Notable Calls
RSS feedNotablecalls@gmail.com
Tuesday, July 31, 2007
Apple (NASDAQ:AAPL): RBC Capital comments on iPhone
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
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
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)
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
- 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
- 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
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
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
- 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
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
- 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
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, 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
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
- 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
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!
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)
“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...
Oh well...
NC
Apple (NASDAQ:AAPL): Piper ups tgt to $205!
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
- 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
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
- 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)
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)
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
- 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
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
- 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
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
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!
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.
Paperstand
The WSJ reports that Ford (F) is considering selling its Volvo car unit, as the auto maker continues to look for ways to bolster its slumping US operations. The shift, reversing an earlier position that the Sweden-based luxury division wasn't for sale, marks the potential abandonment of Ford's 8y effort to tap the lucrative luxury-car mkt with European brands. It sold its Aston Martin luxury nameplate for $848m and has begun considering a sale of its Jaguar and Land Rover brands as well. Those brands, along with Volvo, made up Ford's Premier Automotive Group, which has had losses of $4.8bn since ‘04.
“Heard on the Street” says that judging by the sharp selloff of REITs in recent weeks, it is clear that some investors feel the good times have come to an end for these stocks. Yet, some analysts and investors believe that the heavy selling was too extreme and that some REITs, particularly those in the office and retail sectors, could stage a comeback. Indeed, just as the residential housing slump has produced some steals for home buyers, the REIT selloff may similarly yield some good deals for stock-mkt investors. For a bargain hunter, a smart shopping list could include Simon Property (SPG), Kimco Realty (KIM), Public Storage (PSA) and SL Green Realty (SLG), which have mgmt teams with proven track records of boosting shareholder value and which will likely continue to benefit from strong economic fundamentals. According to Stifel Nicolaus analyst David Fick, more than $3bn has flowed out of US real-estate mutual funds since May 1, representing one of the strongest outflows from dedicated mutual funds in the sector's history. "Many of the investors [dumping] REITs are nontraditional real-estate investors who jumped into the mkt in recent years chasing higher returns but aren't long-term holders," Mr. Fick says.
Sunday, July 15, 2007
Barron's Summary (SPWR, EPG, FTEK, PICO, CPTC.OB, FSLR, NRN)
Barron’s negative on First Solar (FSLR), whose shares skyrocket more than 20 points Mon, after disclosing new European and N-American contracts worth $1.28bn over 5 ys. But, First Solar may not be quite what it seems. The co is perceived as thin-solar, 2G. The 1G of photovoltaic solar relied on polysilicon, making for thick, heavy panels that nonetheless could be set on a roof b/c they didn't require too much surface area. Thin-solar relies on chemicals and vapor deposition to lay down thin layers of film over a broad surface area. B/c it's so light and flexible, it can be incorporated into building materials such as roof tiles, turning roofs into big solar panels. The dirty secret on First Solar is that it uses thin-solar technology, but the film is still applied to heavy glass that resembles earlier generation panels, says Brion Tanous, of Merriman Curhan Ford. Consequently, "A vast majority of First Solar's products are panels mounted on the ground b/c they are too heavy for rooftops, which suggests that it's not a true thin-film technology," Tanous argues. Another problem: First Solar is highly dependent on European govt subsidies, especially in Germany. Just 2 weeks ago, the German environment minister confirmed that he wants to cut subsidies further for solar. The news hit European solar shares, but went largely unnoticed on Wall St. The co boasts more than a $8bn mkt value on about $400m in expected ‘07 revs and 53c in EPS. At 115, it is trading at 96x ‘08 earnings and 14x sales.
According to the Barron’s, National Rural (NRN) could be due for a major downgrade by the top debt-rating agencies. While the finance co is rated the equivalent of single-A by the big agencies, a top independent firm, Egan-Jones, puts it seven notches lower, at a junky single-B-plus. "We're not saying it's going to go bankrupt," says Sean Egan. But, he says, the co "shouldn't be an investment-grade credit."
Rediff.com's (REDF) market cap is way out of proportion to the size of India's Internet ad market. At Sify (SIFY), subscriber growth is lagging and cybercafe competition is increasing.
“The Trader” discusses Target (TGT), saying that temple for mass consumerism, should find itself on Bill Ackman's shopping list. Pershing Square Capital has accumulated Target shares and options worth nearly $6bn and is preparing a regulatory filing detailing its stake. What might Target expect with Ackman's attention? Pershing Square previously amassed positions in co’s like McDonald’s (MCD) and Wendy’s (WEN) and then pressed mgmt to improve profits. Among other things, Ackman might broach the sale of Target's credit-card operation, which has $6.5bn in receivables. Its contribution to earnings growth is slight, but mgmt has maintained it is integral to building brand loyalty and tracking spending habits. Target might also be prodded to sell and then lease back its real estate. The co has some of the choicest retail locations, and the value of those properties presumably is understated on its balance sheet. It has been suggested the real estate could be worth nearly a 1/3 of Target's $70bn in EV. But while a sale and leaseback could raise billions, the ensuing rent expense could cut cash flow by almost $2bn. Levering up is another option, but with shares at an all-time peak, it remains to be seen if mgmt can be talked into a move that some est would boost EPS by less than 10%. If Ackman proves right on the dot, two things at the very least are clear: Target shares straining record highs might still offer good value, and widespread worries of consumer retreat may not prove as dire as many feared.
“The Trader” discusses Mueller Water (MWA), whose Class A shares made their debut in May’06 when nearly 29m were sold to the public, while its former parent, Walter Industries (WLT), held onto Class B shares and controlled 96% of the voting power. But by Dec, Walter had distributed all the B shares to its stockholders. Since then, the two classes have been inseparable on a stock chart. Then came June, when A shares, but not the B, were triumphantly added to the Russell 2000 index. Quickly, the gap between A and B shares widened from 1-2% to the current 11.5% chasm. The B shares each give 8 votes to just one for the A shares. "Apparently, indexing has created and sustained an inefficiency we'd think would be arbitraged away in today's ultra-competitive mkts," says Michael Econn, of Bondurant Mgmt.
According to the “The Trader,” options prices of Pozen (POZN) suggest that the mkt sees a 60% chance Trexima will be approved by the FDA, but Citigroup analyst Lucy Lu is more optimistic. She pegs the odds of an FDA nod at 80%, given Trexima's superior efficacy results in clinical trials and a safety profile comparable to Imitrex. Lu believes a yes could drive Pozen shares to between 23 and 25 and towards her tgt of 28. "We believe Trexima will be the new gold standard treatment of migraine headaches," she notes. There are other catalysts, too. B/c partner GlaxoSmithKline's (GSK) bestselling Imitrex will become a generic drug by late ‘08, "we believe GSK intends to aggressively convert its Imitrex sales to Trexima in order to capture significant mkt share in the migraine mkt before its Imitrex sales are at risk," Lu says. B/c Trexima is Pozen's primary candidate, any regulatory glitch can send shares tumbling to 7 or 8. Given that slim but real risk, bulls might consider buying August call options or call spreads on Pozen.
Fund holdings include BIG, GES, MDR, CROX, AMX, AVT, VSEA, AAPL, BMY and TDY.
Friday, July 13, 2007
Global Crossing (NASDAQ:GLBC) : Actionable call alert!
They expect to see margin improvement in 2Q07 and 3Q07 driven by 1) a historical downtick in expenses from 1Q to 2Q, 2) management's focus on cost control and 3) cost cutting activities during the quarters primarily in the SG&A line. Jeffco believes that GLBC should be able to achieve their 2Q07 expectations including revenues of $549.3 million and EBITDA before non-cash compensation of $18.1 million.
Firm's FY08 EBITDA estimates implies a 6.9x EBITDA multiple, which is less than half the industry average. Finally, GLBC currently trades at 0.87x FY08E revenues, a discount to last year's Broadwing sale of 1.3x revenues.
Notablecalls: A beautiful call, matched only by the beauty of the stock's chart. I think GLBC makes a very nice bounce candidate today and over the next weeks. Note that Jeffco's tgt offers hefty upside to current mkt price. That's bound to create interest. Going to call this one actionable!
Macrovision (NASDAQ:MVSN): Color on warning
- Deutsche Bank says that while they are disappointed with the execution this quarter, they are reiterating their Buy rating as their thesis remains intact and they believe the stock represents a compelling opportunity. DB believes upside potential exists in 2H07 and 2008 due to a solid DVD release cycle, Embedded Solutions momentum and better than expected operating leverage potential. At near-trough valuations, they view downside as limited.
Firm believes Q2 results are likely to mark the low-point for the year, as growth improves in 2H07. One important issue is that EPS leverage is accelerating much faster than they had anticipated. If MVSN had closed those two deals and met top-line guidance, it would have delivered significant EPS upside of almost $0.05. This suggests upside exists to firm's 2H07 and 2008 EPS forecasts based on margin expansion. DB's tgt remains $37.
- Piper Jaffray notes that while the news is clearly disappointing, they do expect the company will be able to re-capture the missed ISV deal and ACP royalty recovery revenue is not core to the story, but more of a one time issue. What has changed in firm's model is that what was previously expected to be upside in 2H07 is now necessary to achieve the FY07 guidance range.
In 2H07, they expect Macrovision will be able to recapture revenue from the ISV deal that was not completed, but revenue from the ACP royalty dispute could be somewhat unpredictable and assume the company will re-capture only a portion of that revenue. Firm believes the company expected to exceed guidance for FY07 and this set-back now brings expectations back within the guidance range.
Lowers tgt to $36 from $37 but maintains Outperform rating.
Notablecalls: To my knowledge, this is the first ever profit warning from MVSN. The stock was down over 9% in after market action. Given the one-time nature of the shortfall, I find this to be somewhat excessive. It looks like MVSN was targeting uspide to its guidance and if things turn out as the management expects, there may still be some upside. Also, note Deutsche's comments regarding EPS leverage!
With the stock trading at 16x its '08 EPS, the valuation is not high (especially given that historically, 15x has been the trough).
Possible catalysts include upside in Mediabolic, bundled deals with studios (possibly this yr), increased adoption of Vista (driving upside in Installshield) and better DVD schedules.
Looking at the action in after hours, there didn't seem to be any real selling interest. Very low volume, with bids coming in below. I think MVSN makes a nice bounce candidate today. Agressive accounts may bid the $27+ level (be prepared to pay up) with more conservative accounts looking for the 200 day MA providing support around $26.50 or so.
I also think MVSN may provide a buying oppy for LT players as the business the co is in is certainly going to grow over the next 5 yrs. One to watch!
Thursday, July 12, 2007
Apple (NASDAQ:AAPL): iPhone checks show upside to current ests!
Checks also suggest Apple may be planning an iPod line refresh Q4CY07, including new versions that they believe include: an updated iPod Nano, a new iPod and new video iPod. Some or all may include iPhone-like features (Touchscreen, Widescreen, new UI etc). RBC also expects new devices with more memory and integrated wireless (Wi-Fi).
Based on these checks, the firm is raising their iPhone sales outlook to 13.5M units (10.1M prior) end CY08. They continue to expect iPhone momentum to ease following early sales, reinvigorated subsequently on new launches. F08 estimates adjust to $32.2B revenue ($31.2B prior) and $4.52 EPS ($4.38 prior).
Reits Outperform and $160 tgt.
Notabelcalls: Is this enough to push AAPL to a new 52 wk high? Sure, why not. iPhone flow looks like the only thing that moves AAPL. I think.
Motorola (NYSE:MOT): Color on warning
- CIBC notes that although June was tougher than expected, their thesis and Sector Outperformer rating are unchanged. Firm's positive stance is based on the long term opportunity for a recovery in the company s handset business, and they believe nothing has changed with respect to this. In fact, a closer look at MOT s results reveals positive trends that they believe over time will enable the company to exceed expectations.
First, ASPs (pricing) came in at around $130 vs. $119 in 1Q07. This suggests Motorola not only held firm on pricing but also continued to pull back on its presence in the low-end, in which CIBC believes the company never made a profit. Second, they note that the company has just completed the first round of layoffs ($400 million) suggesting we have yet to see the benefits of the cost initiatives in earnings. Third, and although Motorola has not commented on this topic, they believe inventories have improved materially which could help reverse sell-in trends. Last but certainly not least, the firm si positive on the appointment of Stu Read, Motorola s head of supply chain, as the new head of Mobile Devices.
Longer term we see positives in the pre-announcement, primarily reflected in data points suggesting management is committed to its new business strategy. To be sure, the revenue shortfall is meaningful, yet the earnings miss was small (only $0.01). Even with the miss, they believe some investors expected a bigger shortfall.
- Deutsche Bank thinks the magnitude of the miss indicates the company's intention to put the worst behind it. This includes clearing inventory, overhauling their pricing strategy and clearing the deck for possible new product launches later in the year or early CY08. While a true turnaround for Motorola depends on refreshing the product line-up, they think today's news could mark the bottom. However, the timing of the handset turnaround remains uncertain and Motorola's competitors
continue execute.
- Morgan Stanley notes the press release doesn't include any comment from CEO Ed Zander, which after the recent proxy battle seeking his ouster likely adds to speculation that his tenure at the company may be coming to a close. Regardless of one view of his role in the RAZR success or rapid deterioration over the past few quarters, calls for a change in senior leadership are likely
to increase, and, at least in firm's view, provide valuation support for shares around current levels. Maintains Equal Weight with $20 tgt.
- Goldman Sachs continues to see deteriorating fundamentals ahead. They are reducing their 2008 EPS estimates to $0.46 from $0.91. While some may view a bottoming process forming with weak 2Q results now out of the picture, they believe that most investors are underestimating the deterioration in the company's fundamentals & they continue to believe that a turnaround will be a multi-year effort. As they've highlighted in previous notes, they believe MOT's market share continues to erode into 2008 as checks indicate the company cancelled a number handset models slated for next yr, which puts it in a tough position from a product portfolio perspective. Maintains Neutral.
Notablecalls: Weakness in Asia and Europe should not come as a surprise. It looks like MOT continues to hold it own in US, its most important market. Exiting the low-end side of the business makes sense as soon there will be no low end to speak of.
It also looks like Ed is going to be between a rock and a hard place. That's one warning he could not afford. Icahn is going to have a field day.
Kudos goes to RBC Capital for their hefty cut on the rev est side last week. The stock may be weak today but as Deutsche said - MOT stock is in a midst of a bottoming process.
Paperstand (WFMI, INFN, BBW)
According to the WSJ, Whole Foods (WFMI) CEO John Mackey posted messages under a pseudonym on Yahoo forums that praised his co and blasted Wild Oats, which Whole Foods is seeking to buy. In Jan’05, someone using the name Rahodeb went online to a Yahoo stock-mkt forum and posted this opinion: No co would want to buy Wild Oats Markets at its price then of about $8 a share. "Would Whole Foods buy OATS?" Rahodeb asked. "Almost surely not at current prices. What would they gain? OATS locations are too small." Rahodeb speculated that Wild Oats eventually would be sold after sliding into bankruptcy or when its stock fell below $5. A month later, Rahodeb wrote that Wild Oats mgmt "clearly doesn't know what it is doing .... OATS has no value and no future." The comments were typical of banter on Internet message boards for stocks, but the writer's identity was anything but. Rahodeb was an online pseudonym of John Mackey, co-founder and CEO of Whole Foods. For about eight years until last August, the company confirms, Mr. Mackey posted numerous messages on Yahoo Finance stock forums as Rahodeb. It's an anagram of Deborah, Mr. Mackey's wife's name. Rahodeb cheered Whole Foods' financial results, trumpeted his gains on the stock and bashed Wild Oats. Rahodeb even defended Mr. Mackey's haircut when another user poked fun at a photo in the annual report. "I like Mackey's haircut," Rahodeb said. "I think he looks cute!"
Read whole article here.
Notablecalls: :)
The WSJ reports that General Electric (GE) and Abbott (ABT) abandoned their $8.1bn deal for 2 units that make medical-diagnostic equipment. The co’s said they had called off the deal, announced in Jan, b/c they were "unable to reach agreement on final terms and conditions." There is no breakup fee.
“Heard on the Street” out saying that Warren Buffett, Carl Icahn and big-name hedge funds have bet more than $8bn on railroad stocks in recent mo’s. But going along for the ride could be bumpy. Railroad share prices have run up on headline-fueled enthusiasm about the high-profile purchases. Since April, Berkshire Hathaway has disclosed an 11% stake in Burlington (BNI). Berkshire also has taken smaller but substantial chunks of Union Pacific (UNP) and Nortfolk (NSC). Icahn Mgmt and activist hedge funds including Atticus Capital and Jana Partners have barreled into the railroads, too. The result: As a group, railroad shares have surged more than 20% so far this year, despite a 4% decline in traffic b/c of the slowdown in automobile and home sales. So, the question is: Can they hold on to their gains? "The stocks have traded up partly on expectations that something big will happen," says Rick Paterson, of UBS, referring to speculation that a buyout firm might take one of the co’s private. "We think that is less likely than likely."
Barron’s Online out saying that the fiber-optic resurgence that has paved the way for new public stocks in the last 9 mo’s is very real. It is also rather fragile, and as a result, some of those stocks are running far ahead of the rosiest outlook for their businesses. Case in point, shares of recently public Infinera (INFN). 7-year-old Infinera makes equipment used by phone co’s to expand the bandwidth of their networks. It has a promising future, with sales soaring from $2.6m to $50m in the most recent quarter. And it's finally generating positive cash flow despite continued net losses. But even with a dramatic rise in sales this year and next, it would be hard to justify the current 20x multiple of price-to-trailing 12-mo sales, a valuation that seems to assume unreasonable growth in the fiber-optic mkt. Infinera is one of 4 recent fiber-optic IPOs. Judging by the track records of those stocks, one might pick up Infinera at a cheaper price soon. Opnext (OPXT), Optium (OPTM) and IPG Photonics (IPGP) have traded down as much as 25% from the closing price on their first day of trading.
“Inside Scoop” section reports that Morgan Stanley Investment Mgmt and Buckingham Capital Mgmt resorted to bare-knuckle tactics and sold about 3.2m shares of Build-A-Bear (BBW). Buckingham let go of all of its 1.5m shares, or 5.7% stake in Build-A-Bear. Morgan Stanley sold almost all of its 8.7% stake, or 1.7m shares, leaving the investment giant with a mere 559 shares. According to StreetSight.net, Buckingham "focuses on companies that are substantially undervalued relative to strong fundamentals" and sells its holdings when the stocks become overvalued.
Wednesday, July 11, 2007
Vital Images (NASDAQ:VTAL): Color on warning
For over a year, mgmt has downplayed the impact of DRA onbusiness, even at Jeffco's late May NY investor breakfast, but they now admit that DRA does negatively affect their business more than they had originally thought.
Going forward, they have concerns about the delayedrelease of Vitrea 4.0 and Vital Connect 4.1, the apparent increasedcompetition from GE, Philips and Terarecon, and a longer sales cycle caused by morecomplex enterprise deals. While they recommend a HOLD at this time, mgmt needs to re-establish credibility, since they just shared most of these issues to the Street for the first time. The ~$10 cash per share does provide some downward safet.
- Deutsche Bank is somewhat more supportive keeping their Buy rating albeit taking their price tgt to $30 from $48. On the heels of this disappointing announcement, they have lowered FY07 EPS from $0.65 to $0.25, FY08 EPS from $1.00 to $0.60, and FY09 EPS from $1.35 to $0.95. The firm still believes that VTAL is favorably positioned long-term, but there could be some bumpiness in customer adoption.
Notablecalls: I guess this is what you get when you compete with the likes of GE and Philips. While VTAL's offering continues to be among the best on the market, it's hard to be a midget in the land of giants. The weakness at Toshiba is surprising (a large 40%+ customer) but my gut tells me it may be just a bump in the road.
With the stock down 7+ bucks on open, the valuation does not look too absurd given the opportunity ahead. Even if VTAL can manage only $0.60 in EPS next year, substracting the 10 bucks per share on its balance from $19-20 (that's where it's likely going to open for trading), you have the stock trading at 15x forward EPS.
I think VTAL will stumble below $20 level after open but will become buyable soon after.
First Horizon National (NYSE:FHN): Morgan Keegan positive
FHN shares are selling at a 52 week low and on an absolute basis have pulled back to January 2003 levels. Shares reflect significant discount at 2.2x tangible book versus 3.2x for MK Mid-cap Bank Index.
Firm expects FHN to report 2Q07 EPS of $0.63, $0.04 above consensus and believe that all 3 businesses will reflect marked improvement from 1Q07 results. MK's view is that this is the bottom, expense initiatives are SERIOUS and ACCELERATING, credit should be better than consensus expectations and clearer detail on strategic changes from management will be communicated during earnings.
Maintains Outperform.
Notablecalls: I love Morgan Keegan. When I see a strong worded call like this one coming from one of my fav firms, I pay attention. So should you.
salesforce.com (NYSE:CRM): Well hello there Mr. Softee..
- JMP Securities notes Microsoft's pricing seems designed to undercut salesforce.com's prices. As a result, they believe this Microsoft announcement may freeze some salesforce.com sales cycles and put pressure on salesforce.com's pricing. The magnitude of the impact on salesforce.com may depend on how aggressively Microsoft markets CRM Live and the richness of the CRM Live functionality. Microsoft plans to offer customers an early access version to Microsoft Dynamics CRM Live Professional at no cost this year. In 2008, Microsoft plans to charge a promotional price of $39 per user per month and $44 per user per month in 2009 and beyond. This compares to salesforce.com's list price of $65 per user per month for its professional edition. JMP expects the first version of the Microsoft Dynamics CRM Live service to be released before the end of September.
Maintains Market Perform rating.
- Cowen notes MSFT's Pro Edition will be given away for free for the remainder of this year for accounts deploying five or more users. In marked contrast to SFDC's direct sales strategy, MSFT intends to drive sales by promoting its CRM solutions heavily in its Information Worker and Dynamics partner networks. While the firm is not expecting Live to generate meaningful sub counts over the next few quarters, they expect 9,500 MSFT CRM resellers and free trial program for accounts evaluating 5 or more seats to present a challenge to SFDC's sales cycles. Firm believes free trials and bundling discounts will enable MSFT to sell effectively back into its installed base. They expect MSFT's mid market dominance to present a challenge to SFDC, given that they estimate that the vast preponderance of SFDC's have signed up for 20 seats or fewer.
CRM is trading at 27x COWN's CY08 FCF forecast of $196M (+34%). Maintains Neutral.
Notablecalls: Mr. Softee's entry into the CRM space should not come as a surprise. Nor should the pricing be surprising given MSFT's usual conduct entering a new line of business. "I don't think this is a battle that will be won on price alone," said Bruce Francis, a spokesman for Salesforce.
Bruce's right of course but considering the size MSFT's client base, it's going to put pressure on CRM sooner or later. My guts tells me it's going to be later rather than sooner but with CRM trading gazillion times EPS, it's increasingly difficult to see much upside from here.
As for the ultra s-t, I think CRM may get hit following the calls but downside will be limited. Watch the 200 day MA for a bounce.
Paperstand (LIZ, NUAN, MCRS)
According to the WSJ, a coming govt auction of radio spectrum could hand Google and other tech co’s their first significant victory in a battle to loosen the grip held by telecom operators on the wireless and broadband mkts. FCC draft rules would set aside part of the available spectrum for creation of an "open" network free of the constraints that large telecom operators like AT&T and Verizon normally impose. The spectrum being auctioned is estd to bring in $15bn to the Treasury. The new open-access rules would apply to a slice that is big enough to create a nationwide network. Google, a satellite-TV provider, or another new entrant could now be enticed to bid in the auction and enter the wireless mkt as a competitor to the large carriers. In a number of filings at the agency and in a letter late Mon, Google has argued that some spectrum should be set aside for an open network. eBay's Skype has also weighed in with filings to back such rules. Though Google has considered the idea of buying spectrum and outsourcing the building and operation of the network to a 3rd party, it remains unclear whether Google is ready to spend billions to build and operate a new wireless network. A direct bid by Google for spectrum is very unlikely at this point, b/c the co views such a move as outside its core activities.
“Heard on the Street” column highlights Nuance (NUAN), the largest co devoted almost exclusively to selling speech-recognition software. Nuance has about 75% of the mkt for speech-enabled call centers. And about 50% of medical-transcription devices run on its software. Growing at 22% a year, sales of such technologies are forecast to reach $2.3bn in ’07. I believe the stock is still cheap," says Michael Alpert, of J&W Seligman. "Their strategy is built around domination, and we think its earnings forecasts are low," he says. One reason for the optimism: The co increasingly is cutting deals with directory-service businesses that pay recurring rev rather than one-time payments.
Barron’s Online discusses Micros Systems (MCRS), whose stock is up 30% over the past 12 mo’s. But despite the run-up, investors can still check into value with shares of Micros. The stock is currently trading at 23x estd earnings for the next 4 qrtrs, or a 4% discount to its 5y avg, and a 33% discount to its peers in the application-software sector. Micros' share price looks very reasonable given its competitive position and strong earnings growth rate, which analysts on avg est will be 23% in F’07. The co has plenty of rev growth opportunities, particularly in its hotel segment, and from its heavy exposure to fast-growing intl mkts. In addition, its strong balance sheet gives it plenty of cash to fund bolt-on acquisitions and a generous share-buyback program. In F’07, Micros expects to bring in rev of $778-781m. By F’09, Micros expects that number to increase to $1.1bn. "We are very positive on the co," says John Wullschleger, of Mitchell Capital Mgmt. He lauds the co's "good, solid US exposure and tremendous opportunity in intl mkts" and the fact that its virtually debt-free balance sheet means that the co has "tremendous amounts of cash to fund growth and development."
“Inside Scoop” section reports that Texas oil billionaire Thomas “T.” Boone Pickens is earning some slick profits off of EXCO Resources (XCO). Pickens, a director at the co, has sold more than 2.3m EXCO shares for $42.7m. The sales trimmed his stake to 11.03m shares, or 10.6%. Ben Silverman, of InsiderScore.com, notes that Pickens was restricted from selling any shares during the customary lockup period following an IPO. Right now it seems that Pickens is "just looking to take some money off the table and book some profits." Pickens' selling poses as "a mild negative" although Silverman expects the billionaire to remain a large shareholder for some time. Amid a lack of other insider sales, Pickens' transactions are somewhat offset by some positive activity by institutional players, he adds.
Tuesday, July 10, 2007
Gilead (NASDAQ:GILD): Added to Focus List at Cowen
- Cowen is adding Gilead to their Focus List, replacing Genzyme. Sales momentum of GILD's market-leading HIV franchise is very strong, and the firm projects the franchise will grow at a 21% CAGRfrom 2006-11. Moreover, GILD's prospects for long-term high-teens EPS growth are good. Although they project Tamiflu stockpiling will decrease, causing GILD's royalty revenue to decline from $433MM in 2007 to $200MM in 2009, they expect the lost revenue will be more than made up for by new product launches. Over the next 12-24 months COWN expects launches of Letairis (pulmonary hypertension, ongoing), Viread in HBV (2008), aztreonam lysine (cystic fibrosis, 2008), and GS 9137 (HIV, 2009). Firm's model projects GILD will have a 16% EPS CAGR for the period of 2006-11, with consistent 16-17% EPS growth for the years 2009-11. Despite these strong fundamentals, GILD looks attractively valued, trading at 22x 2008 pro forma EPS est., in line with the biotech group average. They think the shares will outperform the market by 20% over the next 12 months. Firm believes GILD's fundamentals are second to none in large cap biotech.
- Piper Jaffray is out saying they had mistakenly concluded in a previous note that GILD had abandoned efforts to obtain acomposition of matter patent covering Truvada (10/757,141) - the firm has now found a mirror image patent application for Truvada that remains under review (10/540,794). The patent application under review would extend the patent protection of Truvada until at least January 2024 (current protection for Truvada lasts through 09/2021 under the Emtriva patent). Issued. Extrapolating their 2010 total Truvada use (Truvada + the Truvada portion of Atripla) to 2021, the additional three years potentially gained through the new Truvada patent would add at least $1-$2/share in NPV to the GILD valuation. Maintains Outperform.
Notablecalls: Cowen's call makes sense. GILD continues to gain share among the HIV treatments due to the once/twice a day pill regimen. Barron's was out positive on GILD over the weekend but the stock was chopped down after open. Being added to the Focus List at Cowen may provide another chance for the bulls to push the stock higher. Will see if it sticks.
Paperstand (MCO, EYE)
The WSJ’s ”Heard on the Street” column out saying that short sellers love to tgt co’s heading into financial turmoil. Now, some of those are targeting Moody’s (MCO). But unlike some of the blowups in the recent past that the credit-ratings firm and its main rivals caught too late, such as WorldCom and Enron, its profitability and cash flows remain strong. That makes it a tough stock to bet against. Still, Moody's and other credit-rating firms are again taking heat for the meltdown in the subprime-mortgage mkt. Bearish investors are betting that Moody's shares will tumble as the co's lucrative business in providing ratings for structured debt products, such as collateralized debt obligations (CDOs) could dry up due to fears spreading from rising defaults in those mortgages extended to borrowers with poor credit histories. Together with some analysts and academics who believe the rating agencies played a key role in the subprime crisis by giving high ratings to thousands of bonds that fell quickly in value, some short sellers also are wagering that legislators, regulators and disgruntled investors will shake up the existing oligopoly structure and put an end to its fat margins and profits. "It's a great business model as long as you can get ppl to pay for it," says James Chanos, of Kynikos Associates. Mr. Chanos, among the most vocal of Moody's critics, is known for having bet early against Enron. "If they have no predictive power over that which they're rating, then why bother?"
Barron’s Online “Inside Scoop” section reports that hedge fund ValueAct sees plenty of upside in Advanced Medical Optics (EYE). Over the past two weeks, ValueAct has bought nearly $50m in shares of AMO. The buying spree has boosted ValueAct's stake in Advanced Medical to 12.6%. According to StreetSight.net, ValueAct "looks for fundamentally undervalued co’s with strong business models and potential growth opportunities." Ben Silverman, of InsiderScore.com, notes that ValueAct began building its stake in the 1Q before the recall, buying 2.8m shares. The hedge fund then embarked on its latest buying binge after AMO announced the Complete MoisturePlus recall. "That suggests that ValueAct felt [Advanced Medical] was oversold at that point, and that it was a near-term issue that would have a negative impact on the co for the next couple of quarters, but that the co's prospects are still bright," says Silverman.
Monday, July 09, 2007
First Solar (NASDAQ:FSLR): BAC ups tgt to $115
Following its recent run, First Solar appears expensive based at 84x the FY08 Street estimate of $1.14. BAC has confidence that First Solar will soundly exceed the FY08 Street estimate due to a declining tax rate (29% in FY08 vs. 41% in FY07) and higher capacity (450 MW by end of FY08). More importantly, they believe that First Solar remains attractive at current levels based on their view that the company's earnings will meaningfully accelerate in the years following FY08. Specifically, the firm expects First Solar will increase EPS to over $7.50 by FY10 from $1.51 in FY08.
Notablecalls: When you have an agressive mover like FSLR just 4 bucks away from the $100 level and there's a tier-1 firm out with a positive call, you buy the stock! No matter how boring the call is! It's going to hit that $100 today.
Group 1 Auto (NYSE:GPI): Goldman adds GPI to Buy List!
Catalyst: Group 1 is emerging from a period of substantial earnings misses and estimate cuts associated with lapsed expense control, tough year-ago comparisons as used car volumes got a significant boost in Gulf states following Hurricane Katrina, and difficult conditions in the housing-challenged California market. GSCO sees accelerating earnings growth as the company cycles far easier comparisons beginning in the second half.
Notablecalls: Must say I couldn't believe my eyes on Friday when I saw no interest whatsoever following the wonderful call by Morgan Stanley (scroll down). I blamed it on the shorts, as the stock was ruthlessly chopped down on open. Stuff likes this comes with the territory when there's a 20% short interest.
And today we have Goldman Sachs putting GPI on their Buy list. This is bound to put fire under the shorts. I continue to be positive on GPI here. The $40 leash stays.
Sunday, July 08, 2007
Barron's Summary (SONO, GILD, ITW, VMED, PAY)
Barron’s out saying that banks, brokerages and hedge funds that have been eager buyers of subprime CDOs could face losses of more than $100bn in coming years. Co’s mentioned include Bear Sterns (BSC) and MBIA (MBI).
SonoSite's (SONO) shares, after a long climb, slipped during the past year as a competitive threat from General Electric (GE) mounted. Now at 36, they could easily fall by six bucks or so, and far more if GE prevails in a lawsuit. "If the lawsuit is successful, it could be crippling to SonoSite, considering the co's one-dimensional product line," says Sean D. Lavin, of Oppenheimer.
Gilead's (GILD) stock, up some 40% in the past year, could climb another 20-25%, fueled by strong demand for both existing drugs and remedies now in the pipeline.
Illinois Tool Works (ITW) has rallied 20% this year, to 55. The co's continued success could push the shares up to 67-68 in the next year, for a prospective gain of about 23%. ITW trades for only 15x consensus ‘08 earnings, about 10% below the multiples afforded diversified industrial multinationals such as Danaher (DHR), notes Goldman Sachs analyst Deane Dray. "It's exceptionally attractive," he says. "It has had a nice pop, but has a lot more room to run."
“The Trader” column highlights Virgin Media (VMED), which confirmed it has been approached by a suitor it would not identify, and which reportedly is the Carlyle Group. Shareholder churn has swelled investor ranks with impatient fund managers. Franklin Mutual recently amassed a 9.4% stake and began prodding mgmt for action. A $12bn debt load also may not deter buyers, since Virgin generates enough cash to cover loan payments. Carlyle is no stranger to cable deals, and Virgin's infrastructure is unparalleled. Increasingly, the mkt also seems to warm to the idea of Virgin as a private entity. "The things that are delaying its turnaround are all better tackled as a private concern out of the eye of the very aggressive British media and the scrutiny of sell-side analysts," says Brad Ruderman of Ruderman Capital Mgmt. He sees good odds of a deal and says the shares are worth 35.
“Review” section highlights VeriFone (PAY), which offers a Wi-Fi bill-paying device for waiters. Credit cards with embedded chips, already in the hands of millions, make it even easier. And all of these technologies may be more secure than the current approach, where unscrupulous waiters can make personal use of your card in the back room. "I am 100% certain these devices will eliminate card-skimming in restaurants," says Isaac Lay, a California entrepreneur.
Friday, July 06, 2007
Parametric Tech (NASDAQ:PMTC): Color on warning
- Jefferies lowers their tgt to $20 from $23 but keeps Buy saying the F3Q07 license miss is bad, given management's bullish tone and the run in the stock. They think it's mostly an execution slip in a weakish North American applications market and that the story is not broken.
Just like F2Q06, they think this miss here is more down to poor execution than a fundamental change at the company. The only incremental change is that some weak competitors are now in stronger hands (AGIL/ ORCL) and their recent industry checks in North America suggest it is the weakest of the three major Geos. Given the positive feedback on products from PMTC customers and partners, they do not think the story is broken.
Near-term problem for the stock is management's bullish tone and recent competitor upgrades. Management raised FY07 cash flow guidance one month ago and talked bullishly regarding their business up until the quiet period. The stock is up from $18 just 6 weeks ago, and Jeffco expects to retrace all of that now.
- Deutsche Bank spoke with management and provides the following details: 1) weakness was concentrated in the Desktop segment (MCAD). Their checks indicated the channel was on-track - suggesting that several larger deals were pushed out; 2) some competitive pressure during the quarter, but did not result in losses - more of a timing issue; 3) large deal ($1m+) activity was comparable with F2Q, but was below plan. Again, seen as a timing issue more than a material slow down in demand; 4) management remains committed to margin expansion and is implementing cost control measures this quarter. Mostly discretionary spending, but some headcount reduction likely.
Shares were trading down 20%+ in after-market trading - an overreaction in DB's view given strong industry fundamentals and Co's competitive positioning. Tgt goes to $23 from $24 but Buy is maintained.
Notablecalls: Kaufman downgraded the stock this morning to Hold from Buy but I think the stock's a strong bounce candidate.
The most amazing part of PMTC's miss was that Goldman Sachs added the stock to their Americas Buy List on June 26 saying their checks into Parametric channel indicated the company was benefiting from strong sales in the June quarter and its outlook into September, its seasonally strong 4QFY07, remained robust. The firm even upped their ests for the yr.
The people at Goldman are generally not stupid and are rarely wrong with their checks. So to me this indicates the shortfall is not due to a slow down in demand but rather due to pushouts of couple of larger deals. Sloppy execution? Yeah, possibly. That's generally something the management can and will address swiftly.
Ah, and we have Needham out with a dg.
Costco (NASDAQ:COST): ThinkEquity out positive
The business should be more profitable, too: customer abuse of a too-generous merchandise returns policy may have masked significant business improvements in the last year... but likely won't going forward. Gasoline margins should become less of an issue near-term and going forward as well. Earnings in the current quarter and the coming year could easily be a little better than the consensus expectations.
The current quarter's earnings could easily exceed the consensus... and "guidance," too, one reason being the widespread "understanding" that last year's "extra" week accounted for 1/17 (roughly $0.04) of last year's $0.75 EPS. It is less widely recognized, however, that 4Q06 was a lousy quarter, with operating profit up 10% on a 19% increase in sales,even though 4Q05 was a lousy quarter as well, especially considering the "extra" $0.04 from the "extra" week. Poor closing quarter profitability is best reflected in the poor gross margin remained... which the firm expects should improve, at least a little, in the current quarter.
A continuation of stronger than direct competitors' comp store sales, along with enhanced dominance of its geographic markets and the "markets" for real estate, merchandise, and so on, could result, over time, in higher and more predictable returns on investment, higher returns that would justify continued and, perhaps even more rapid investment and, of course, faster growth. Firm expects all of these things... and continued share retirements. Reits Buy.
Notablecalls: Nice call. Nice chart. Expect to see some upside in COST.
Group 1 Automotive (NYSE:GPI): MSCO reits Overweight
At a P/E of 10.4x MSCO's 2007e and 9.1x 2008e, the shares trade at a low P/E multiple relative to peers, to the market, and to the company's history. In firm's view, this P/E multiple is implying that GPI cannot grow, improve return on capital, nor generate greater free cash flow. In contrast, they believe GPI can grow earnings, improve return on capital, and generate much greater free cash flow as capital spending slows.
If the company closed half the P/E multiple gap versus AN and PAG (Penske Auto Group), this alone would equate to about $8 of upside in the shares.
Notablecalls: Let's face it - the new vehicle market is a tough market to be in currently. Yet, GPI has lots of exposure to the central region that is doing generally better than the rest (units are actually up in TX). Also, having 36% new vehicle exposure to Toyota / Lexus helps.
Results by CarMax (NYSE:KMX) from 3 weeks ago point to a healthier used car market.
Technically, the stock has been bouncing along the $40 level, giving us a nice leash for a swing. I think MSCO's call may attract some nice buy interest today and even over the next week. Also note there's an almost 20% short interest in GPI.
Paperstand (BX, FORM, CYMI)
The WSJs ”Heard on the Street” column discusses Blackstone (BX) acquisition of Hilton Hotels, saying that it comes at an uncertain juncture for the business. With new construction jumping sharply and room demand softening, it isn't clear how long the upward trend can last. Before Blackstone's agreement to acquire Hilton was announced, Moody's downgraded the hotel industry to "stable" from "positive." The ratings firm cited a potential glut of hotel rooms b/c of slowing travel. PKF Hospitality Research says the damping effect of the housing-mkt slowdown on construction and labor prices could unleash a wave of hotel-room starts beyond those already planned. That combination of factors could help the current hotel boom end as most lodging cycles do, on a wave of oversupply, sooner than expected. And that could weigh on share prices.
Barron’s Online out saying that these are tricky times for the investor in semi equipment makers. The group is way up in the last 12 mo’s, but it's mostly on the strength of a few large co’s that have very particular reasons for outperforming. That means it's time to dig deeper into chip-equipment stocks as many of the larger, better-known names seem priced to perfection. Among these smaller co’s worth considering: Formfactor (FORM) and Cymer (CYMI). Best approach now is simply buying underperforming stocks of smaller equipment makers whose earnings should rise sharply next year. Although chip makers have tightened their spending on new equipment, the sense among Wall St. analysts is that chip-equipment spending will come on strong again in ‘08.
“Inside Scoop” section reports robust selling by insiders at Coventry Health (CVH). Since the latest round of selling that began May 1, 14 senior execs and directors at Coventry sold nearly 430K shares on the open mkt for $25.6m. Ben Silverman, of InsiderScore.com, says insider sentiment at Coventry "is always bearish" b/c selling is the norm at the co. But the collective action by insiders calls the valuation into question and suggests the stock "might not move much higher in the near term."
Thursday, July 05, 2007
Pool Corp (NASDAQ:POOL): Morgan Keegan weighs in
- Firm notes that while these issues do not represent new information, the degree of the shortfall provides a negative surprise; they note, that their estimate was already $0.11/share below management guidance prior to this week's release. In response to the news, Pool shares sold-off $2.75 inshortened trading hours on Tuesday; investors anticipated the shortfall to some degree, as the stock price had pulledback more than $4 over the two prior weeks. They are lowering 2007 estimate from $1.94 to $1.77 and 2008 from $2.29 to $2.15.
Based on their adjusted EPS numbers, Pool is trading at a 15% premium to the S&P 500. Since January 2003, the shares have traded at a 35% premium to the market. MK believes that Tuesday's sell-off coupled with the pressure onthe stock over the past two weeks provides an attractive entry point. They emphasize their continued belief that demand weakness is tied to the housing market spillover into home improvement spend. While near-term trends should continue to trend sideways, they believe Pool's performance is admirable in the current environment and EPS trends have been similar to those experienced by leading home improvement retailers such as Lowes. While valuation is currently attractive, the firm believes shorter-term investors may want to wait until there is a tangible improvement in the broader home improvement market; that being said, they believe a restarting of pool industry growth is likely to be swift when it ultimately does occur.
Maintains Outperform.
Notablecalls: My respect for the wonderful team at Morgan Keegan runs deep. Yet, I continue to believe the housing situation will continue to worsen, putting increasing pressure on POOL's performance. I do not see the co growing their EPS much in 2008. The service revs are more stable but do not warrant a premium to the already high market multiple here.
The stock didn't get hit hard enough to become a good bounce candidate on Tuesday. I expect POOL to drift slowly lower over the next couple of months.
Goldman positive on Hansen (NASDAQ:HANS) and Coke (NYSE:KO)
The cost outlook remains challenging, with spot prices of key commodities like aluminum and corn still at elevated levels but emerging market exposure should boost results for companies with operations outside the US.
GSCO highlights Coca-Cola (NYSE:KO) and Hansen Nautral (NASDAQ:HANS) as their favorite stocks to own into the earnings report and would advise investors away from the bottlers and BUD. They are ahead of consensus forecasts for both HANS and KO and see opportunity for upward earnings revisions based on strong profit results in the quarter and an improved full-year outlook. For KO, continued strength in emerging markets, developed market recovery, and foreign currency could drive another quarter of solid concentrate business profit growth. For HANS, they expect solid continued growth for the energy drinks category and share gains by Hansen's portfolio to drive better-than-expected sales growth, albeit with some partially offsetting margin contraction. A 2H profit acceleration could be in store as Hansen benefits from price increases, the distributor transition, and new products.
Notablecalls: It's fairly quiet out there today with KO's possible deal with private equity players to buy Cadbury's Snapple and Mott's brands highlighted as big news. This, coupled with GSCO's positive call ahead of the earnings report may create some interest. HANS is my favourite of the two.
Note that scanner data on HANS been pretty strong.
Paperstand (MAR, HOT, BSX, LIZ)
The WSJ reports that Wall St. bond underwriters called off a $1.15bn sale of junk bonds on Tue that would pay for a LBO of ServiceMaster (SVM). Instead, ServiceMaster received its financing from a bridge loan directly from the underwriters, which they hope to replace in the coming months.
The WSJ reports that Coca-Cola (KO) has approached several private-equity firms involved in bidding for Cadbury Schweppes' (CSG) US drinks business about buying Cadbury's Snapple and Mott's brands. If successful, the purchase would mark Coke's latest effort to expand its portfolio beyond nonsoda brands as it moves aggressively to build a larger presence in the faster-growing mkts for juices, teas and waters. Speaking in Geneva yesterday, Coke Chmn and CEO E. Neville Isdell told Reuters that the co was evaluating a bid for Snapple. "That is a valuation that we undertake, whether [Snapple] is of interest to us or whether we can do it on our own."
"Heard on the Street" column highlights Boston Scientific (BSX), a co where little has gone right since its takeover of Guidant. Guidant's growth has been slower than anticipated, the stent business has deteriorated and the firm is still being restricted by the FDA from launching new products. To raise cash, Boston Scientific recently said it would consider selling part of its endosurgery unit. Moody's decided to review the co's debt for a possible downgrade. By itself, a drop to below investment grade wouldn't necessarily do harm to the co's share price. But bears who think the shares have further to fall say the co's sluggish cash flow and added debt load are the reasons it is pondering asset sales and sharp cost cuts. The co borrowed $9bn to buy Guidant, projecting that it would have $2.4bn in operating cash flow this year. But over the past year, defibrillator and pacemaker sales have declined 4%, and sales of the co's flagship Taxus stent have seen a 26% drop. Analysts generally expect $1bn in operating cash flow this year, less than half the premerger prediction. One drain on cash flow is interest payments, scheduled at $521m this year and $497m next year. A $650m principal payment is due on the Guidant debt in April. The co also has to make an annual payment in Jan to former shareholders of Advanced Bionics, which it expects will be about $200m. About $475m in capital expenditures are expected this year. Meanwhile, "probable" costs are rising from lawsuits that accuse Guidant of hiding flaws in its cardiac devices. After acquiring Guidant, Boston Scientific first predicted it would have to pay at least $381m in legal fees and settlements or damages in the first 477 cases. By March 31, that est had risen to $732m in 1,350 lawsuits. Assuming the cases were settled by the end of '08, and adding that to other likely expenditures, the co is looking at $3.5bn in cash outflows in the next 18mo's. With $1.3bn in cash on hand, it would run out of money in less than 3 years at that rate. Matthew Dodds, of Citigroup, who has a Sell recommendation on the stock, says that "in the world of medical technology, this is the most precarious I have seen a large-cap co in terms of their debt load and ability to pay it down."
Barron's Online discusses Liz Clairborne (LIZ), sayiong that the co is tailoring a turnaround that could get its profits and stock climbing like teenage hemlines. Fueled by unexpected bad news of falling sales and earnings, its shares fell 28% from their record reached in Feb to a 52w low in May. But at an investors meeting slated for next week, mgmt may unveil sweeping and profitable changes at Liz, including cost cuts, and big divestitures. Before the confab, insiders and big shareholders are buying the stock in anticipation of profits getting back on a growth track again next year. In May, Aim Trimark Investments and Lazard Asset Mgmt, two of Liz's biggest shareholders, added significantly to their holdings. And on May 3, director Paul Tierney made the biggest insider purchase of Liz stock in 4 years -- 30K shares for $1.1m. Liz will transform from an M&A-driven co to an organic-growth story," says Omar Saad, of Credit Suisse.
"Inside Scoop" section reports that Crown Castle's (CCI) largest shareholder, SPO Partners, spent $301.3m to purchase 8.41m shares during Crown's June 28 secondary offering. The hedge fund boosted its Crown stake to 42.4m shares, or a 14.9% stake. Michael Painchaud, of Market Profile Theorems, says that SPO's purchases are "supportive of the fundamentals of the co." Even so, this particular buying "doesn't do a heck of a lot in terms of timing and entry point" for investors b/c of the stock other institutions put up for sale in the secondary offering.
Tuesday, July 03, 2007
Motorola (NYSE:MOT): Hefty Q2 revenue cut at RBC
RBC's not sure Motorola's new found strategy of holding firm against the US carriers is working too well. It's either units or ASPs and not both it seems, hence the unit reductions. In the US, Apple remains the top-story at AT&T and on the margin Samsung and LG may be gaining incremental share at Verizon and Sprint. Recent top-selling phones include LG's VX8700, Samsung's SCH-u740, and Blackberry's Pearl family.
Motorola's stock is washed-out in firm's view and may shake-off further downward estimate revisions. But with no clear winning product cycle to provide some sorely needed boost, they believe the shares may drift for the balance of this year's investment horizon. 2Q07 revenue forecast declines from $9.5B to $8.7B vs. consensus of $9.3B, EPS remains at $0.03. RBC's 3Q07 forecast declines from $10.0B and $0.09 to $9.4B and $0.07, vs. street of $9.7B and $0.09. For CY08 they still estimate EPS of $1.00. Maintains Sector Perform and $19 tgt.
Notablecalls: That's a pretty hefty rev cut for Q2. Yet, it looks like MOT stock can handle this. Last week there was some talk of Ichan doubling his stake in MOT but no filings have showed up yet.
Pool Corp (NASDAQ:POOL): Color on warning
There is currently a large short interest in the stock (10 million shares, or 18.3 days to cover), so short covering could support the stock in the near term. POOL hasdeclined 11% since its most recent peak on June 15. Either way, they would become more interested in POOL in the low $30s and their outlook is unchanged in the $35-$40 range.
Baird believes investors have time with POOL because they think that 2007 will likely be more volatile than average and with expectations of a stronger 2H07, there is the additional risk of downside if 2H07 does not come through as expected. Maintains Neutral.
Notablecalls: No surprises here. The housing market stinks and that put pressure on the pool business. The insiders knew it and sold their stock and the market saw it coming and sold. Just take a look at POOL's chart over the past couple of weeks. Heck, even Barron's figured it out last week.
Looks like Wedbush was the only one that didn't see it coming as they upped their tgt to $46 from $41 (reit Buy) on June 20.
Short interest stands at over 20% of float. That's big. The stock should be down 5 bucks today but I suspect we won't see such downside. More like 3-4 bucks. I think anything beyond 4 bucks is buyable for a bounce. Please do note I think things will continue to deteriorate in housing, possibly putting additional pressure on POOL. The only reason for buying the bounce is the huge short interest. POOL had become a somewhat crowded short and I think some of these positions will be covered into today's weakness.
I'm also very interested to know what Morgan Keegan has to say about POOL following the warning. Will do a follow-up.
Paperstand (HMC, TM, GM, UA)
"Heard on the Street" column discusses General Motors (GM), saying that it has been quite a ride for GM over the past few weeks. Since June 7, the auto maker's stock has zoomed ahead 28% on increasing optimism that GM and its Detroit rivals will haul away a truckload of concessions from this summer's contract talks with the UAW. While the possibility of a transformational deal with the union has made GM shares attractive as a near-term trading play, investors looking down the road should still proceed with caution. Fundamentally, GM's business is still under stress. It is burning cash, its core N-American operations aren't making money and several broad industry trends are combining to damp its ability to boost rev, which it needs to fuel its turnaround. "The longer-term story remains highly challenged," says Peter Nesvold, of Bear Stearns.
Barron's Online "Inside Scoop" section report that Lone Pine Capital has found a snug fit in shares of Under Armour (UA). The $8bn hedge fund led by Stephen Mandel Jr. disclosed a 7.8% stake in Under Armour shares in a late Fri. Lone Pine and affiliated funds now own 2.7 million shares of class A shares. The stake makes the firm Under Armour's second-largest institutional holder. Wall St. analysts overall are bullish on Under Armour's prospects. On avg, 14 firms rank the stock a Buy.
Monday, July 02, 2007
BAC adds Navteq (NYSE:NVT) to their Top Automotive Stock Picks List
Maintains Buy and $56 tgt.
Notablecalls: I continue to like NVT. The chart however does not look so hot here! Just keeping the readers posted.
Citi: Another round of 2H order cuts from INTC and TSCM
- Firm's checks suggest NVLS's negative pre-announcement and new cost-cutting initiatives in 2H are primarily due to another round of 2H order cuts from INTC and, to a lesser extent, TSMC, owing to more equipment re-use at leading edge technology nodes. With CQ2 earnings, they expect the start of a process where consensus estimates come in ~20-30% over the next 6 mos and orders get progressively worse through 2H:07 (led by DRAM).
There appears to be a school of thought among bullish investors that DRAM capex per DRAM unit is at record lows and therefore DRAM capex is not at risk. Firstly, this is faulty analysis as capex relative to chip units always must be adjusted for wafer size (300mm cost ~30% more but drives more than 2x units). When adjusting for wafer size, DRAM capex is ~$0.22 per DRAM unit - up more than 2X since C2002, about equal to C1995 and eclipsed only by C1996.
The bottom line in DRAM, from Citi's view, remains the "funding gap" that has developed this year. As a reminder, C2007 is only the 3rd period in the past 15 years in which memory industry EBITDA will fall meaningfully short of capex. In prior funding gaps (C2001 and mid-1990's), capex was cut at least 30% the year after - in other words, history suggests memory capex (particularly DRAM) will be under significant pressure in C2008. Near term, they believe internal capex approval requirements in Korea (Samsung and Hynix) have been tightened dramatically in recent weeks. While few cuts have been made yet, this is moving in that direction and argues against the view that DRAM capex is OK.
Notablecalls: I continue to be bearish on the Semi Equipment space, especially the names with high exposure to DRAM capex.
Color on Apple's iPhone launch
- Piper Jaffray spent Friday evening at Apple stores in New York,San Francisco, and Minneapolis, quantifying the iPhone launch. According to rough estimates they believe Apple sold 500k units over the weekend, which wouldprovide upside to their estimate of 200k units in the June quarter. Overall, Apple met strong demand over the weekend with adequate supply. PJ was surprised by the rate at which Apple was able to sell the handsets, with 50 cashiers processing up to 1,000 iPhones/hour in some stores. Also, the setup process involved some hiccups, but the touchscreen, keyboard and battery life are better than they expected. Maintains Outperform and $160 tgt.
- Goldman Sachs notes Apple's iPhone launch, which started on Friday, blew through expectations that have been climbing since January when the product was announced and provides another example of Apple's ability to bring dramatic change to an industry. They now think that Apple unit sales over the weekend were at least double their prior 350,000 estimate (Apple's June quarter ended Saturday so Sunday's sales will show up in September quarter results) and they have increased their iPhone forecast to 5.25M for calendar 2007 and 12M for 2008, up from 4M and 10.5M, respectively. 2007 and 2008 EPS estimates go to $3.58 and $4.30 from $3.52 and $4.08 - still with the bias firmly to the upside.
GSCO is leaving their price target at $135 but they think all of Apple's key products - especially iPhone and Mac - have an opportunity to show upside over the next couple of quarters, keeping the stock firmly moving ahead.
- Morgan Stanley says they have strong conviction in their higher earnings forecast relative to consensus and continue to view Apple as a top pick in their group. While the success of Apple's iPhone won't be determined anytime soon, the successful launch over the weekend is indicative of their positive thesis. Perhaps the most important takeaway from initial research is Apple's ability to drive customer traffic, and therefore margin leverage, in its retail stores. If sustainable, they view their bull case of $7 C08 EPS and $225 stock price as more likely.
Notablecalls: I think AAPL will dictate the overall sentiment over the next couple of days or even more. If AAPL gets sold on this positive gaga, it won't be because of activation issues. This will send a clear message to the market we are headed towards lower levels.
Frankly, I have no feel for AAPL here. Sorry.
Paperstand (BCE, ZQK, AMD)
The WSJ reports BCE (BCE) said it agreed to be acquired by the investment arm of Ontario Teachers' Pension Plan, Providence Equity Partners and Madison Dearborn Partners for $32.6bn. The deal also includes an additional $15.9bn in debt, preferred equity and minority interests, for a total value of $48.5bn, making it also the largest private-equity buyout package in history. "The plan in private equity is to go after bigger and bigger deals, and this is yet another level," says Shahid Khan, of Interactive Broadband Consulting Group.
The WSJ reports that AT&T (T) said it was working to resolve problems preventing some buyers of Apple's iPhone from activating the device. The hiccup affected about 2% of those who purchased an iPhone. Neither co disclosed sales, although industry observers expect the new product to be a strong seller.
According to the WSJ, Vivendi's Universal Music Group is considering notifying Apple that it isn't renewing a long-term contract to sell digital-music downloads through iTunes Store. Such a move wouldn't mean Universal would remove its vast catalog from iTunes in the foreseeable future. Instead, Universal hopes to go to a short-term sales agreement rather than a contract that lasted more than a year.
"Heard on the Street" column out saying that Quicksilver (ZQK) may be ready to quit the sport it took up just 2 years ago. And that could give the co's share price a nice run. The co last mo posted its 1st quarterly loss since '92. The main reason: a foray into the ski business via the co's '05 acquisition of Rossignol. The European brand, once seen as a growth opportunity, now seems to be dragging the co under the waves. Rossignol was always viewed as an odd choice for Quiksilver. Then the weather changed for the worse. Last winter saw record-low snowfalls in both N-America and Europe, drawing few skiers to the slopes and even fewer into stores. Sales plummeted along with the stock price. The price has since recovered, with investors returning after solid performances by the co's apparel ventures. The stock's recovery isn't enough to quell analysts who believe the Rossignol brand remains a near-certain liability for investors and the co. Quiksilver is considering whether to backtrack completely by selling Rossignol. Any sale would undoubtedly be at a loss to what the co paid, but observers say it would nonetheless boost interest in the stock by removing a cloud hanging over the co. "They are probably going to sell something, either all or part of Rossignol," says Jeff Mintz, of Wedbush.
The NY Times reports that the Carlyle Group is in discussions with Virgin Media, the British cable co whose largest investor is Richard Branson, over a potential bid worth around $20bn. The talks are still early and may not lead to a bid.
DigiTimes reports that AMD's (AMD) Phenom processors were originally planned to begin test-production between Sep and Oct, and to start shipping in Nov this year. However, AMD may now be planning to postpone Phenom's launch date to the 1Q08.
Sunday, July 01, 2007
Barron's Summary (AAPL, ELNK)
Notablecalls: Actionable.
Fund manager likes BONT, JWN, SAH, UAG, RICK and PTT, dislikes casual-dining stocks.
Barron’s discusses Discover Financial Services (DFS), whose CEO has told that the co will have better opportunities for growth as an independent concern, as it seeks to gain greater acceptance of the Discover card among merchants, and higher transaction volume. But both goals may be more elusive than Discover fans think, given the dominance of industry rivals American Express (AXP), MasterCard (MA) and Visa. Craig Maurer, of Calyon Securities, has a Sell rating on the stock and a price tgt of 22, or 15x his below-consensus est for ‘08 earnings of around $1.50 a share. He contends Discover deserves to trade at a 5-point discount to his tgt '08 multiple for American Express.
Seaspan (SSW) is seaworthy: It offers about a 6% yield, the prospect of a 15% price rise in the next year and is a good play on the rapid rise in global trade -- with less risk than other shippers.
Wall Street’s worries about the financing of giant LBOs have depressed the shares of takeover tgts, creating opportunities for investors willing to bet that the deals will be completed. Pending LBOs could require up to $300bn in financing, prompting concern about the willingness of banks and high-yield investors to absorb that mountain of debt. In the face of such uncertainty, investors now can earn 10%-plus returns on such tgts as HET, AT, ADS and FDC. "The mkt is about as attractive as we've seen in a while," says Mike Shannon, of Merger Fund. He says the annualized return on about 150 tgts worldwide is about 15%, vs 12% just a week ago. Othr stocks mentioned include ASN, CCU, JNC, SLM and TRB.
“International Trader” out saying that Vodafone (VOD) looks like the front-runner in the race to secure exclusive European rights to Apple's iPhone. But the co should be careful about what it wishes for. Vodafone might get the deal, but on terms far less favorable than it's accustomed to receiving from other equipment suppliers. Doing a deal with Apple comes with extra costs. To carry iPhone-compatible e-mail traffic, European operators will have to invest in their infrastructure. Thus, it's hard to believe that Vodafone would agree to an AT&T-style arrangement - giving away subs rev to Apple. But the selling price of Apple's handset is one reason for not projecting sales on the scale of the iPod's. European mobile customers are used to receiving heavy discounts on phones. Persuading ppl to spend a possible €450 on the iPhone will prove difficult. And with only 10m iPhones expected to be sold worldwide in the first year, the device's overall mkt share will be small. So, even though shares of Vodafone edged up last week, after newspaper reports that the co was the favorite to get rights to the iPhone in Europe, investors should keep in mind that a deal with Apple could be an expensive venture.
“Follow Up” section highlights Lionsgate (LGF), sayin that the co has a very healthy balance sheet, it continues to spin off from its franchise of horror movies. On top of that, it's been among the faster movers into new methods of digital delivery: The 15 movies that Lionsgate made available earlier this year to Microsoft's Xbox Live helped boost digital rev 50%, while CEO Jon Feltheimer notes that VOD sales for Employee of the Month "exceeded $3m on a film that grossed about $27m at the domestic box office." The co has, he explains, "nearly a dozen active agreements in place for digital delivery" of its content with major co’s, including Bst Buy. Finally, Lionsgate is one of the last remaining pure-play entertainment co’s, and has been rumored to be a takeover candidate, especially on the strength of its library of more than 11K titles. Says Feltheimer: "There are no more libraries out there to be bought." Three analysts see the shares headed above 15.
Interface (IFSIA) will sell its underperforming fabric business, clearing the way for the co to further reduce its debt load, improve its balance sheet and focus on its high-margin core tile business. Interface will receive approximately $63.5m at the closing of the transaction, and an additional $6.5m, subject to the division's meeting certain performance measures. "Look for a leaner, cleaner co going forward, with much less drag on their operating profits," says Chad Kilmer, of Value Discovery Fund. Bulls expect the stock to climb to 22.
“Technology Trader” highlights Earthlink (ELNK), whose new CEO Rolla Huff tells Barron’s that he plans to spend the next 60-90 days sorting through Earthlink's moving parts and figuring out exactly what he's got. By the end of the process, he says, he should have a workable strategy. Huff says it's possible Earthlink could keep all of its parts, but it seems clear some are going to have to go. The co has a mkt-cap of $950m. In ‘07, the Street expects rev of $1.3bn. It has net cash and investments of more than $200m. And Huff has made it clear that changes, of the shareholder-value enhancing variety, are coming. Huff says he comes to Earthlink "with no pre-conceived notions...I am not married to anything other than driving a return for our shareholders. And for me." That last statement reflects the fact that Huff bought 100K shares of the co's stock on the day he took the job. "I didn't do that to make a statement," he says. "I did it b/c I think I am going to make a great return on that money." In short, Earthlink is going to be fixed, and soon. Eventually, it might be sold. Huff has not historically been shy about finding M&A exits. Meanwhile, if Huff take the aggressive approach to remaking the business, holders should get a short-term reward.
Notablecalls: Actionable.
Archives
June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009 December 2009
