salesforce.com (NYSE:CRM): Color on resignations

- Cowen comments on salesforce.com (NYSE:CRM) after the co last nigth filed an 8K announcing the resignation of Bill Dewes, the company's Chief Accounting Officer. Dewes joined SFDC nine months ago from Hyperion. This comes on the heels of last week's unannounced resignation of the company's Director of Treasury, and marks the second resignation of a senior finance person in less than a week.

Firm notes they view these resignations as a sign of waning morale and other garden variety personnel issues associated with high growth companies experiencing growing pains in a white hot labor market. While they are not sure where Mr. Dewes will wind up, competition for talent in the Valley is very high, particularly for battle hardened managers that have experience working in On Demand/Subscription businesses.

Notablecalls: Expect to see weakness in CRM today. I didn't care when Rene Bonvanie resigned just 4 months after jonining the co (looking at his track record, the guy just keeps jumping from one co to another, often from competitor to competitor) but the two resignations highlighted by Cowen do sound alarming. Something is rotten in the sate of salesforce.com.

I also just love the way how CRM sneaked the news out in a late 8K filing. There is no point in wasting money on PR releases if the news isn't positive, eh?

IPC Holdings Ltd. (NASDAQ:IPCR): Color on warning

Couple of firms comment on IPC Holdings Ltd. (NASDAQ:IPCR) after the property catastrophe reinsurance provider said its second-quarter earnings will be hurt by storms and floods in New South Wales, Australia, and flooding in parts of northern England:

- Morgan Stanley is lowering their 2Q07e to 30c from $1.24 noting the UK floods, in particular, are a significant global event. Industry loss estimates stand around $3 billion, but flood claims being notoriously slow developing and difficult to adjust - the bias is higher. Consensus estimates have been drifting higher for the reinsurers, suggesting to us some may have been lulled into a false sense of security due to lower than average 2Q catastrophe claims in the US.

Having risen some 10-12% (on average) during the past quarter, earnings misses certainly weren't factored into shares of IPCR, nor are they in other reinsurance stocks, in firm's view. MSCO is content being some 5-10% below 2Q07 CE on most of the reinsurers they follow (PRE is the one exception). Would recommend waiting for weakness before getting long(er) in the space. Maintains Overweight on IPCR.

- Goldman Sachs notes that on the basis of their prior estimates, it appears that the company's catastrophe related losses will approach $90 million as compared with their earlier estimate of $9 million and $50 million for 1Q Kyril losses. It also appears that about 60% of the loss may have come from the UK with the balance from Australia. On the basis of IPC's release, they are lowering their 2Q and full year 2007 EPS estimate by $1.15 each to $0.28 and $3.65, respectively. Maintains Neutral and $37 tgt.

IPC Holdings announcement raises the obvious question of what other companies may be exposed to the UK and Australian floods. If other companies have flood exposure it will more likely be to the UK as they believe that IPC had a disproportionately larger share to the Australian market than its competitors. Companies that could be at risk of EPS disappointments due to the UK storms would include AHL, ENH, PRE, PTP, and RNR.

Notablecalls: Well, it looks like Goldman gave the traders a nice short sell list for this morning. The only stock I would not touch on the short side is PRE as the chart is just way too strong. Also, I would not chase any of these.

As regard to IPCR, I think the stock may be a bounce candidate. Insurance stocks usually are after big claims hit. It's because they can raise prices afterwards (I know IPCR is a reinsurer but it should work the same there).

Last prints in after hours were around $27, which looks like a level I'd be willing to bid this one. Would even be prepared to pay up. Small size as I'm not very familiar with the name.

Paperstand (RHD, IAR, MSM)

According to the WSJ, News Corp (NWS) reached a tentative agreement for the purchase of Dow Jones (DJ) at its original $5bn offer price. The deal will be put to the full Dow Jones board this evening for its approval. The deal still faces its biggest hurdle - getting approval from the Bancroft family. Michael B. Elefante, the Bancroft family's lead trustee, has scheduled a meeting for Thu at which he would present the agreement to all Bancroft family members before asking for their final vote. Mr. Elefante is expected to give the family several days to make a decision, suggesting a final resolution could be achieved some time next week.

“Heard on the Street” column discusses yellow-page publishers, RH Donnelley (RHD) and Idearc (IAR), whose shares have been soaring. But as individuals and businesses move to more Internet searches, rather than relying on old-fashioned telephone books, it isn't clear if the recent rally can be sustained. The stocks are popular with analysts and some hedge-fund investors b/c they appear inexpensive based on their generation of free-cash flow. In the past year, the share price of Donnelley is up more than 40%. Idearc is up more than 30%. The co’s are heading online to retain advertisers and consumers, but the co’s still make almost all their money from books. Donnelley receives less than 2% of its rev from the Internet, while Idearc receives about 9%. "Yahoo and Google are both forging alliances with newspapers to offer local search engines," says Richard Tullo, of Sidoti. "While I think these new alliances will be very good for media conglomerates, it means added competition for the directory operators."

Barron’s Online “Inside Scoop” section reports that with shares of MSC Industrial (MSM) trading near record-high territory, execs and directors of the co are exercising options and shedding stock. Last week, MSC Chmn Mitchell Jacobson sold $9m in class A shares. Several other MSC insiders also sold stock last week, in the wake of MSC's F3Q earnings report on June 28. President and CEO David Sandler exercised 57K options and then sold 50K shares for $2.9m. CFO Charles Boehlke exercised $190K in options and then sold the entire batch for $752K. Also last week, two other directors and 5 officers exercised options and then sold stock for a total of $5.4m. In light of the insider sales, Ben Silverman, of InsiderScore.com, says, "I would lean towards taking some money off the table at this point." "They were predictive last time around," Silverman says of insiders. He notes that similar levels of insider sales in May’06 preceded a bearish period for MSC stock. Silverman adds that the "stock is banging up against a perceived fair value."

Monday, July 16, 2007

First Solar (NASDAQ:FSLR): BAC ups tgt to $140

- Banc of America is yet again upping their tgt on First Solar (NASDAQ:FSLR) saying the co has the best fundamentals in the business. Tgt goes to $140 from $115. In BAC's view, FSLR's 7/9 announcement of $1.3 billion of new sales contracts validates its position as the best model in the PV business. FSLR's industry-low cost structure ($1.29/watt) and limited competition in thin film enables FSLR to command significant demand while maintaining impressive profitability (45% gross margins at full ramp in Q1).

Next shoe to drop: They also believe there may be upside potential to their 2Q07 EPS estimate of $0.04 and the Street Consensus of $0.03 if FSLR ramped its new facility in Germany faster than anticipated.

Future shoe: U.S. contract. FSLR has not announced a contract for the U.S., which is expected to grow to be the world's largest solar market. Based on industry contacts, the firm believes there would be significant demand for FSLR's thin film modules in the U.S. They expect to hear more about a U.S. contract in the next 6 months.

Notablecalls: Barron's is out negative on First Solar today saying some pretty nasty stuff about the co's tech. Also, following its very strong run, FSLR's stock is susceptible to a pullback ahead of 2Q07 as investors look to take profits. They are scheduled to report on Aug 2. From this perspective the Barron's piece looks well-timed.

In the ultra-st I think the stock will be gapped down but will recover some of the lost ground. FSLR continues to be a mo-mo fav and BAC's note will provide a nice cushion.

Brush Engineered (NYSE:BW): Comments on perpendicular media

- First Albany comments on Brush Engineered Materials (NYSE:BW) bringing their Q2 EPS estimate down to $0.40 from $0.45. Firm's channel checks at perpendicular media customers indicate no meaningful ramp in ruthenium demand through the end of 2Q. Additionally, while the inventory situation on the cellular phone side appears to be improving, commentary for 2Q remains conservative.

Ruthenium prices have declined significantly (more than 50%) after peaking in February 2007. They believe this should allay some concerns about the long-term application of this material in perpendicular media. In the near term, the firm expects this price decline to reduce the one-time gain from the sale of Brush's inventory.

Prior to the preannouncement, First Albany had recommended that clients should take any weakness in the stock until the reporting of 2Q results as a buying opportunity, as they were expecting below-consensus 2Q results. With the negative news out, the firm believes the stock is now poised to move up, given their expectation of a strong second half. Maintains Buy and $63 tgt.

Notablecalls: I highlighted BW as an actionable bounce candidate on June 20. The stock has appreciated nicely since then. While FA's comments may create a pull back in the stock today, I continue to be positive on BW in the medium term.

Motorola (NYSE:MOT): Upgraded at Deutsche!

Deutsche Bank is out with an upgrade on Motorola (NYSE:MOT) taking their rating to Buy from Hold and raising tgt to $21 from $18. Firm notes that after conducting channel checks following last week’s negative preannouncementthey believe the worst is now over at Motorola. They think all the bad news is now fully priced into Motorola’s stock price, and over the next several quarters they expect to see an improvement in earnings growth, meriting a Buy rating. In particular, the firm expects the final rationalization of the company’s management structure, a new firmwide emphasis on earnings and a clearing out of inventory and mis-priced/placed products.

While Mobile Devices (MD) continues to under perform, checks indicate thatin regions where the company did not have to offer price protection to the channel (for clearing stocks), they saw QoQ improvements in handset margins. With excess products now largely removed, they think margins should stabilize.

DB believes the company is nearing the end of its purge in senior management. While overall jobs cuts are not over, they think MOT will soon see a consolidated vision for improvement. Changes such as moving the head of supply chain to run MD indicate they are now serious about structural changes to their cost structure.

Notablecalls: An elegant move on Deutsche's part. Upgrading ahead of the turn has always made the most dough for the clients. I exect to see at least 1pt move to the upside following this call.

Now all we need is some cool handsets from the Moto labs.