Barron’s cover story reveals 50 best hedge funds. Top 5 includes RAB Special Situations (3y cumulative avg return: 47,69%), The Children’s Investment Fund (44.27%), Highland DCO Opportunity (43.98%), BTR Global Opportunity (43.42%) and SR Phoenicia (43.1%).
Interviewed portfolio manager likes NEM, GFI, IVN and GOLD. He believes that gold bubble lies ahead, sees gold at $1000/oz.
The shares of BorgWarner (BWA) now trade in line with the auto-parts group, but merit a premium based on strong patterns of revenue growth. Now around 90, they could hit 105 to 110 in the coming year, analysts say.
AMR (AMR) is trading for about 22, or six times estimated '08 earnings, down from a peak of 41. The stock could rise 50% in the next year, as investors recognize its assets.
Nordson's (NDSN) shares could climb more than 20% in the coming year, thanks in part to global diversification that cushions earnings from an economic downturn in the U.S.
“The Trader” column highlights WYNN and LVS, whose shares have soared about 89% from their late-Jun lows. At 134, LVS now trades at nearly 51x forward earnings and 110x what it earned over the past 12 mo’s. Wynn shares are changing hands near 160, or 56x forward earnings. Seizing the opportunity, Wynn last week priced a public offering of 3.75m common shares at 158, raising an easy $600m for "general corporate purposes." The dizzying valuations reflect increasingly crowded bets on the hot Macau mkt. While new Macau properties add buzz, there are cultural and political risks, and the tilted risk-reward profile makes these stocks more of a gamble. Jefferies analyst Lawrence Klatzkin, for example, recently lowered his rating on Wynn from Buy to Hold b/c the stock "has gotten ahead of itself."
“The Trader” also discusses Smithfield Foods (SFD), saying that the odds are improving for the co. Consider what's happening in China: As the world's largest pork-consuming country celebrates the year of the pig, it ironically is suffering an acute pork shortage. A vicious outbreak of Blue Ear disease has infected 290K pigs and would wipe out 20% of the pig population. Pork prices have jumped 70% in the past yr. Vietnam and Myanmar also reported outbreaks of the disease. Into the fray comes Smithfield, which agreed in late August to supply 60m pounds of pork to a Chinese distributor. While the agreement is to supply pork through Dec’07, it could lead to additional purchases. For one thing, the Chinese pork shortage won't ease soon: It takes about 18mo’s to rear a sow and produce piglets, and the govt's disease control and vaccinations will take time. Meanwhile, the govt is under mounting pressure to keep food inflation in check and stave off social unrest. At about 31.50, Smithfield has pulled back 12% from its mid-summer peak and is trading at 12.6x forward earnings. Shares have been stagnant in the past 2ys, chiefly as worries persist about rising grain and feed costs. As Smithfield beefs up its commodity offerings with higher-margin products it could emerge stronger from the current cycle trough. Ted Baszler, of Heartland Select Value Fund, sees operating margins, now at 3%, increasing to 5% or 6% by 2010.
“Follow Up” section discusses Cisco (CSCO), whose stock is up 38% since Barron’s highlighted it positively back in Oct.9 ’06. But after the mkt's rotation into tech stocks over the last few mo’s, Cisco's going for almost 7x its trailing revs. Its forward earnings multiple of 21x has surpassed the median level of the last 3ys. Time for investors to look for less fashionable stocks.
“Technology Trader” highlights EchoStar (DISH), which last week revealed plans to acquire Sling Media. Announcement two was that EchoStar is planning to split into 2 co’s. All this means EchoStar shares are worth more today than they were a week ago. B/c DISH Network as a stand-alone business is expected to get a higher multiple, since it will be less capital-intensive than while buried inside today's Echostar. And splitting off the tech business opens up new prospects. Finally, it's possible that the 2 announcements are a prelude to another bigger one: an acquisition of the DISH Network. Rumors suggest merger with DirecTV (DTV) or outright acquisition by AT&T (T). In fact, TheStreet.com last week reported that AT&T has offered to buy the co for $55 a share. Thomas Eagan, of Oppenheimer, last week raised his rating on EchoStar to Buy from Hold, and asserted that AT&T needs a new strategy. And given the fact that AT&T has for some time now been reselling DISH service to its customers, buying the co has a certain logic. Eagan, in fact, contends that when it comes to AT&T buying EchoStar it is "a matter of when, not if." Consistent with the rumormongers at TheStreet, Eagan says DISH could be worth $56 in a takeout.
According to the “Technology Trader” column, Toshiba last week said it has sold out its supply of NAND flash memory through the end of the year, and is turning away business. That bodes well for Micron (MU), which reports results Tue. Micron shares are always volatile; they are the classic example of a trading stock as opposed to an investing stock. Never consistently profitable, the chip maker's fortunes are determined in no small measure by the state of the memory-chip mkt. Some still equate Micron with DRAM, but over the years, the co has diversified a bit. Daniel Amir, of Lazard, asserted last week that the upcoming earnings could hold a positive surprise in the form of better-than-expected NAND results. Meanwhile, investors await word on the potential sale of Micron's image-sensor business. Amir thinks the unit will be spun off in the 1H08, a move that could act as a catalyst for the stock. He thinks the stock can reach 14.
Sunday, September 30, 2007
Barron’s cover story reveals 50 best hedge funds. Top 5 includes RAB Special Situations (3y cumulative avg return: 47,69%), The Children’s Investment Fund (44.27%), Highland DCO Opportunity (43.98%), BTR Global Opportunity (43.42%) and SR Phoenicia (43.1%).
Friday, September 28, 2007
While they are modeling for 800k iPhones, firm's new sensitivity which factors in checks from yesterday suggests Apple will sell 1.05m iPhones in the September quarter. PJ's previous sensitivity had suggested 1.01m phones in the quarter.
While 40k additional phones in the September quarter may seem irrelevant, Piper tells investors to keep in mind that this incremental change is the result of only 21 days in the quarter at the lower iPhone price point ($399). If one assumes that this +70% run rate is sustainable, it would add ~170k phones to a full quarter.
Maintains Outperform and $211 tgt.
Notablecalls: We had optimistic comments from Piper regarding iPod demand yesterday. Now they're out saying demand for the iPhone is outpacing their ests. Remember there has been lots of talk of iPhone not selling well enough at AT&T. The chart strongly suggests AAPL is headed to $160 in the n-t. Be on that train and be early! Actionable trading call alert!
Barron’s Online reports that Thurman J. Rodgers, founder and CEO of Cypress Semi (CY), may be warming to a breakup of his co. If so, it could be a windfall for Cypress investors. Cypress has seen its stock rise 74% this year, largely on the strength of the shares of SunPower (SPWR). But Cypress is still undervalued, say investors and analysts. With Cypress' mkt cap at $4.4bn, and its 55% stake in SunPower worth $3.6bn, the rest of Cypress is being valued at about $5 per share, drastically below its fair value of $11, say some analysts. A splitting up of Cypress' chip business and the subsidiary could boost the valuation of the chip unit and endow the co with billions in cash. Rodgers has resisted breakup calls from hedge funds as recently as last year to restructure. For one thing, he has to pay taxes on SunPower if he does anything before Nov’09. But analysts say a tax-free deal could be engineered quickly. And some say that lately they sense a greater willingness on Rodgers' part to entertain such possibilities. That's a good bet to take. For, even if Rodgers did wait, investors buying Cypress shares today would get a valuable chip business trading at a mere 1x rev with almost a bln in cash and a demonstrated willingness to buy back shares. "Take all the cash Cypress is sitting on, and the bang-up job they're doing streamlining the [chip] business, and you've got good upside without any more outperformance from SunPower," says Kevin Landis, of Firsthand Capital Mgmt. But that's not reflected in Cypress' share price, says Landis, b/c, "You've got a sandwich of a turnaround story [at Cypress] and a growth story [at SunPower]," and it's hard for investors to appreciate both stories at once.
“Inside Scoop” section reports that two Ball (BALL) execs have decided to seal in some profits. On Tue Raymond Seabrook, exec VP and CFO sold 61K shares for $3.8m. On Sept. 19, Harold Sohn, senior VP of corporate relations, sold 4K shares, totaling $222K. With the co set to announce 3Q earnings on Oct. 25, execs are approaching a window in which they will be prohibited from trading stock. Ben Silverman, of InsiderScore.com, notes that the co previously warned that the 2H07 would be softer than normal. "The stock is up significantly, trading near its all-time high, and you do have an earnings report on the way. With selling ahead of the report, opposed to after, the timing is fairly significant," Silverman says. "The signal we're getting suggests it might be time to take some money off the table. Following the insiders and taking profits might not be a bad idea."
Thursday, September 27, 2007
The Street is looking for 10.6m units vs. PJ analysis which points to 10.4m and their published estimate of 10.2m. There could be upside to Street iPod numbers in Sept., but history suggests not to expect much upside.
On September 5, Apple announced an entire line of new and updated iPods. Piper believes these new iPods put the product lineup in its best position ever for the holiday season (Dec. quarter).
Maintains Outperform and $211 tgt on AAPL.
Notablecalls: Will this call be enough to push AAPL stock to a nw 52wk high? Sure, why not. After all, Piper's the axe in AAPL.
Barron’s Online “Inside Scoop” section reports that 4 institutions have disclosed large positions in Zale (ZLC) over the last 3 mo’s. The latest purchase came from hedge fund Citadel Investment. Citadel now owns 2.6m shares of Zale for a 5.3 % stake in the co. Earlier this mo, Breeden Capital Mgmt, SAC Capital and Hayground Cove Asset Mgmt disclosed new and/or increased stakes in Zale. Breeden Capital, founded by former SEC Chmn Richard Breeden, paid $83.6m for 3.8m shares of the co and reported the 7.7% stake as an activist shareholder. Ben Silverman, of InsiderScore.com, says, "The four filings combined probably send a positive long-term message." In terms of a signal for investors, Richard Breeden's purchase is "more noteworthy among the cluster," Silverman adds. "We know he's a value-focused activist investor, whereas SAC and Citadel are more generalists."
Wednesday, September 26, 2007
- Jefferies is upping their tgt on MGM Mirage (NYSE:MGM) to $118 from $115 saying they believe the stock is currently currently undervalued as it is trading roughly 35% below price target. The company is one of Jeffco's top three picks as it continues to follow our projected blueprint, developing into much more than a gaming company.
While September numbers have yet to be released, they believe the recent opening of the Venetian has helped bring in more visitors and more revenue than originally anticipated and that the rest of the market is holding up much better than expected.
This oupled with a slight increase in Las Vegas estimates, they are raising '07 and '08 EPS and EBITDA estimates to $2.52 and $2.615bb from $2.45 and $2.584bb, and to $3.57 and $2.879bb from $3.42 and $2.841bb, respectively.
Jeffco's thesis on MGM remains bullish as MGM continues to turn into a diversified holding company, with its fingers into not only gaming but also high-end hotel management and joint venture land development. The latter two would bring cash into the company rather than use cash. To reiterate, they continue to believe their $118 price target is conservative and underestimates the true value of the company and the potential for its assets, mainly the value for the company's hospitality division and the potential for joint ventures on its 1,300+ acres of under/undeveloped land.
Notablecalls: Both Jeffco's 07/08 EPS and tgt are the new Street highs. Given how Jeffco's comments worked on Las Vegas Sands (NYSE:LVS) on Monday, I would not be surprised to see considerable buy interest in MGM following today's call.
I like chart as it looks like it's getting ready to push to a new all time high soon. It did reach a new high intraday but was chopped down. I think bulls will have another go today. As traders, I suggest you be on that train.
Firm thinks this could be a significant development for two reasons:
* First, they (and they believe most observers) had anticipated this agent would enter Phase III straight away, based on Ilypsa's Phase II dose-ranging study.
* Second, while they do not know whether this drug's original dose-escalation Phase II study will be at ASN (Oct 31-Nov 5), they speculate that if it is detailed, it may not be as impressive as some had feared, given that AMGN has embarked on this additional Phase II study.
Maintains Outperform and $75 tgt on GENZ. Notes they are incremental buyers on this news.
Notablecalls: Expect to see some buy intrest in GENZ following these comments.
Tuesday, September 25, 2007
According to the firm, Accuray's CyberKnife and Elekta's GammaKnife are designed specifically for SRS (stereotactic radiosurgery) due to their sub-millimeter accuracy and ability to deliver higher intensity doses of radiation to a much more precise area, far superior for inoperable tumors (based on the opinions of physicians they have spoken to). ARAY's system for SRS commands ~$17K for 3-5 treatments or 9x the reimbursement rate IMRT/IGRT generates per fraction, a significant benefit for ARAY.
Jeffco notes that a competitor has been incorrectly estimating CyberKnife new orders over the past two quarters causing a lot of undue pressure on the stock. Based on discussions with management, they are confident that the number of new system orders in FY3Q was ~ 2x that of the copetitor's estimate (or ~19 systems, which ultimately led this competitor to correct his calculation). In addition, this same competitor recently calculated 15 new orders in FY4Q, while management states that they actually had ~30 new orders. Therefore, the firm continues to believe that with a doubling of orders from FY3Q to FY4Q and strong backlog growth, ARAY continues to see tremendous demand for its system.
They believe trends are strong and would be buyers of the stock in front of ARAY's first ever analyst day on October 4th in Las Vegas. Reits Buy and $29 tgt.
Notablecalls: Do check out ARAY's technology as the CyberKnife device looks really groundbreaking. The backlog is just huge, indicating strong demand for the device. The reimbursement climate seems to be favourable as most of the claims (over 90%) for CyberKnife procedures are reimbursed.
The installation rate has not matched the most optimistic estimates lately and this is the primary reason why investors can buy the stock way down. Given the tech/cost advantage ARAY's CyberKnife offering, I do think it is only a matter of time when things will speed up.
Management issued a $25 mln buyback right after the recent slide, with one director stepping up and personally buying 100K shares @ $13.82 3 weeks ago.
The chart looks like the stock is forming a bottom and I suspect Jeffco's strongly worded call will push it higher over the n-t.
Of the 10 resellers in PJ's checks, six saw flat demand q/q in Q3, while three saw an increase in demand q/q and one was tracking down sequentially. On average, resellers indicated that their Avid video business is up 5% sequentially (essentially in line with their model at up 3%). 40% of the resellers the firm spoke with said they do believe the ongoing transition at Avid is starting to disrupt their Avid-related business.
Street models assume Avid Q4 revenue will be up 8% q/q. Resellers in checks were split between: 1) expecting an up sequential Q4, and 2) uncertain pipelines that could lead to an up or down sequential Q4. Given Q4 is typically a seasonally up quarter, the firm was somewhat surprised by the high level of uncertainty among resellers on whether they felt they would see a sequential uptick. PJ believes this uncertainty regarding Q4 pipelines is a sign that Q4 Street estimates may be aggressive.
They are taking their tgt to $27 from $32, maintain Mkt Perform rating.
Notablecalls: AVID's a bit of a mess here. The CEO David Krall decided (or was forced) to leave on July 16, leaving behind a somewhat troubled co. The stock has been weak over the past 3-4 months, most likely discounting the fears highlighted in today's PJ call.
On the valuation side, we still have the stock trading 20x CY07 EPS and around 17-16x FY08, which does not look cheap enough, given the problems and slowing growth AVID seems to be facing here.
Note that the co warned same time last year (Sept 25) and given PJ's checks, I would not be surprised to see another warning in the n-t.
AVID continues to be radioactive here and I suspect the stock will get hit further.
I don't see seasoned players stepping into AVID until the stock hits say $20-$25 level. That's where it seems to be heading currently.
Monday, September 24, 2007
Indications in Asia last week suggest MOT orders to component suppliers have hit an inflection
late-quarter. Reflecting a turn the firm increases their C3Q07 revenue estimate $5M to $243M (Street $239M; CIR/Street EPS $0.06). In summary, a MOT rebound coupled with the on-target launch of Polaris III adds luster to the base biz revenue story, auguring well for solid C4Q07 revenue guidance.
RFMD's valuation is among the most inexpensive in Citi's coverage across EPS, book and sales parameters, an attractive base given looming estimate revision positives and a likely favorable shift in stock psychology. They expect the shares to trade steadily higher on October's results/outlook and then November's analyst day, and regard an expected tripling
in operating margins (from 4% now to 12% by end-2008) as powerful propellant to shares appreciation in the next twelve months. Reits Buy.
Notablecalls: I issued an Actionable call alert on RFMD on Sept 5 after CIBC was out positive on the stock highlighting strength at Nokia. Now we have Citi out with a very strongly worded call, saying things are starting to look up at Motorola as well. Over the past weeks, there have been several upgrades on MOT (there's one today from RBC Cap), which seems to confirm Citi's views.
Yet, RFMD stock is trading around the same levels when CIBC's call was issued. It's cheap and has things going for it. It does not deserve to trade at $6 and change here. The stock deserves to be at $7 minimum. I suspect it's going to head there soon. Make sure you don't miss that train.
I'm going to re-issue the Actionable call alert here.
LVS remains a dominant player in gaming with its unique product offering providing all together convention space, malls, sizable room base and Vegas-style gaming. This formula is being repeated in LV, Macau, Singapore, and PA, and the firm believes this gives LVS an edge in winning future markets.
The $39 raise in tgt price is due to:
1) They are now giving a 15% premium on LVS to reflect its true value as a growth company.
2) The Macau market continues to perform solidly and exceed expectations, thus the firm has raised their estimates accordingly. While September numbers have yet to be released, they believe the recent opening of the Venetian has helped bring in more visitors and more revenue than originally anticipated and that the rest of the market is holding up much better than expected. Jeffco's '07 and '08 EPS and EBITDA estimates are raised to $1.55 and $993mm from $1.30 and $906mm, and to $4.03 and $2.2bb from $3.56 and $2.0bb, respectively.
Notablecalls: This is the new Street high tgt on LVS. I suspect Jeffco won't be the only firm out with a hefty tgt raise in the n-t. Others will follow. While the stock is up solidly over the past weeks I think this call will generate enough buy interest to push it to a new all-time high, I'm guessing (!) somehwere between the $135 and $140 level.
According to the WSJ, the UAW set a deadline of 11 am EDT today to conclude a new national contract with General Motors (GM), following weekend negotiations that appeared to be on track to produce a groundbreaking labor deal. The talks still could encounter obstacles, even though ppl familiar with the situation indicated that a framework for dealing with the main issue of retiree health care was in place, and that bargaining yesterday had shifted to other issues. One key issue is the size of a cash bonus GM will give 73K active workers in exchange for ratifying a deal. Late yesterday, UAW Intl leaders in Detroit began calling local leaders at GM plants across the country, telling them to prepare to go on strike today at 11 am if no deal was reached. The UAW typically sets strike deadlines as a way of putting pressure on co negotiators to wrap up last details.
The WSJ reports that Microsoft (MSFT) execs and a PR firm retained by the software giant are waging a quiet campaign to convince Internet co’s, advertisers and regulators to oppose Google's (GOOG) planned acquisition of DoubleClick. In recent mo’s, PR firm Burson-Marsteller pitched media outlets and Internet co’s on what it said were the dangers of the deal, which would bolster Google's already strong presence in online advertising. In the written pitches reviewed by The WSJl, Burson cites the deal as part of a larger discussion of "fair and free competition" in Internet-search and privacy rights of consumers.
Dell (DELL) is set to announce a deal to sell its PCs through China's largest electronics retailer, the latest departure from its direct-sales model as it seeks to grab a larger piece of the global mkt. The deal with Gome Group of Beijing is slated to be announced today. It will let Dell use Gome's retail network, close to 1K stores in 168 Chinese cities, to sell its desktop and notebook models in China.
According to the “Heard on the Street” column, while economists jawbone about whether the US will sink into recession, investors already are thinking of ways to prepare their stock portfolios for a downturn. It's going to feel a lot like recession," says David Kostin, global investment strategist at Goldman Sachs, which is forecasting 1% gross domestic product growth, but not a recession, in the first quarter of 2008. "That's pretty anemic growth, and I believe the market is likely to trade like it's going into a real recession." Among his picks: WAG, MSFT and LMT. Other recession-proof stocks mentioned: CPB, WWY, DEO, DNA, C and AIG.
Sunday, September 23, 2007
Barron’s cover highlights BMW, saying that according to some bulls, the shares could rally 20% or more if 2H07 margins expand. At its recent price of €43.57, it was trading at over 10x the ‘07 consensus EPS ests of €4.08, a big discount to its peer group, which trades at 14.1x. Take out BMW's €6.5bn, or €10 a share, in cash and the P/E multiple is even lower, notes Daniel Kerbach, of LGT Capital Mgmt. And while BMW has been investing heavily, it now has many more improved models available as a result. "It will take a few quarters, but that will pay off," Kerbach adds.
Fund manager likes BWA, TEN and JCI.
Pittsburgh Plate Glass (PPG) stock looks like a good bet. The company is getting out of slow-growth markets like U.S. auto glass and reinvesting in more promising ones like Transitions eyeglass lenses.
Through brokerage stocks are up 10%-25% since the lows of this summer, they're apt to level off or drop in the months ahead as investors come to accept the new environment. BSC, LEH, MS, GS.
If the deal dies, the shares of PHH (PHH) could fall to 22, about $6 less than book for a good business. An investor says it's worth at least the $31.50 buyout price -- and possibly $60 in two years.
“The Trader” column highlights Aegean Marine Petroleum (ANW), saying that the co’ stock offers an alternative vehicle to ride the shipping boom. With shipyards bursting with orders, Aegean should see increased demand for its services in the years to come. The task of schlepping fuel to ships, undertaken by oil co’s decades ago, increasingly is falling to independent suppliers, and Aegean should continue to snag mkt share from its smaller, regional peers. A strong balance sheet with no net debt also gives Aegean financial flexibility and the option to buy smaller, undercapitalized co’s. Aegean is expected to double the number of its service hubs and nearly triple its fleet by 2010, and Jefferies Douglas Mavrinac expects sales volume to rise 4-fold by 2010. He expects EPS, at about 68c in ‘07, to reach $1.72 in ‘08, $3.22 in ‘09 and $4.50 in ‘10. Another catalyst: The world's supply of bunkering tankers that can deliver heavy-grade marine fuel will fall off sharply after ‘08, as single-hull oil tankers are phased out in accordance with an intl rule aimed at reducing pollution in an accident. But Aegean's 16-strong fleet consists of 14 double-hull bunkering tankers. And it has orders for 28 new vessels. Mavrinac’s tgt stands at 42.
According to the “Technology Trader”, Bernstein analyst Craig Moffett recommends investor to buy shares of Comcast (CMCSA). It sucks," he said. Comcast shares have, dramatically underperforming the broad mkt, other media stocks, and more or less everything else. The slide reflects a variety of factors, in particular worries that the co is beginning to feel the heat from the TV offerings now rolling out from AT&T and Verizon. Says Moffett: "The cable operators, for all the hand wringing, are growing at their strongest growth rate in a decade," with Comcast growing rev by 12%, and EBITDA by 14%. Moffett notes that Comcast's shares have dropped to a historic low valuation, and now trade at a multiple of cash flow about on par with the much slower growing RBOCs. Moffett thinks Comcast is running out of reasons not to make a regular payout, and he notes that a move in that direction could shift investor perceptions of the stock. Unless Comcast really does something off the wall like build out a new wireless phone network, Moffett expects the co to spend an increasingly small portion of rev on capital spending, which should mean expanding free cash flow. Given all of that, Moffett thinks investors ought to be buying the stock. "It has been brutally painful to own this stock, watching it go down 2% every day," he says. "But on the other hand, it is hard to make a case for anything other than adding to positions...there's always a gut check before you step in and buy a stock as unloved as Comcast. But history says that is when you get the best returns."
“Plugged In” column discusses Google (GOOG), saying that critics such as Fred Hickey are convinced that not even GOOG can avoid the impact of the credit mess. In a recent edition of his newsletter, Hickey wrote that Google's ad revs are likely to take a hit next qrtr and beyond. Late last week, Google execs told that mortgage-related advertisers are indeed cutting their budgets, but they aren't expected to reduce spending on Google search ads. "Every single day that somebody is looking for a mortgage...these campaigns from these financial customers are on 24-7, 365 days a year," says Tim Armstrong, president of Google's ad division in N-America. "So our ecosystem actually mimics what the GDP looks like." Granted, with a $174.8bn mkt cap that dwarfs the GDP of many sovereign nations, Google might think it mirrors the US economy. But that doesn't explain how Google has managed to protect a big piece of a smaller pie, says a money manager at a major East Coast hedge fund. "It is inconceivable that mortgage-related ad rev isn't shrinking," the manager says. "Google is far more exposed than the Street is letting on," the hedge-fund manager contends. For Google bears, runaway costs are a big concern. Google reported that operating expenses skyrocketed 68% last qrtr, and CEO Eric Schmidt admitted that the co blew through its plan for new hires. Google has defied gravity before. And just b/c mere mortals, such as Bear Stearns and Countrywide, have buckled some under the weight of a global liquidity crisis, there's little reason to believe that Teflon-coated Google could some how be affected, too.
Thursday, September 20, 2007
1) anticipated BVF-033 update the firm believes may serve as a near-term catalyst;
2) dividend yield of 8.6% which could help support an upward move;
3) depressed valuation at 10.5X 2008 EPS. While GSCO still sees challenges at Biovail, including the need for a sustainable growth story (no change to Neutral rating, $23 tgt), they do see risk/reward skewed to the upside here as investor expectations surrounding BVF-033 appear modest. With shares off 33% (versus S&P down 2%) since the July 20 non-approvable letter (removal of $1.3 billion in equity cap), they believe an earlier-than-expected approval could provide a boost to the stock with still decent downside protection on current dividend yield.
Street expectations for BVF-033 appear modest, with visibility into a path for earlier-than-expected approval a potential catalyst. It has been five weeks since management's August 14 meeting with FDA (following July 20 non-approvable) with ongoing active dialogue. GSCO now believes an update to be
Notablecalls: BVF stock has been crushed since the BVF-033 (new version of Wellbutrin XL) approvable letter. The analyst community and investors in general had considered the approval a sure thing. The next leg down came when Q2 results conf call yielded little new information on the pipeline (plus lousy generics side performance).
Yet, looking at the BVF-033 situation, a short bioequivalence trial (with a 6-month review) looks increasingly as the worst case scenario. Other scenarios include the acceptance of the existing application or the completion of the single-dose study with a ver short review time.
My guts tells me here that anything poisitive from BVF should propel the stock several points higher from current levels. Most analyst tgts stand around the $25 level.
Commenting on the pipeline the management noted on the Q2 conference call that it has 10 core programs underway and expects to be in a position to launch 2 products in 2009 and 3 products in 2010 assuming successful clinical trials. I think there will be more news from this direction as well in the future.
The dividend yield is just huge here, too. Even if they decide to it pare back, it's still big enough to limit downside.
Last but not least, technically the stock looks like it wants to go higher from here. I'm going to call this GSCO call Actionable here. Tight leash around the $17 area.
Barron’s Online highlights RF Micro (RFMD), whose stock is down 10% YTD. It's hard to believe that a co supplying the burgeoning cellular-phone mkt is trading below mkt value, at a forward P/E ratio of 14.9. That's what happens when a major customer falls apart -- in RF Micro's case, Motorola, whose handset sales began to collapse this past spring. RF Micro has further challenges ahead as Nokia and Motorola make deep changes in the chips they buy. But much of the pain is now reflected in RF Micro's share price, and the co still has a very valuable portfolio of chips for the future of the cellphone industry. Earnings forecasts for the year ending in March fell some 45% back in April, but ests have since rebounded, rising 13% in the last 3 mo’s. And next year sales are expected to rise 17%, spurring profit growth of 61%.
“Inside Scoop” section reports that Pres and COO of Fossil (FOSL), Michael Barnes, sold all of his 72K shares, mostly directly held, on Friday for just over $2.6m.
Wednesday, September 19, 2007
PJ is increasing CY07 sales/EPS estimates from $309M and $1.65 to $311M and $1.66. In addition, they are taking up CY08 sales/EPS estimates from $370M and $1.85 to $388M and $1.95.
Notablecalls: I'm not sure but given what RBC's call did for BIDU, I suspect SNDA will see some interest following this one.
Note of caution: There is some buy interest in SNDA in the pre mkt but the stock is not responding too well. So be careful out there and adjust your risk accordingly.
Tuesday, September 18, 2007
Piper believes this was done for acouple of reasons. The co's new CFO needs more time to fully develop andquantify cost cutting measures, and was weary of holding a conference a week before the books close. The co noted continued weakness in its Disputes and Investigative practice similar to Q2 and also mentioned that business from Subprime engagements was unlikely to pick up until the end of 2007. As a result they are tweaking down their assumptions by 2 cents for Q2 and by 3 cents for Q3. When PJ upgraded the stock a month ago they expected it would take until the end of Q3 for subprime business to materialize, it now appears NCI will not book incremental revenues from these engagements until 2008.
The firm is maintaining their Street high estimates for 2008. If the subprime issue blows over without additional lawsuits and regulation, then the estimates are likely aggressive. However, better expense controls alone should get the stock moving in the right direction and if subprime spawns the level of litigation and regulation seen in 2003-2004 from mutual fund timing and biased investment research investigations, then the estimates could prove conservative.
NCI shares are currently trading at 11X PJ 2008 EPS estimates. Firm maintains their Outperform rating and $21 tgt.
Notablecalls: Looks like the Dutch auction repurchase at $20.50 per share wasn't exactly money well spent. Right now, at the heart of the demand issue for the co is the lack of an obvious macro stimulant like we had seen from the Spitzer era and Sarbanes-Oxley legislation.
Yet, is there really any doubt in investors' minds that the subprime mess will unwind itself without any need for investigations etc? There is no doubt in my mind that NCI will start to benefit from the subprime market meltdown over the next couple of quarters.
They are cutting costs, business will improve gradually and we have almost all the analysts negative /cautious on the name. Merrill Lynch is slashing their rating to Neutral from Buy as I write this.
I expect NCI stock to get hit some more today but I'd be watching for a bounce below the $13 level. The closer it opens to the $12 level, the more comfortable I'd be buying it.
Not making an actionable call here. Just my 2 cents on the situation. And PJ's.
According to the WSJ, IBM (IBM) is launching a software giveaway that takes aim at Microsoft (MSFT) on the office desktop. Today, IBM plans to post on the Internet a package of its own software with applications that square off against components of Microsoft's ubiquitous Office suite, a word processor to rival Word, a spreadsheet to go up against Excel and business-presentation software as an alternative to PowerPoint. The IBM package, called Symphony, can be downloaded free of charge. IBM will also give away the Symphony software to customers who buy the latest version of its Notes collaboration software.
The WSJ reports that Nasdaq (NDAQ) has considered selling a piece of itself to an overseas investor such as Dubai or Qatar to help it clinch its own deal to purchase OMX. While it is unclear if Nasdaq will ultimately resort to this approach, the fact that it has been discussed in recent weeks by the No. 2 US stock exchange shows how serious the co is about completing its intl push.
The WSJ reprots that the head of Ford’s (F) North and South American operations said the co could accelerate cost cutting if a slowing US economy puts the auto maker at risk of missing key financial goals in ‘08 and ‘09. "There's more risk than there is opportunity going forward" for the US auto mkt amid uncertainty about the housing mkt and job growth, said Ford Exec VP Mark Fields. "If we see weakness on the rev side, we have to take up the slack on the cost side," he said. Mr. Fields said Ford adjusts its plans month to month. He said that as of now, the co's N-American turnaround is on track to meet the ‘08 cost-cutting target and ‘09 profitability goal.
An interview with Punk Ziegel managing director highlighted in Barron’s Online. Manager top pick currently is Wachovia (WB). The firm is buying WM, WFC, STI and NTRS. He does not like GS and would wait with C. Avoids CFC, IMB, BSC, JPM. Manager is very worried about MI and ZION.
“Inside Scoop” section reports that 2 execs at Zumiez (ZUMZ) have decided to sell some shares. Pres and CEO Richard Brooks sold $4.7m in stock, or 100K shares. Also exec VP of stores, Ford Wright, sold 12K shares for $552K. Much of the stake came from a simultaneous options exercise.
Monday, September 17, 2007
Baidu maintains lead as Google gains at the expense of Yahoo and Sogou.
Perhaps the most important point: Baidu beats Google among high-end users - Baidu continues to excel in the high-end user market, encroaching on Google's traditional core users. Baidu's high-end share rose from 51.5% to 53.4% over the six-month period while Google's share slipped from 41.9% to 39.6%.
Reiterates Top Pick & US$250 PT; Strides at Google not coming from Baidu - This latest survey result from CIC confirms Citi's earlier published views that Google's recent share gains are coming at the expense of smaller players, and that Baidu has maintained its leading position - in fact, it is still growing its overall market share. Firm believes 3Q07 results will be strong, providing a further catalyst for the shares.
Notablecalls: Please scroll down for more colour on BIDU. Must say I'm surprised by the lack of upside in BIDU stock in the pre market. Buying oppy, from my perch.
Salesforce Headcount Continues to Increase: RBC believes this is a good indication of the management team's confidence in underlying business trends.
Longer-term the firm believes company is reaching critical mass and e-commerce is starting to emerge as a key thematic catalyst. Their high-on-the-Street 2009 GAAP EPS projection of $7.58 may prove conservative as they believe there is an upward bias to estimates. Firm also notes that fully-loaded SG&A costs are about $11k for person for BIDU. It is likely 15 times this for Google.
Notablecalls: RBC's tgt on BIDU is the new Street high. This alone will make BIDU buyable today. I see it hitting $240 by noon easy. Actionable trading call alert!
Relationships with Comcast, eBay, and Bebo have improved the quality and demographic mix of Yahoo's third party display inventory. The Blue Lithium acquisition may prove brilliant as Yahoo gains the internal capability to mine its massively valuable registered user data.
Jerry Yang's 100-day review is unlikely to lead directly to Meg Whitman's doorstep, the firm believes, as shares of Yahoo are so depressed. Any bold moves to reduce overhead and partner with Google for backfill monetization could send shares back to $28-$30 range. A sale of YHOO still remains plausible one day for EBAY, NWS, CMCSA, T, and MSFT, even at higher levels. Conversely, if the company were to invest its way out of the current mess, RBC believes shareholder activism could invite dialogue with potential suitors anyway. They believe this creates a heads-you-win, tails-they-sell scenario which favors shareholders over the next 12 months. Maintains Outperform and $34 tgt.
Notablecalls: Something is going on at YHOO for sure. Just take a look at the price action on Friday. Part of it can be attributed to positive comments from Bernstein highlighting steps that could potentially restore Yahoo!'s growth and profitability, potentially unlocking between $960 mln and $1.6 bln in annual operating income, and leading the firm to raise their price target to as much as $45. Also, part of it may be technical as the stock was indeed forming a bottom around the $23-$24 level. Also, Sept 25 calls saw sizable volume with over 20K traded.
YHOO has made small smart ableit small acquisitions over the past couple of months. Yet, the market seems to be anticipating bigger news of some sort. I suspect YHOO stock may continue to appreciate over the coming weeks.
Sunday, September 16, 2007
Altria (MO) could rally to 87 in 12 to 18 months from a current 67, as the company buys in shares and cuts costs. Philip Morris USA is moving into faster-growing products like smokeless tobacco, while its international arm is pursuing growth in China.
Radian (RDN) looks to be overestimating the strength of the housing market -- and underestimating its future claims losses. With possible credit downgrades ahead, the stock will be flat or down.
Smart Balance's (SMBL) shares, now above 11, could reach 15 or more within 12 to 18 months. But the real payoff might come later, in the form of a takeover by a large food company.
Recently around 15, shares of Pinnacle (PNCL) airlines could hit 19 within a year. One bull even argues that, if the airline uses prudent leverage, the stock could go as high as 22.
“The Trader” column highlights NBTY (NTY), whose shares have slipped 28% since Feb, as investors bailed out of small stocks. But the co bears no blame for anything other than its utterly forgettable name, and the neglect of sell-side analysts. For a start, the co has a leading share of the vitamin mkt. It also has a pristine balance sheet and no net debt. Earnings have grown at an enviable 24% over the past 3ys, and analysts expect the co to earn $3.03 a share in ‘07. The growth should hold up even in an economic slowdown, since vitamin consumption is not known to decline with condo prices. Also, "the co benefits from the trend of aging baby boomers who take nutritional supplements to maintain their health," Leach says. "The industry is growing by 7-8% a yr, and NBTY continues to gain mkt share."
“The Trader” also highlights Molson Coors (TAP), whose shares have rallied 14% over the past mo. The co has cut costs and exceeded the projected savings from the merger of Molson and A. Coors. More important, sales have continued to climb. As a result, the co expects FCF to increase to about $550m in ‘08, from about $170m this yr. Molson Coors' impressive cash-flow yield has been masked this yr by certain 1x items and purchases that aren't expected to spill over into ‘08. Not surprisingly, mgmt indicated that it is discussing buybacks and dividends with the board. Goldman Sachs analyst Judy Hong expects FCF per share of $6.34 next year, and between $8-9 by ‘09. That's not the only reason to hop to it. JP Morgan analyst Dara Mohsenian sees continued cost cuts and improving Canadian and US mkt share, and regards Molson as a "relative safe haven in a US economic slowdown." At about 93, shares are trading at a moderate 15x forward earnings. For ys, investors have shunned the mature, slow-growing beer mkt for flashier, trendier beverages. But $40 flavored vodka can be a tougher sell when the economic sizzle starts to fizzle, while the humble keg will remain more recession-resistant.
Fund top holdings include PG, PEP, GE, RIG, AIG, PRU, MDR, CSCO, AMX and CMCSA.
Friday, September 14, 2007
Sentiment is expected to further rise once RIM unveils Pearl 2, (launch CYQ3/Q4). A significant update, Pearl 2's stylish design, data speeds, iPhone-like browsing and compelling features may be viewed as a boost to RIM's further penetration into the 4x consumer market. RIM may sell 5M Pearl 2's FTM (vs. 2M Pearls sold since Sept/06 launch).
Global checks suggest RIM saw vigorous sales momentum Q2/Q3 from Worldphone, Curve, Pearl, 8800, 8820, others. Competition (eg iPhone) hasn't apparently yet dented RIM's momentum. Firm is increasing F08 estimates to $5.8B Revenue and $2.11 EPS ($5.6B and $1.99 prior) above street for $5.5B/ $1.99. Reiterates Top Pick.
Notablecalls: RBC is upping their ests above consensus and their comments regarding Pearl 2 are likely to generate some buy interest in this momentum darling.
Thursday, September 13, 2007
- Deutsche Bank saying their bullish stance on Physicians Formula has clearly not played out as planned, with higher costs and category slowdown masking solid share gains and well above category top-line growth. Even so, they believe risk/reward is extremely favorable for this highly volatile small cap name, with robust 2008 product pipeline and efficiency initiatives expected to drive mid-teens sales growth, overhead absorption and double-digit EPS growth, maintain Buy and $18 target.
Despite Kermit's assertion, FACE is trying to prove that it is easy being green, with its analyst day focusing on a robust new product pipeline which includes mass market's first natural/organic color cosmetics launch. With 50-100 new skus planned for 2008 and a entirely new positioning beyond its problem/solution approach, the firm thinks potential is high for this new lineup to lift sales growth and enhance margins, even if company is still in "show-me" mode after string of missteps.
After a slew of disappointing press releases, the reaffirmation of guidance and management's view that the quarter is progressing smoothly is a welcome sign. As we head into the fourth quarter and into 2008, the stock should perform if the company delivers on its commitments and continues its growth path, with margin expansion next year key to getting the stock closer to DB's high teens price target.
- Citigroup was impressed with the way in which management delivered their message, as this oft-criticized team seems to have come into their own and are now delivering their story with more clarity, confidence, and transparency than we have seen in the past. Specifically, with much investor confusion stemming from various industry-specific factors, such as how the gaining of additional shelf space can negatively impact sales growth and gross margins, for instance, the firm was pleased to see the company take a comprehensive approach to explaining their business model. What is more, management also, they believe, now better appreciates how volatility in their results (an inherent part of their business model) can be seen as a negative when unexpected by investors, and as such elaborated upon this as well.
While going into today's meeting they had been eager to hear about the new innovations that the firm could expect to see from FACE, they in fact left the company's Investor Day feeling more confident in this story for a variety of different reasons. While FACE's 'Project Green' cosmetics line is as innovative as they had hoped, they also had a chance to see how much seems to have improved internally at FACE.
As such, the firm remains optimistic aboutthe prospects for FACE going forward, and with the shares trading at a'still-reasonable' 15.6x their CY08 EPS estimate, they reiterate Buy rating and $13 price target on the stock.
Notablecalls: The stock has been absolutely destroyed over the past 4-5 months after warning for Q2 and then guiding down for Q3 (and for the whole year). Yet, reading the comments by DB and Citi, it looks to me as things may be getting better for the co. The new "green" line may indeed win it substantial shelf space (can you say Whole Foods or Body Shop) vs. larger competitors.
Despite being around since 1937, I suspect FACE remains a relatively under the radar play for many investors.
I would not be surprised to see FACE stock to see some buy interest in the n-t following these comments. The stock attempted to rally yesterday but was shot down soon after. I suspect today we may see a new attempt by the bulls.
According to OpCo SIRF could be seeing share gain at Tomtom in Q3 versus Q2, with the new Tomtom ONE model ramping and its position should improve into Q4. Also company has included little to no contribution from MOTOROLA handsets for 2H07, so any ramp in Motorola phones, they are estimating 400K units at $3-4 could be an upside opportunity by firm's estimate for 2H07.
Company saying Centrality tracking to plan. RIMM and HTC should provide near term handset strength. For 2008: SIRF could see Sony Ericcson handsets as an almost sure opportunity as GlobalLocate/Broadcom has gotten bumped out of Sony Ericcson. Company could also see initial royalty revs from Renesas and Intel UMPC.
Opco sees SIRF as good near term opportunity with upside from share gains in PND and possible MOT product introductions. Reits Buy and $28 tgt.
Notablecalls: Please see my positive call on SIRF from 2 days ago. The call was based on smartphone inflection and Motorola orders starting to ramp. Now we have OpCo out saying SRIF is seeing share gains at TomTom! That's the PND side that's supposed to be weakish! And BRCM is being bumped out of SonyEricsson? Whew!
This story is just getting better by day! The short interest still stands close to 20%. What are these guys thinking? I would be covering here. And I suspect they will.
I'm going to issue a repeat Actionable Call Alert on SIRF right here. This one's going higher!
Alcatel-Lucent now expected 2007 revenue growth to be flat to slightly up, at constant exchange rates. It previously forecast that revenue would grow around 5 percent at constant
Notablecalls: While it's not really a big surprise that US wireless capex is a bit shaky, I'm surprised by ALU's reaction of being down 10% on the news. In a way, it sends a message about the health (or the lack of it, rather) of the market. It may very well be that disappointments will not be greeted with buying anymore.
Which player may get hit following ALU news?
The first that comes to mind is of course Nortel Networks (NYSE:NT) with their exposure to US wireless capex. It is attempting to get margins up at a time when industry pricing pressures are intense and its positioning within the carrier space is becoming increasingly challenging. Competitors like Alcatel and Ericsson are eating its lunch. In Q2 the Carrier Networks business, driven by its dominant position in the mature CDMA market, delivered Nortel $173 million in profits on $1.06 billion in revenue. That's about 1/3 of overall revs.
Yet, looking at NT's chart, I don't see weakness coming as a surprise. With the stock trading less than 1x projected 2008 revs, the valuation isn't that high either. Plus, NT has already guided to a weak Q3.
So, all-in-all I do expect to see some weakness in NT in the n-t but nothing huge. Scalp short if you can get some decent fills early on.
Other players with exposure both to the US wireless capex & ALU include Powerwave (NASDAQ:PWAV) and Acme Packet (NASDAQ:APKT). I'm not making any calls on these, though.
Wednesday, September 12, 2007
- The firm had O2Micro International (NASDAQ:OIIM) CEO Sterling Du present on the tour. Co is seeing strong 3Q on robust notebook orders. Also seeing new orders from Sony as a result of the recent litigation settlement. Company sees additional $8mm-$9mm in cash settlement in 3Q-4Q07. This should further strengthen balance sheet.
4Q momentum should continue with strong notebook and LCD TV shipments. 4Q topline could be up 5%-10% q/q compared to current street estimates of up 2%-5% q/q for 4Q07. Reiterates Buy as they see estimates going up post earnings. Tgt stands currently at $17.
Notablecalls: I like this call. OpCo is saying revs will likely come in way better than expected and the tgt will go higher..say toward $20 level following the earnings call. The chart looks great too.
- According to Opco Marvell (NASDAQ:MRVL) is seeing significant new design win in Enterprise with SoC and could provide significant upside to storage revenues for C2008. Shipments could start as early as calendar 1H08. This could result in large market share gain in the enterprise HDD market where MRVL has little presence today.
MRVL also has first ODD (optical disk drive) win for production ramp in 2H08. Believes the first win could be at Panasonic. Company also saying hoping to see CFO announcement in next two months, should be positive for company. MRVL has put headcount restrictions in place possibly capping headcount, possibly through C09. Company also saying PC inventory in channel in line, no inventory build. Buy, $22 tgt.
Notablecalls: Not actionable but good to know category.
“Heard on the Street” colum out saying that their branches may be far from Wall St, but some regional banks may be exposed to the same kinds of issues that are causing headaches for the world's largest financial institutions. Hungry for growth in recent years, regional banks have pumped up their traditional investment portfolios by buying loans that have financed the LBO boom. Some also have formed off-balance-sheet vehicles that issue commercial paper. Those strategies worked well when mkts were flowing and credit quality remained unusually pristine. But that might not be the case for long amid concerns of a slowing economy and as investors shy away from mkts. National City (NCC), Zions Bancorp (ZION) and Comerica (CMA) are among a number of banks that could see the value of their loans fall if the economy worsens. The banks may well need to address these issues in coming months by boosting reserves, cutting back lending or scaling back some other operations. David Konrad, of Keefe, Bruyette & Woods, says that a number of regional banks will have plenty to lose if the LBO boom continues to dry up. And if the co’s being acquired run into trouble in a slowing economy, banks could be forced to write down those loans. Although large banks typically lead the massive financings that accompany LBOs, they often syndicate those loans to other investors, including regional banks. Those other buyers of the loans typically don't receive any of the fees that big banks receive from putting the deals together, but share in the risk of default. In a weakening credit environment, "it really makes it hard for a reasonable return if you are just a participant" in the loans, Mr. Konrad says.
Barron’s Online out saying that NightHawk (NHWK) seems to be heading for a turnaround. The shares could even reach new heights. Up 59% last year from the price set for its IPO in Feb’06, NightHawk was a high roller before a selloff earlier this year. Profits, however, are growing at an eye-popping pace thanks to acquisitions, NightHawk's efforts to tackle new mkts, and growing demand for its services. And though up, the small-cap health-care stock continues to fly under the radar. "It's basically a growth stock trading at a value price," says Craig Hodges, of Hodges Fund. "Current earnings growth makes it a compelling story, but the stock is undervalued."
“Inside Scoop” section reports that one AnnTaylor (ANN) insider has decided it's time to jump in and buy shares of the co. Director James Burke purchased $1.1m worth of stock on Fri, marking the first open-market purchase by an AnnTaylor insider in at least 5ys. The transaction boosted Burke's AnnTaylor stake by 74%. He now holds 82K shares, plus an additional 33K exercisable options.
Tuesday, September 11, 2007
Firm sees today's Analyst Day as the most immediate potential catalyst. Their sense is the company will likely continue somewhat of a surprisingly upbeat tone post the recent 2Q08 call. One Area of Constructive Checks. The firm was surprised by the robust license revenue activity in telco in 2Q08 (estimated license revenue of $29.5 million or close to 30% y/y growth) and believes the company was able to build backlog in that segment. Further checks suggest the large deal pipeline has improved strongly for 2H08, which could provide some offset to any struggles in its North American financial services business. Aside from potential large transactions in the telco license business, they believe the likely completion of restatements by late September could represent a catalyst.
While the likelihood of a near-term buyout has dissipated, they are comforted by the recent ownership appearance by well-known activist shareholders. SunTrust believes in the event that the current management is unable to engineer a marked recovery in license revenue over the intermediate term, a buyout scenario could resurface.
Maintains Buy rating and 12-month price target of $17.50 based on a strong belief that a corporate event could occur over the intermediate term.
Notablecalls: Recall that following TIBCO Software's (TIBX) warning last week, Jefferies was out with a call highlighting other software players with large fin. services exposure. BEAS topped that list. Yet, I chose to go with shorting Oracle (ORCL) as I felt that with BEAS' stock down from recent highs, expectations weren't that high. This turned out the right decision as ORCL got hit and BEAS did essentially nothing.
Today's I'm somewhat surprised by SunTrust's positive call on BEAS. The firm suggests the large deal pipeline has improved, possibly offesetting any shortfalls on the fin. services side. This, coupled with their expectations of an overall positive tone on today's Analyst Day may create some buy interest in the stock. The expected completion of the restatement may also help the sentiment.
Overall, an interesting call by SunTrust's Terry Tillman.
Monday, September 10, 2007
Deutsche expects some of these phones will be high volume devices and remains comfortable with their forward mobile handset forecasts for SIRF. Bottom line, this is the inflection point they have been waiting for on this stock and reiterate Buy rating and $30 price target.
Notablecalls: SIRF stock is way down from its February highs ($34) as investors have become concerned that SiRF's high market share in PNDs (personal navigation devices) may come under pressure from competitors and PND customers seeking to dual source their GPS chipset supplier base. Currently, SIRF is the dominant supplier (70-80% share) of GPS silicon into the portable navigation device (PND) market. PND vendors (Garmin, TomTom etc) have accelerated pricing declines for PNDs to around 30% annually in order to drive demand elasticity. That means SRIF's ASPs will continue to erode at a similar pace, putting current high margins at risk.
Yet, I think that around current levels ($17), most of these concerns are priced in. What the market seems to be missing is that the mobile phone market has the greatest potential and will likely grow to be the largest over time. Wireless carriers and handset manufacturers have already begun to drive the introduction of an increasing number of GPS enabled mobile phones and services.
This is the inflection point Deutsche Bank is talking about in their call. Smartphones are coming! Handset makers get way better margins on smartphones, wireless carriers will get to charge way more for data services. SIRF stands to benefit from this.
Last week Deutsche said that while still early in Q3, they believe the company is trending towards at least in-line results with this the best quarter for seasonal upside to ests. Motorola is coming with the Sirf enabled Q9, which indicates the ramp of Sirf's GPS chips at MOT has started. Also, RIM is reportedly seeing good demand with the Sirf enabled 8300 BB.
On top of this, short interest in SIRF stock stands at a whopping 18%.
Ladies and gentlemen, I think this Deutsche call is Actionable. I expect to see some serious buy interest in SIRF over the coming weeks.
* From conversations with reps, the Motorola (NYSE:MOT) RAZR is still popular at all carriers. This week, Sprint storereps were heavily pushing the RAZR 2, a sleeker version of its predecessor that will soon be available at all carriersbut is currently only available at Sprint.
* The emphasis on smartphones continues to grow at retail wireless stores. Verizon reps are
recommending their recently updated Motorola Q as well as the BlackBerry World Edition, while AT&T reps are recommending the BlackBerry Pearl and Curve. Sprint reps were pitching the Palm Treo 700WX as well as the BlackBerry World Edition, while T-Mobile reps recommend the BlackBerry Pearl and the T-Mobile Dash (manufactured by HTC). Additionally, some T-Mobile reps suggested that the carrier may be cutting its $19.99 monthly BlackBerry data fee down to $9.99 next month.
* AT&T reps were still often leaving the iPhone out of their smartphone pitch, which is consistent with previous channel checks. Mysteriously, reps generally only talk about the iPhone when asked about it directly, though perhaps the announced price cut will make this a stronger option. The in-store iPhone displays, however, are still commanding customer attention.
Notablecalls: Is it just me or do you find the comments regarding lack of iPhone support at AT&T surprising? The word on the Street is that iPhone sales have been disappointing over the last 45 days. Baird's comments seem to verify that view. This coupled with the iPhone price-cut announced last week make me wonder if AAPL can hit the high ests. On the other hand, I'm hearing that Macs are flying off the shelves, which indicates overall results will likely be fine.
Btw, we have Lehman downgrading PALM this AM to Underweight from Equal-Weight. Despite healthy Sprint sales and solid Verizon volumes, the firm believes sluggish sales at AT&T will hold Palm to the low end of expectations for the first quarter.
Note to Lehman: Low end of ests is all that PALM needs here.
According to the WSJ, at a time when Wall St. is struggling with tremors in the mortgage sector, the investment-banking boutique KBW (KBW) is tacking in the other direction. Earlier this summer, the firm launched what it expects will become a broad push into the REIT sector. It has hired a new team of research analysts and traders from other firms including Stifel and Wachovia. Over time, the firm also intends to hire a team of investment bankers who specialize in the REIT mkt. Execs at KBW say it wants to capitalize on tough times in the US real-estate mkt.
The WSJ reports that tech consultancy Capgemini will begin recommending Google's (GOOG) online suite of office software to its corporate customers, a move that could bolster Google effort to drum up more sales to big businesses. Hoping to diversify beyond the online-ad mkt, Google began selling a souped-up version of its office applications in Feb for a $50 annual fee per user. While the low cost has appealed to small businesses and universities operating on tight budgets, Google has had a tougher time winning over large co’s. Google's software bundle includes email, word processing, spreadsheets and calendar mgmt.
“Heard on the Street” column out saying that investors who have grown impatient with Yahoo (YHOO) may have to wait awhile longer to see any pop in its stock. The co replaced its CEO in June and this summer kicked off a strategic review to better position it for a changing online-ad mkt and compete with the likes of Google. Now, partway through Yahoo's strategic soul-searching, a major overhaul appears unlikely. Over the summer, CEO Jerry Yang did actively assess one major sacred cow: the Web-search-ad business it built up at great expense in recent years. Under the scenario discussed by top execs, Yahoo would have outsourced that search-ad activity to either Google or Microsoft. Such a move would likely give Yahoo an immediate rev bump representing hundreds of millions of dollars annually. It could also bring in additional one-time payments from any outsourcing partner and would reduce some of Yahoo's operations costs and capital spending. But one of the people familiar with the matter says Mr. Yang concluded that Yahoo needed to be the "marketing operating system," providing advertisers with a full menu of online-ad options. Yahoo would have a hard time doing so if it outsourced search advertising. Any discussion of outsourcing search ads has now cooled.
The NY Times reports that Disney (DIS) said it would begin its own testing of toys featuring Disney characters, including random testing of products already on store shelves.
Sunday, September 09, 2007
Barron’s cover story lines up 100 most respected co’s. Nr1 Is Berkshire Hathaway (BRKA, BRKB), nr2 is J&J (JNJ) and nr3 is Toyota (TM).
An interview with Ford (F) CEO Alan Mulally. Mr. Mulally says that the co is looking strategic alternatives for Volvo. The co expects to become profitable in ’09 and grow profits after that. CEO also suggests that worldwide there is overcapacity and expects the mkt to consolidate.
Barron’s highlights XTO Energy (XTO), saying that although co's prospects outshine those of some of its rivals, its shares trade in line with its peers'. Also, XTO’s sizable proven natural-gas reserves eventually could make it a takeover tgt.
Though the stock of Veolia Environment (VE) has fallen more than 12% since May, it should soon resume its long-term ascent, thanks to big contract wins and strong earnings.
IDT's (IDT) wireless spectrum, possibly worth $1.23 a share, plus its net cash of $6.64, add up to $7.87. But even after diving 28% in '07, its stock still trades at $9, making a further drop possible.
“The Trader“ column discusses Mattel (MAT), which announced 3rd recall in nearly a month. Mattel shares ticked up after the news and ended the week flat, helped no doubt by bargain hunters betting that the bad news must have peaked. Still, investors might want to wait. For one thing, toxic imported toys have quickly caught the eye of both politicians and protectionists, and the noise surrounding this cause du jour will reach a crescendo Sept. 19, when Mattel execs testify before Congress. This could lead to "more stringent toy-industry regulation and testing requirements, imposing higher operating costs on Mattel and other toy co’s," notes Oppenheimer analyst Linda Bolton Weiser. The co will also have to set aside more of its budget to handle potential litigation that may arise. And the negative publicity heading into the crucial holiday season will require heftier advertising expenses to scrub the taint and win back flustered parents. Mattel shares could get marked down further before Christmas.
“The Trader” also highlights Atheros Comm. (ATHR), whose shares have slipped 15% from their mid-July peak. AmTech analyst Shaw Wu last week slapped a Buy rating and a 40 price tgt on the stock. Among other things, he expects rev to reach $1bn in 2-4ys. Consumer electronics devices now account for just 3-5% of rev, and could morph into the biggest growth driver for years to come. In fact, Wu thinks Atheros is "well positioned" to garner a 10% share of a mkt that could reach $10-12bn by 2011. Atheros shares have climbed steadily over the past 2ys. At 29, shares are trading at 22.7x forward earnings. The co has nearly $4 a share in net cash and no debt. Competition from other chip makers has always worried investors, but Atheros has carved out a niche by focusing on small, cost-competitive products within the Wi-Fi and Bluetooth realm. If anything, the fast evolution of Wi-Fi standards increases the likelihood that chip giants might buy a Wi-Fi specialist to round out their offerings.
Friday, September 07, 2007
Notablecalls: What can I say :). I don't get much hatemail so I thought to highlight this one just in. I don't always find stuff to post so, I tinker around with the likes of TUTR that are obviously not exactly traders' favs. The stock is up close to 5% today and some shares were offered around $3.50 in the pre-market. If you took them, you should be in the money.
Steve, youre a l-t reader and your emails have served as an inspiration. You will be missed.
Deferred revenue of $41.7 million bounced back sharply from last quarter, up 6% yr/yr and 19% sequentially in the seasonally stronger Q3. However, overall orders for the quarter were down 24% as orders for license fees were down 58%, which is expected given the transition by PLATO to a subscription-based business model.
As expected, cash flow was positive in the seasonally strong Q3.
Management continues to not provide forward guidance given its low visibility on the rate of transition from a license to a subscription model. However, Q4 should be a roughly comparable quarter to Q3, which allows the firm to raise their Q4 and full year estimates. This is their first positive revenue and EPS revision for PLATO in at least two years, so they are encouraged that expectations may have bottomed.
For now, they are maintaining their Neutral rating, but they do see some reasons for optimism. PLATO's revenue continues to decline, but it appears there is a bottom in sight, likely sometime during FY08 and they are modeling a slight increase in revenue for the full year. The firm is encouraged by the company's cost reduction efforts and the potential to improve margins further. If they were to get comfortable that PLATO would be able to generate positive free cash flow on an annual basis, it would also give them more confidence regarding the company's fundamentals and its stock performance.
Notablecalls: Looks like Craig-Hallum is seeing things the way I am. I love the comments of this being the first positive revenue and EPS revision for PLATO in at least two years. It really gives this story a "bottomish" feel :).
The positives include:
- Revenue increased to $19.2 mln vs $17.4 mln consensus. This is the first sizable revenue beat in a while.
- Net loss for the qtr was $0.08 per share, $0.07 better than Reuters Estimates consensus of ($0.15) as the co made solid progress in reducing operating expenses. This is the first EPS beat in a while.
- Deferred revenue grew squentially to $42 mln vs $35 mln last qtr signaling success in the transition to a subscription model. (1)
(1) Revenues from products sold on a subscription basis are initially recorded as deferred revenue on our balance sheet and then recognized as revenue ratably over the subscription period.
TUTR hired a new head of sales last quarter (after replacing most of its sales force) and it looks like the person is already making solid progress. The sales force is starting to mature and I'm hopeful we will see continued good performance in the coming quarters.
I think the results posted last night caught a lot of people leaning the wrong way and I suspect the stock may see strong buy interest over the coming days. I would most certainly keep this one on the radar screen as things may be turning around for the co.
Thursday, September 06, 2007
- Jefferies is taking their tgt on TIBX to $7.50 from $9 saying August quarter license miss indicates that financial services IT spending may be slowing because of mortgage and credit market deterioration. TIBCO derives ~25% of its quarterly revenue from financial services. The worldwide nature of the miss bolsters the notion of global credit deterioration.
Other companies with particular exposure to the financial services vertical include BEA Systems (BEAS) with approx. 17% of license revenue, VASCO (VDSI) with 85% revenue, and Red Hat (RHT) with an estimated 20% revenue exposure. Firm notes that BEA saw healthy financial services revenue in its July quarter,implying the weakness seen by TIBCO is isolated to August and may continue going forward.
Notablecalls: I think TIBX may be the canary on the coal mine for other co's with expsoure to financial services. Note that even NTAP called demand from domestic financial services weak in its recent 1Q (July) negative pre-announcement.
Jeffco's highlights BEAS as one of the co's most at risk. I agree with their thinking and I believe the stock may get hit today following TIBX's news. Yet, it's not quite my favourite short as the stock has come down from its recent highs already.
I'm offering you Oracle (NASDAQ:ORCL) that derives about 10-15% of its revs from the financial services area. Sell-side checks didn't pick up any weakness at ORCL 2 weeks ago but that may be changing now as surveys that call for slower IT spending growth in '08 are starting to pop up here and there.
That does not mean Oracle's 1Q will outright disappoint, but that some of the "beat and raise" upside potential for next year will likely be trimmed. With the stock near recent highs on heels of rising tide of interest into large-cap tech, I see it as vulnerable.
I think ORCL may represent an interesting shorting opportunity not only for the ultra s-t but as a swing trade.
Looks like Merrill Lynch is taking their rating on TIBX to Neutral from Buy.
- Goldman Sachs notes the iPhone price cut came sooner and deeper than they expected. In short, it reduces EPS by $0.10 in FY2008 (ending Sept. 2008). That said, the firm is not reducing their estimates because, as they have indicated a number of times, they have long believed that their cannibalization assumptions for higher end iPods from iPhone have been too high. These two should roughly offset each other, leaving Mac to provide upside.
Apple shares will give back some of their 12% run up into yesterday's event without another catalyst before the release of earnings and the next version of its operating system (Mac OS X Leopard) in mid to late October. However, as Apple's product cycle story unfolds, the firm continues to recommend that investors buy Apple shares, especially on company-specific or broader market pullbacks. GSCO is maintaining estimates and price target.
- RBC Capital notes that while the lower price itself was not unexpected, the speed of the cut -- coming 68 days into launch -- was a surprise; given recent checks (this week) suggested sustained sales momentum. It also risks upsetting early iPhone purchasers. After deciding to cut price, Apple likely moved quickly to avoid alienating customers further and to maintain sales momentum.
RBC believes this decision will prove positive in time, for three reasons: 1) it broadens iPhone's addressable market, after the initial surge (RBC's Technology Adopter Panel data suggests iPhone demand wanes at $600, rebounds at $399); 2) it strengthens iPhone's competitive position and lessens a major sales objection; 3) it may drive an upgrade cycle into the holiday season, particularly with users holding off for lower pricing.
Firm's sensitivity analysis suggests the iPhone price cut has a nominal (1%) impact on F07/F08 EPS and revenues. They maintain their F07/F08 estimates and outlook for 13.4M iPhones end CY08. Reiterates Outperform Thesis.
- Banc of America believew the 8GB price reduction signals 1) unit sales are not living up to heightened original expectations and the ASP is now more in-line with other smart phones 2) possible positioning of its portfolio for a C4Q07 global (i.e. including the U.S.) launch of a 3G iPhone (vs. 2.5G now). Net, a lower than expected blended ASP likely in F2008 and F2009.
They are reducing F2008/F2009 EPS estimates to $4.33/$5.50 from $4.35/$5.57, and cash EPS estimates go to $4.97/$6.58 from $5.10/$6.70. Firm's target price is cut to $158 from $160. Maintains Buy.
Notablecalls: I don't know what to make of this. Mixed emotions.
"I think it's clearly a sign that the velocity of the sales volume has probably dropped to a level they're not comfortable with," said Gartner analyst Van Baker.
Gene Munster of Piper Jaffray supported Apple's price strategy. "Apple is investing iPhone profit dollars over the next few quarters in order to be a legitimate player in the phone market"
Both comments make sense here. The stock has been hovering near recent highs and now we have some firms taking down their ests. Investors usually don't like to buy stocks in co's that are in the process of investing their hard-earned profit dollars back into the business.
The most logical step here would be to short the stock, right? I wouldn't overstay my welcome, though as I suspect some sizable short positions were initiated yesterday in anticipation of estimate cuts (that do not look too deep).
My ultra s-t view? The stock gets hit and then rebounds.
Wednesday, September 05, 2007
While checks still show flattish data points for Motorola handset shipments, the firm believes demand pull for components is at least in line with modest expectations built into RFMD's guidance. Heading into the key holiday buying season we could finally see some improvement.
CIBC is raising their 2Q08 (Sept. qtr) estimates for RFMD to the high end of guidance and reiterates of Sector Outperformer rating and $9 price target. Upside to their raised estimates is possible.
Notablecalls: I like this call. Very little positive has happened to RFMD over the past couple of years and CIBC's comments sound very refreshing. I feel a new cycle of more sophisticated phones (smartphones) is starting to develop and with higher ASP's RFMD will also benefit. The stock is trading near recent lows and comments like this one may help to propel it higher. Note that CIBC's tgt offers 50% of upside. And it looks to me they are being conservative here. Expect to see upside in RFMD today and over the coming weeks. Actionable call alert!