Wednesday, October 31, 2007

Under Armour (NYSE:UA): Yesterday's run overdone?

- Citigroup has some interesting comments on Under Armour (NYSE:UA) following yesterday's earnings release and guidance.

Management increased full year 2007 guidance due to the fact the company beat expectations by $0.06 today. However, it is important to note, based on the new guidance, EPS guidance is only increasing $0.04-$0.05, which implies fourth quarter will be slower than previously guided.
More concerning is the fact that inventories increased 102% to $151 million, even though sales in Q3 were up only 46% and mgt is guiding Q4 sales to be up around 30%. Mgmt spent a lot of time on the call explaining the increase, stating higher inventories reflect planned investment in core inventory to meet anticipated demand since the company was not able to meet demand for certain cold weather gear after a cold snap last year. However, the firm does not believe sell through at retail has been robust during September and October, which could mean retailers have significant inventory to work through before it can re-order for the rest of the winter.

Citi's 2007 estimates reflect the high end of management's guidance; however, they think there could be some risk to the top line if sales slow either based on continued warm weather and/or worsening macro economic trends.

Based on the slight reduction in Q4 guidance and the increase in inventories, they think the run up in the stock yesterday was overdone. They think the stock could be more attractive around the low $50's (all things in the story remaining equal). Maintains Hold rating and $66 price target.

Notablecalls: Generally, I view it as a red flag when managements start blaming the weatherman for their woes. Sure, some impact from the warm weather patterns to Q4 guidance was expected but the big increase in inventories does raise more questions.

By the way, Citi's not the only one calling yesterday's move overdone. CIBC's Sujata Shekar is out this AM noting UA shares moved to nearly $64 on the strong results, or about 48x their FY08 EPS est. The stock may have gotten slightly ahead of itself, in firm's view, with expected EPS growth topping out at 40% in FY07 and going to 33% in FY08. CIBC would wait on the sidelines for now. Maintains SP rating.

Keep in mind that there's a 20%+ short interest in UA, so I'm not sure one should put out a short line based on these comments. One to keep on the radar, though.

Paperstand (GOOG, CAJ, TJX, ROSS, BNI)

The WSJ reports that Google (GOOG) is in advanced talks with two top US cellphone operators, Verizon Wireless and Sprint Nextel, about selling handsets tailored to its new mobile-phone OS. Deals with the carriers would represent a major breakthrough for the co, which until now has encountered wariness from some quarters of the wireless industry about its mobile-phone plans. Within 2 wks, Google is expected to announce new software and services that handset makers could use to build customized Google-powered phones. The co needs wireless operators to sign on to the project in order to get its mobile devices in front of consumers by the middle of next year. Verizon Wireless and Sprint Nextel are both in advanced discussions with Google.

"Heard on the Street" column discusses Canon (CAJ), saying that the co is on track to post another record profit this year, but that hasn't stopped its shares from falling to near year-low levels in recent months. That is b/c the co, which takes in 3/4 of its sales overseas, is one of Japan's biggest exporters. In this position, it is more vulnerable than most Japanese co's to fluctuating exchange rates and a slowing US economy. Analysts nonetheless continue to be optimistic about Canon's future. Many expect it to outperform the rest of the Japanese mkt over the next yr. "We think the shares are oversold," Goldman Sachs analyst Shin Horie wrote in a note last week.

Barron's Online highlights TJX (TJX) and Ross Stores (ROSS), saying that the nation's 2 largest off-price retailers promise strong future earnings relatively immune to the economy. And both stocks are in the bargain bin. Like the rest of the retail sector, shares of TJX and Ross dropped this year thanks to slower sales growth and signs that US consumers are worn out. Yet cash-strapped holiday shoppers still need to fill Christmas stockings. Off-price retailers can flourish when wallets look empty. "These are as close to recession-proof retail stocks as investors are going to find," says Allison Fisch, analyst with Pzena Investment Mgmt.

"Inside Scoop" section reports that the Burlington Northern Santa Fe's (BNI) Chmn and CEO Matthew Rose sold 30K shares. Also, CFO Thomas Hund exercised options for 50K shares. He then sold the stake, plus an additional 1,200 shares, for $4.4m. That same day director Robert West exercised 9K options and then sold the same number of shares.

Tuesday, October 30, 2007

On2 Tech (AMEX:ONT): Positive comment from ThinkEquity

- ThinkEquity is out positive on On2 Tech (AMEX:ONT) saying that with its Hantro Oy acquisition almost complete, and a bolstered balance sheet, they believe On2 is now better positioned to capitalize on the IP-video revolution, especially as consumers begin accessing video via consumer electronic (CE) devices, especially mobile. Firm believes Hantro not only extends the addressable market for VP6/VP7 to CE devices, it also positions On2 as the only multi-format codec provider that supports video compression at the embedded level (chipset). This, they believe, raises product barriers to entry forOn2's competitors, expands its core addressable market, and should, over the long term, dramatically improve the level of royalty-related revenues.

Adobe's recent announcement for support of H.264 (standard based codec used in the broadcast industry) could lead many investors to wonder if Adobe is in fact moving away from On2. ThinkEquity does not believe this to be the case. Regardless of which direction Flash moves, with Hantro, On2 now will benefit whether a content creator chooses H.264 or VP6, given that the combined company now has the ability to embed both pieces of software on a single chipset, an advantage that the firm believes will bear long-term fruit for the company. Reits Buy and $2.10 tgt on ONT.

Notablecalls: Think's Darren Aftahi looks to have lots of conviction regarding this little player. I would not be surprised to see ONT move somewhat higher following this call as the stock has been crushed over the past 6 months.

Sigma Designs (NASDAQ:SIGM): HDTV shipments starting to ramp - Baird

- Baird is out with a nice call on Sigma Designs (NASDAQ:SIGM) saying their checks indicate co's HDTV shipments are now starting to ramp meaningfully, while strong IPTV momentum continues. Sigma has wins at many tier-one digital TV OEMs (HP, Sharp, LG, Pioneer, Sony, Sampo, among others). The digital TV business is higher margin and could help Sigma's mix in the January quarter, in firm's view.

IPTV players Free and Korea Telecom have reported solid subs numbers over the past week and are on their way to reach 2007 goals. Free and KT use Sigma Designs' decoders, and these two telcos alone increased subs 234K units sequentially in 3Q

Baird believes Sigma is well positioned to lock in a significant portion of the second-generation IPTV set-top boxes next year. Competitive landscape remains muted, with competitors continuing to face hardware and firmware issues. Sigma is well positioned to participate in IPTV trials initiated by U.S. cable operators starting next year, per their checks.

Reits Outperform and $65 tgt on SIGM.

Notablecalls: Is the wording strong enough to push SIGM to the $60 level here? Worth a shot early on, in my view! Would not overstay my welcome in this one, though.

Paperstand (GOOG, SKS, CFC, ENR, CE, SONC)

According to the WSJ, Google (GOOG) is close to unveiling its long-planned strategy to shake up the wireless mkt. The co's ambitious goal: to make applications and services as accessible on cellphones as they are on the Internet. In a move likely to kick off an intense debate about the future shape of the cellphone industry, Google wants to make it easier for cellphone customers to get a variety of extra services on their phones. Within the next 2wks, Google is expected to announce advanced software and services that would allow handset makers to bring Google-powered phones to mkt by the middle of next year. In recent mo's Google has approached several US and foreign handset manufacturers about the idea of building phones tailored to Google software. Google is also seeking partnerships with wireless operators.

Investment firm Baugur Group said in a regulatory filing that it would like to explore the possibility of acquiring Saks (SKS). Baugur Group, which holds an 8.5% stake in Saks, said it might make a proposal for the acquisition of Saks with Dubai-based Landmark Group, which is owned by Indian retail billionaire Micky Jagtiani. Baugur Group is considering a $3bn offer for Saks.

"Heard on the Street" column discusses Countrywide (CFC), saying that the co cheered investors last week by pledging a quick return to profitability, boosting the stock price that day 32%. But some analysts warn that the co hasn't gone far enough in marking down the value of mortgage securities it holds and may have trouble delivering on that profit vow. "Not so fast," Frederick Cannon, of Keefe, Bruyette & Woods, said in a research note, predicting that the stock will Underperform the mkt. B/c investors have grown so jumpy about the surge in defaults on mortgages, lenders like Countrywide can no longer fund themselves with short-term borrowings in the capital mkts, such as by issuing commercial paper. So Countrywide is relying heavily on collecting more deposits at its savings-bank unit, Countrywide Bank. But Countrywide has yet to show that it can "earn above its cost of capital" under this new model at a time when the outlook for losses from defaults is unclear, Mr. Cannon says.

Fund manager likes Energizer Holdings (ENR) and Celanese Corp. (CE) -- Barron's Online.

According to the "Inside Scoop" section, from Wed through Fri Chmn, CEO and President of Sonic (SONC), J. Clifford Hudson, sold 278K shares for $7m. The transaction was the largest insider sale at the company in five years. On Oct. 19, Controller Terry Harryman sold 16K shares for $413K. Ben Silverman, of, called the sales a "mild sell signal," noting that Sonic execs receive less compensation than their peers so profit taking may be a justified reward for a job well done. Still, it does give pause for thought. "It's time for investors to take a look at their own crawlspaces, to see if they are comfortable with the earnings and guidance and the stock's valuation at this point," Silverman says.

Monday, October 29, 2007

Accuray (NASDAQ: ARAY): Positive comments from Jefco

Jefferies is out positive on Accuray (NASDAQ: ARAY) again saying they recently hosted a conference call for institutional investors with two physician experts experienced in stereotactic radiosurgery. The firm was encouraged by the physicians' expectations for substantial growth of the SRS market and views that the CyberKnife is the most advanced system.

Jefco's physician experts believe that the potential market for SRS is vast. Dr. Brenner stated that every radiation oncology department or center would eventually need to purchase an SRS system in order to deliver the full compliment of radiation treatment options to their patients.

Both Jefco's physician experts believe that the CyberKnife is technologically superior to all of the competing radiation therapy platforms, including Varian's (VAR) Trilogy, BrainLab's Novalis, Elekta's Synergy and Axesse, and TomoTherapy's (TTPY) Hi-Art Systems.

They would be buyers of ARAY at current levels and believe the stock is poised to trade higher on strong FY1Q revenue growth, an upbeat analyst day at ASTRO, an expanding backlog, and accelerating CyberKnife unit placements. Maintains Buy and $29 tgt.

Notablecalls: I highlighted ARAY couple weeks ago following a positive call from Jefco. Worked out just fine. I continue to expect the stock to see continued interest over the next week or months.

As a funny sidenote, CIBC's Amit Hazan was pretty ticked off on Oct 5 after he wasn't invited to ARAY's analyst event. In his note to clients the analyst expressed his disappointment saying ARAY held its "analyst day" at an undisclosed location with only select analysts invited (despite their attempts, they were not allowed to attend). According to Hazan, their action really underscores this mgmt's credibility issues.

CIBC's has a Sell on ARAY.

NOTE TO ARAY MANAGEMENT: Play nicely, let Amit Hazan attend your events. I don't think investors appreciate this kind of behaviour.

Cisco Systems (NASDAQ:CSCO): A Few Lumps, So Expect Some Bumps

- RBC Capital is out with an interesting call on Cisco Systems (NASDAQ:CSCO) saying there's a lot of positive things going on at Cisco and they believe the company remains well placed to benefit from the Video 2.0 cycle. The firm does nonetheless expect some major swings within the enterprise segment and lumpy order growth for the next several months. Subsequently, they expect the stock to remain bumpy in the short-term although they like the story long-term.

RBC expects CSCO's qtr to be fine but despite the good results, they believe the macro environment within certain U.S. enterprise verticals such as financial services, retail and manufacturing has not improved meaningfully in recent months. And although North American enterprise now only represents about 12-13% of total revenues, it's still enough to keep Cisco's stock multiple in check in the near term.

Cisco has already increased its long-term guidance from 10-15% to 12-17% last quarter so the chances of this outlook increasing again are minimal. This year's FY08 guidance may be reiterated at 13-16%. Cisco may point to broad- based balance but some "order lumpiness" in the North American enterprise segment and guide specifically to a revenue range of $9.75B-$9.85B or approximately 16% YoY growth. Consensus remains at $9.80B. Maintains Outperform and $35 tgt on CSCO.

Notablecalls: So RBC expects CSCO stock to remain bumpy in the n-t. Makes me say Hmmmm...

Paperstand (BIIB)

The WSJ discusses Biogen Idec (BIIB), whose mkt cap has surged from $15bn to €22bn in about a year, mainly b/c acquisition rumors. Although Carl Icahn has indicated interest in buying the biotech concern, he says shareholders could make more by selling to a large pharma. As Mr. Icahn sees it, biotechs have robust development pipelines that traditional drug co's need in an era when many of their top products will soon lose patent protection. But some analysts who follow the co aren't so sure about its pipeline. They also say the co's existing products might face sales pressure b/c of growing competition in multiple-sclerosis treatment and a looming decrease in Biogen's share of the profits on drugs it co-mkts with Genentech. Skeptics argue that while Biogen may hit its forecast of about $4.8bn in rev in 2010, its future after that point is cloudy. Biogen, like the big pharma co's, will face its own rev pressure, said Caroline Stewart of Piper Jaffray, who recently downgraded the shares to Underperform and says a buyout at current prices is "questionable." A Biogen purchase, she says, "doesn't really help them." Ms. Stewart thinks Biogen is worth about $65 a share without cuts, based on her ests of future rev. But she considers a much higher bid from a motivated buyer unlikely. When Biogen "was $42 a share, yeah, it was cheap," she said. "It's not so cheap now."
The WSJ reprots that Blackstone Group is expected to announce today that it has lured Christopher Nassetta, the CEO of Host Hotels & Resorts (HST), to lead recently acquired Hilton Hotels as it pursues an ambitious growth strategy and plans to boost the hotelier's standing in the luxury mkt. Mr. Nassetta will leave his position as CEO of Host Hotels and become president and CEO of Hilton, after a 4-6wk transition period.

Sunday, October 28, 2007

Barron's Summary

Barron's cover discusses tech stocks. Article favors Google (GOOG), which contiunes domination of Yahoo! and MSN as ad dollars flow to Web; Nokia (NOK) that has the biggest share in wireless handsets as that market takes off; TomTom, a solid franchise in the growing personal navigation sector; BMC Software (BMC), whose margins expand for mainframe software and appears to be cheap virtualization play; Seagate (STX), a leader in disk drives benefits from consolidation and PC boomlet; Digital River (DRIV), as online delivery of software continues to gain in popularity; PROS Holding (PRO), which should benefit as co's adopt more sophisticated pricing models; and GSI Commerce (GSIC), which is capitalizing on traditional retailers' need to outsource e-commerce. Pans include Motorola (MOT), saying that cost-cutting is a temporary margin fix, also waiting for a new handset platform; Nvidia (NVDA), as super successful digital-chip co will feel pressure from Intel and AMD; and Electronic Arts (ERTS), whose games portfolio looks tired, the co doesn't benefit from the popular Wii console.

Fund manager likes MUR, CSCO, ORCL, MSFT and ACN. Another fund manager likes ESV and TRN.

The valuations accorded many Chinese co's suggest China's mkt is overheated and due for a fall. Until then, the Chinese might try to buy cheaper US concerns. PetroChina (PTP) trades for more than 20x estd '07 profits, or twice its historic P/E multiple, vs Exxon's P/E of 13 and P/Es of about 10 for other Western oil co's. Some analysts and investors think the co deserves no premium to its Western peers, and is overvalued by 50% or more. Another co trading at huge premium China Life Insurance (LFC).

Weyerhaeuser's (WY) asset value may exceed more than $100 a share, some 50% above its current stock price of 68.

Many brokerage stocks have fallen sharply, but they still are far from cheap. The industry faces more writeoffs of impaired assets, and declining earnings. MER, GS, BSC, WB, JPM, MS, LEH, C, BAC.

FMC (FMC) is in hot markets, like lithium, used in gadget batteries, and soda ash, needed for glass in emerging markets. With profits on track to climb nearly 20% in '08, the stock could rise at least 15% and keep going. A takeover target?

"The Trader" column highlights difference between Chipotle Mexican Grill's (CMG) class A and Class B shares. Chipotle's common stock traders at 134, vs class B at 117, a 13% discount. The two stocks have similar economic rights, and the B shares in fact have superior voting power, but the A shares are more liquid. For those who can stomach the slight liquidity disadvantage, Citigroup analyst Glen Petraglia has long flagged the B shares as the more "compelling" of the two. Tax considerations restrict Chipotle from a move until Oct'08, Petraglia says, but "I would expect them to take steps to merge the share classes after that point." Traders like Tim Lobach, of Keystone Trading Partners, have bought B shares and shorted the A essentially to bet on the gap closing. Fundamentally, however, he thinks the stock are pricey and trading like an Internet stock. "It's just a taco shop!" Lobach says.

"The Trader" suggests that investors should take some money off the table at Aegen Marine Petroleum (ANW).

"The Trader" column also discusses Polo Ralph Lauren (RL), whose shares have stumbled 35% since July. At 68, shares are worth 14.3x forward earnings, below the 18-25x multiples typically commanded by luxury consumer brands. And Polo has more than $6 a-share in cash on its books. Last qrtr's marginal earnings miss also was caused by higher taxes, and any cautious forecast when Polo reports on Nov. 7 could provide a buying opportunity. Over each of the past 3ys, consumer stocks also have rallied in the 4Q as oil prices receded. Also, Polo has continued to streamline its supply chain and bought back licenses to control its products and image. Intl sales should top 40% of rev as it expands to tap foreign fervor for Polo's packaged Americana. Rev will grow with more specialty stores, and licenses that could be bought back. Credit Suisse analyst Omar Saad has estd Ralph Lauren can generate more than $4bn in incremental rev over the next 5ys, or more than $5 in EPS. Sure, there is always the risk of questionable fashion decisions, and '08 profit growth might be muted by investments to launch the "American Living" brand sold through JC Penney. But that merely provides an opening to pony up for shares.

Friday, October 26, 2007

Jefferies: Time to Load the Boat with LabCorp (NYSE:LH)

- Jefferies is out with a call on LabCorp (NYSE:LH) saying yesterday's sell-off following Q3 results is overdone, in their opinion. Expectations and estimates are now reset, and the firm believes that the time to own LH, with its recurring revenue, strong free cash flows, and liquid balance sheet, is now. Reiterates Buy rating and $86 target.

From a revenue and margin standpoint, Q3 was a tough quarter—United Healthcare (UNH) volumes flatlined after Q2, Aetna (AET) volumes phased out, and the Cigna (CI) contract was repriced.

LH's balance sheet is extremely liquid (leverage ratio: 1.2x), and Jefco anticipates that the company would use capacity on that balance sheet to make acquisitions and buy back stock when and where appropriate. Keep in mind that LH has $329MM still remaining on its share repurchase plan that is not included in the company's guidance. If management were to fully utilize its authorization at current prices, annualized EPS could increase as much as $0.12.

LH is currently trading at a very low multiple of 13.9x their conservative FY09 EPS estimate of $5.01. Jefco believes 17x is a more appropriate multiple for LH. Thus, the $86 tgt, representing 24% upside from current price.

Notablecalls: I like this one. LH's no stranger to NC readers. Jefco was out with a marvelous bounce call back in August, yielding nice profits to those who took it. And now they're at it again.

The stock was down substantially after missing Q3 ests by a tad and giving cautious guidance for Q4. LH is the nation's 2nd largest laboratory corp and has been feeling the pain from managed care customers such as UNH, AET, CI, HUM etc.

Yet, several analysts covering the industry have expressed their belief that managed care re-pricing process is near completion, meaning recent guidance by LH management may be overly conservative. Cowen's Kemp Dolliver who rates LH Outperform is on record for saying he expects Humana (last national plan) to reach contract decisions in the next 1-2 weeks. That may serve as a positive catalyst for LH.

BAC's Robert Willoughby said yesterday that in a Pharmaceutical Services sector with more than one 3Q07 mine field (Owens & Minor, IMS HEALTH), this is the best quality asset off the high they would buy. He rates LH Buy with a $86 tgt.

The valuation looks moderate and with the potential for big buybacks, current guidance looks even more conservative.

I suspect the entry will be a bit tricky as I would generally like to see the stock down some more today and then stage an intraday recovery that would continue over the next couple of days. Yet, the call is strongly worded enough to cause the stock to open above yesteday's close, thus offering no low-risk entry.

Anway, one to watch.

By the way, I didn't make up the title of the call. It's Jeffco's brainchild.

Thursday, October 25, 2007

NutriSystem (NASDAQ:NTRI): Comments following Q3 results

Couple of firms comment on Nutrisystem (NASDAQ:NTRI) after Q3 results were announced last night:

- CIBC notes they continue to expect substantial risks to NTRI's business in 4Q and see challenges in 1Q08 as well. Firm sees a renewed marketing push for alliTM early in 2008 which could pressure NTRI's new Advance program. There are no changes to their FY07 and FY08 EPS estimates.

They believe that the success of NTRI's Advance program is pivotal to the brand. There is little information on the menus, but they think that unless there is a major new weight loss benefit to consumers, Advance may be more helpful to reactivation sales than switching customers away from alli.

Despite depressed PE multiples and solid cash flow, they see further downside near term for NTRI shares. New customer revenues represent 50%+ of the total. Unless, there is firm evidence of a revival in new customer add rates, it will be difficult for NTRI's multiple to recover.

- Citigroup is far more positive saying 4Q guidance was conservative and inline with what they expected -- flat sales, (20)% new customer growth and mid 30c EPS. Firm continues to believe NTRI is on track to achieve their ests of 7% sales growth, (14%) new customer growth and 39c EPS.

Mgmt mentioned that they expected y/y growth in 2008. Trading at 7x 2008 EPS, investors are clearly expecting a meaningful EPS decline. Citi disagrees and expects decent growth in 2008 due to new initiatives launching in 1Q08 that include a new ad campaign, food products, and Canadian market entry. They are also encouraged by reactivations driving 90c of EPS in 2007 and significantly greater contribution expected in 2008.

NTRI has a free cash flow yield of 10%. In addition, the company has the immediate capacity to buy back a little less than half the outstanding shares not held by insiders. Also, the firm would not rule out a private equity/mgmt buyout if shares remain at depressed levels. Maintains Buy and lowers tgt to $52 from $55 due to lower tgt multiple.

Notablecalls: I don't see NTRI as a broken story here. Prior to Allis’ launch in mid-June, NTRI was growing customers in the 50% range in 1H07. 3Q is declined 7%. Citi do not believe it is likely the company reached a saturation point in one quarter — rather, it was likely a result of competition from Alli, which they think is a short-term impact. I continue to think they are right.

The Atkins diet fat lasted more than a year and it's quite possible that Alli's will too. But considering Alli's side-effects profile, NTRI offering will likely have the last say. Remember, NTRI has been around since 1972.

NTRI is getting dirt cheap here and with a 40%+ short interest, that's a dangerous combo if you're short the name.

The stock was down close to 10% in after hours action. I see it as a bounce oppy.

Paperstand (MCK, ITW)

The WSJ's "Heard on the Street" column highlights McKesson (MCK), saying that rough comparisons with last year suggest that earnings are unlikely to impress Wall St during the rest of this year. But some smart investors say the best time to scoop up shares of a co like McKesson is when they are ignored, and before a profit pickup is at hand. These investors, including some top hedge funds and private-equity firms, say McKesson, might even be a takeover candidate if the merger game heats up again. At a recent charity event in NY, during which a group of prominent hedge-fund and private-equity players shared their best investments picks, McKesson was the only stock for which the honchos shared an affection. Larry Robbins, of Glenview Capital, argued that Street's profit expectations are too low and that McKesson has so little debt it could borrow money to boost its current share-buyback program. The co is one of Glenview's largest holdings. Some say an activist might tgt McKesson, attracted by the meager debt levels, potentially sending shares higher. At the same event Rick Schnall, of Clayton, Dubilier & Rice, said McKesson has one of the best mgmts in the health-care business. He said "many private-equity firms would love to figure out a way" to buy it, though he said it is unlikely that such big deals will take place until difficulties in the credit mkts pass.

According to the WSJ, the UAW appear to be on the verge of ratifying a tentative labor contract with Chrysler after workers at 4 plants near Detroit voted in favor of the deal Wed night. All 4 passed the contract by significant margins, tipping the total vote toward approval with only one major UAW-represented facility yet to vote. The contract must be approved by a majority of the 45K UAW workers employed by Chrysler. It has encountered stronger-than-expected opposition, with workers at several plants rejecting the deal. The total vote count now shows roughly 55% of those who have cast ballots voted to accept the contract. The total includes results from 26 of 27 union locals that represent Chrysler workers.

Barron's Online "Insode Scoop" section reports that with shares of Illinois Tool Works (ITW) flying high, two insiders have sold $11m in stock. On Fri director Harold Smith sold 130K shares for $7.3m. On Thu director Robert McCormack sold 62K shares for $3.7m. "The co has done well, and [it's common to see] insiders taking profit," says Jonathan Moreland, advisor to Ladenburg Thalmann Asset Mgmt. "While they are the heaviest sellers, they are also [some of the] heaviest holders," says Moreland, who thinks that it is a positive for the stock that the amount Smith and McCormack are selling is small, "compared to what they are willing to hold long term."

Wednesday, October 24, 2007

NutriSystem (NASDAQ:NTRI): Citi comments ahead of Q3 report

- Citigroup is out on NutriSystem (NASDAQ:NTRI) saying their channel checks indicate deteriorating trends have stabilized during the first few weeks of 4Q07. Firm is forecasting approximately 7% sales growth in 4Q.

Citi believes NTRI mgmt will provide conservative 4Q sales guidance about 5-10 points below what they are on track to achieve. The firm therefore expects flat 4Q revenue growth guidance vs. consensus of up 8%. This translates to about a 20% decline in new customers (consistent with trends at end of 3Q) and mid 30c range EPS for 4Q07 vs. consensus of 47c

They are not lowering their 4Q07 sales (up 7%) and 39c EPS estimate as they think the company will ultimately be able to achieve their forecasts.

Citi believes sentiment on the stock is already very negative considering that the stock is down 38% since preannouncingand has a 43% short interest. Additionally, based on their conversations with investors, current holders appear to expect conservative guidance and are waiting on 1Q08 trends (start of diet season).

1Q08 will be far more important than 2H07 as NTRI launches its new ad campaign and food products, and enters the Canadian market. Given its turnaround potential with 1Q08 initiatives and relatively low valuation, they view NTRI as attractive for investors with a long-term horizon. Maintains Buy and $55 tgt.

Notablecalls: Not sure how traders should play this one. Buy it now and sell ahead of tonight's earnings/guidance release? Or hope it will gap down on weaker than consensus guidance and then buy it for a bounce?

Q4 is the weakest quarter for NTRI and I would not be surprised to see initial management guidance below current consensus.

By the way, Broadpoint is out this morning on NTRI saying they think investors would likely leave nothing on the table by waiting to hear management's explanation of how 3Q:07 varied materially from their original outlook. They also can't say with any degree of confidence that there is not another shoe to drop. Firm continues to believe that NTRI is a real service from a real company, and not the passing fad bears make it out to be. Therefore, it's worth investor time to do the work on NTRI, in their view, but they see no reason to buy ahead of today's 3Q earnings report.

Go figure...

Paperstand (DISH or DTV; GOOG vs MSFT)

The WSJ's "Heard on the Street" discusses potential AT&T (T) acquisition of EchoStar (DISH) or DirecTV (DTV). AT&T has been consulting lawyers in Washington about how long it would take to get govt approval to purchase either EchoStar or DirecTV. If it does make a bid for one of the satellite providers, AT&T could unveil the offer before year's end in hopes of getting federal antitrust officials to approve the combination before a new administration takes over. A final decision on a bid hasn't been made. AT&T hasn't even decided which satellite-TV firm to go after, although a purchase of EchoStar could be easier to undertake b/c it has a less-complicated ownership situation. There also isn't any guarantee that either co would be available. But what AT&T shareholders and other investors are likely to focus on is the potential cost of a deal, between $30-40bn, depending on the target, and the telecom giant's ability to absorb another acquisition after last year's purchase of BellSouth. "It would create uncertainty," said John Krause, of Thrivent Investment Mgmt.

Barron's Online highlights Scientific Games (SGMS), saying that the co's shares could remain a winning ticket for investors. Thanks to overseas deals and acquisitions, profits are rising again. The stock has climbed 23% YTD. With lotteries abroad on the rise and overseas mkts for their gaming machines growing, Scientific Games could generate bigger profits in '08 than Wall St expects. And while pricey at 28x projected profits over the next 4 qrtrs, the stock could pay out up to 35% in the next 18mo's if mgmt meets its own lofty goals. "Investors are basically getting free options on China and other deals they have cut in the last few years," says Carlo Santarelli, of Bear Stearns. "There's potential for higher earnings numbers if overseas opportunities ramp up."

"Inside Scoop" section reports that after better-than-expected 3Q earnings, insiders at BlackRock (BLK) decided to make a profit as well, selling 80K shares. On Fri, director Linda Gosden Robinson sold 5.8K shares for $1.1m. On Thu and Fri, Vice Chmn Keith Anderson sold 75K shares for $14.3m. Also on Thu, Vice Chmn Charles Hallac exercised $175K in options for 12.5K shares and sold all shares for $2.4m. While BlackRock insiders do have a long history of selling, Jonathan Moreland, adviser to Ladenburg Thalmann Asset Mgmt on insider strategies, still calls the sales a "disappointment," as several insiders appear to be accelerating their selling with the recent transactions despite BlackRock's fundamental strength. "The timing is a disappointment," he says. "If I were a current BlackRock shareholder, [the sales] would make me a bit more alert to future selling, and possibly taking profits myself if the trend continues."

The NY Post reprots that Google (GOOG) is threatening to once again beat rival Microsoft (MSFT) to the deal punch, this time in the white-hot Facebook investment sweepstakes. Microsoft and Google are each vying to take a stake of between 5-10% percent in social-networking site, with a deal expected to be announced in the next 24-48 hours. Facebook's investors are looking for a pre-money valuation of $10-15bn in any deal. On the high side, that means Microsoft or Google would have to come up with $1.5bn for a 10% stake.

Tuesday, October 23, 2007

Teradyne (NYSE:TER): Actionable Trading Call from Citigroup

Of today's analyst calls, I like Citigroup's Tim Arcuri's Teradyne (NYSE:TER) call the most. Tim and his cabal are upgrading TER to Buy from Hold and increasing tgt to $17 from $16 saying that while they have never loved this business and and they don’t expect orders to improve meaningfully before CQ1:08 at the earliest, checks suggest that - barring a significant decline in end demand - most test/assembly subcontractors (~50% of TER’s orders) are planning for a 5-10% Y/Y increase in capex in C2008 (as opposed to Citi model of -10% for the front-end). Given current order levels, they calculate this would require a ~40% increase in Qly orders over the coming Qs.

Work suggests back-end(test/assembly) orders per chip unit are now as low as any point in the past 15years with the exception of post-C2000 – and even then, back-end orders per unit were only slightly lower. It is noteworthy that TER has been up over the next 6 months every time in history that this metric has reached this type of trough level - the magnitude of which has varied from >100% to ~20% in recent years. Additionally, TER is now trading at ~1.5x EV/sales – a consistent trough level over the past 10 years – and it now has ~1/3 of the market cap supported by net cash.

The market appears concerned about a near-term acquisition (NEXT would make the most sense, on the surface), but the firm thinks valuation limits downside and they would view this a favorable structural development for the industry.

Notablecalls: Automated test equipment and backplanes assemblies is not a sexy business anymore. I'd go as far as to say it's a lousy business. It's the kind of a stock one has to buy with a leap of faith - by the time the turn in business is evident, the stock will be much higher than currently. The keyword here is valuation. With 1/3 of its mkt cap in cash, I'd say it's a relatively safe bet (barring stupid a acquisition).

Citi's call has it all: The valuation (at trough levels), The qualitative element (checks suggesting a pickup in capex and thus, orders), The chart (the stock looks oversold with high vol over the past week).

This should make a nice trading call here. Calling it Actionable. Don't overpay early on, though. After all, it's a NYSE stock.

Paperstand (UA, CWTR)

The WSJ's "Heard on the Street" column discusses Under Armour (UA) that is scheduled to post 3Q earnings next week. Revenue growth could falter, and early indications are that the 4Q isn't off to a good start. Competition also is heating up as Nike and Adidas look to grab share in the mkt for compression undergarments. In addition, the prospect of a slowing economy could hurt sales of Under Armour's tight, stretchy gear. "Back-to-school was definitely disappointing for active apparel and footwear, but the rate of decline was more marked here for Under Armour," says Matt Powell, of SportScanInfo. "After 4 or 5 ys of huge growth, it's very hard to maintain big percentage increases yoy." But that is the challenge facing Under Armour. The co's shares trade at more than 40x projected earnings for '08, making it a battleground stock for growth investors and short-sellers.

Barron's Online highlights fund manager top holdings, including EQIX, SCHW, RIMM, GOOG, AAPL, CMCSK, CME, MNST and ETFC.

According to the "Inside Scoop" section, Coldwater Creek (CWTR) insiders seemed to have turned bullish, scooping up 43K shares just days after disturbing 3Q guidance sent shares tumbling. On Wed, President and COO Dan Greisemer purchased 30K shares for $252K. He now directly owns 86K shares. The same day, director Michael Potter bought 13K shares for $109K. "This is the mgmt and the board trying to express some confidence business going forward," says Ben Silverman, of "They are sending the message that the issues impacting the co are near- to mid-term issues, and that the long-term health of the business is intact." However, although he sees it as a bullish sign, Silverman notes that the purchases are modest. "Considering insiders have not been active buyers in the past, certainly this would be the time for them to buy if they were going to do so," he says.

Monday, October 22, 2007

Paperstand (AVP, BIIB, IMCL)

The WSJ's "Heard on the Street" column discusses Avon Products (AVP), saying that the co is showing signs that its big, multiyear makeover -- projected to cost $500m -- is working. The co this month announced a $2bn share-buyback plan over the next 5ys, which it will fund from cash flow. Although last qrtr's net income was 25% lower than a year earlier amid restructuring charges, the longer-term outlook for Avon's shares appears to be getting prettier. The buyback plan, which amounts to about $400m a yr, "is pretty aggressive and bold" in the midst of a cash-consuming turnaround, says Anant Sundaram, of Tuck School of Business. "Mgmt could be signaling confidence in its ability to generate substantial free-cash-flow growth in the future," he says. Avon's latest progress report, its 3Q results, comes next week. CEO Andrea Jung "needs to do well this qrtr. There are a lot of investors even more frustrated than they have been historically," says Ali Dibadj, of Sanford C. Bernstein.

"Ahead of the Tape" column discusses potential buyouts in biotech sector. Biotech shares, after years of languishing, have rallied in the past month and a half. The DJ US Biotech Index is up 13% since its recent low in late August. Shares are being driven by speculation that cash-rich pharma giants will snap up biotech outfits to fill drug-development pipelines and stave off generic-drug competition. "The fastest way for a big pharma to fix its problems is to go out and acquire co's" developing new treatments, says David Miller, of Biotech Stock Research. The most likely buyout tgts, the analyst says, are biotech powerhouses Biogen Idec (BIIB) and ImClone (IMCL).

Sunday, October 21, 2007

Barron's Summary (JNPR, SHLD, C, MMC, VAR, MNST)

Barrons' "The Trader" column discusses Juniper (JNPR), whose stock has jumped 95% YTD. Hopes run very high when Juniper reports earnings Tue. After all, the stock jumped last qrtr when it beat ests. Bulls also hope that Juniper will buy back more shares. But how much good news is needed to satiate this crowd? At about 36, Juniper shares trade at 33x '08 ests, well ahead of 20-21x for other peers. Morgan Stanley analyst Scott Coleman downgraded the stock earlier this month on valuation concerns even though he still likes Juniper's "strong fundamentals, growth story and the mkt outlook." Among other things, he thinks "expectations for Juniper appear universally bullish," with shares already pricing in a modest 3Q topping of analyst ests. Also, Juniper will need to keep investing in R&D and marketing, and the recent spurt in margin improvement will moderate in time. And with nearly 47% of its sales from the US, any blip in domestic technology spending will slow profit growth.

Sears Holdings (SHLD) sells for 134 a share, but could have a break-up vaule of more than $300. If Lampert turns around its retail operations, the shares could rally to 200 or more.

Citigroup (C) says the SIV situation is manageable. But Wall Street is worrying about the possibility of a multibillion-dollar loss.

Marsh & McLennan (MMC) dropped to 24.30, near its 52-week low. If the company can boost its operating margins and earnings, as some fans expect, its shares could be worth 40.

Sales growth at Varian Medical Systems (VAR) has eased, but that could prove temporary as orders deferred because of mergers finally come through. Look for the stock to jump 25%.

Bulls on the stock assert that Monster Worldwide (MNST), now trading in the mid-30s, should jump past 50 over the next year. If Monster eventually goes on the block, the price could be even higher.

Thursday, October 18, 2007

IMS Health (NYSE:RX): Color on earnings

Several firms are commenting on IMS Health (NYSE:RX) today after the provider of market data on sales of prescription medicines announced results and guidance well below analyst expectations:

- Baird is taking their rating to Underperform from Outperform and cutting tgt to $24 from $37. Firm notes RX's performance looks to have turned on a dime since June. Elongated selling cycles and pricing pressure are expanding globally. IMS' fixed cost infrastructure has a compounding impact on margin. They believe 2008 will struggle to deliver mid-single-digit sales and EPS growth. EPS CAGR over any period since 2000 has been 1%-8%; we now see more of the same in 2008.

IMS sees unprecedented uncertainty in Big Pharma purchasing behavior; now expanding beyond 2Q's European issues. Multi-market awards eroded margin but are not pulling through expanded opportunities. With pharma's challenges unlikely to abate and given concerns that spending is further crimped in an election year, the firm sees no signs of relief.

Management's planned shift to a more variable cost structure (including off-shoring and outsourcing) will take time and Baird question why this didn't happen sooner (either concerns about quality and control, or the opportunity was previously deemed modest).

- Goldman Sachs is adding RX to their Americas Sell List saying the decrease in demand was driven by pharmaceutical customers who are re-evaluating their product portfolios and strategies, resulting in hesitation to make purchase decisions. GSCO believes these trends could provide a headwind to revenue over the next six to nine months, impacting the rate of margin expansion and earnings growth.

- Banc of America notes RX's surprisingly large share repurchase and more muted optimism in 2Q07 foreshadowed a weaker 3Q07, but the stock should still trade sharply lower tomorrow. Reduced EPS expectations are clearly problematic, but deteriorating balance sheet metrics and lower free cash flow guidance are in contrast to the traditional investment thesis on the stock, which centers on its predictable cash flow generation capabilities. Also, we are hard pressed to see why management's concerns over longer selling cycles and profit and cash flow challenges do not signal weaker 2008 prospects as well. Maintains Neutral.

Notablecalls: Whew! I was somewhat cautious on RX after the co reported its Q2 results in July but I sure didn't expect this! RX stock is going to top today's casualty list as I see the stock down 15-20% following yesterday's dismal guidance.

I'm quite sure the problems will be there in 2008 and while we are seeing ests being cut already today, it may not be enough.

Value investors will be sinffing around RX after the fall-out but I don't see the stock becoming buyable until it reaches say the $24-$25 level. After two disappointments, it's a broken stock.

For s-t traders, if you can get fills above the $26 level, you're probably going to make money shorting today.

Wednesday, October 17, 2007

Morgan Keegan: Interactive Intelligence (NASDAQ:ININ) to be integrated into Microsoft's UC Solution

Morgan Keegan notes that on Tuesday, Microsoft finally unveiled its Unified Communications (UC) solution at a live event in San Francisco. The centerpiece to the UC solution will be Microsoft's Office Communications Server 2007, which brings together Voice over IP telephony, video, instant messaging, conferencing, and presence technology into one communications solution. Other pieces to the UC solution include the Office Communicator client software (think IM client on steroids), a new version of Office Live Meeting for conferencing, a service pack update to Exchange, and Microsoft Roundtable, a new hybrid conference phone/video end-point.

Press releases from launch partners have already flooded the financial news wires, so instead firm offers their initial thoughts on how this announcement affects companies under firm's coverage universe:

* Interactive Intelligence (NASDAQ:ININ): Firm expect ININ's contact center solutions to be quickly integrated into Microsoft's UC environment given the already tight integration between I3 and Microsoft's platform. (I3 is the only meaningful contact center solution build entirely on the Windows platform.)

* Logitech (NASDAQ:LOGI): Video is going to be a featured application on OCS, which will drive the need for users to have web cams for
video communication.

* Plantronics (NYSE:PLT): Voice is the centerpiece of Microsoft's UC vision, so any peripherals that help better integrate voice into the working environment should benefit.

Notablecalls: If ININ's contract center solution indeed gets integrated to Microsoft's UC environment, it sure helps company to increased adoption of its products. Combined with the strong tape of today, expect this nice call from Morgan Keegan to generate solid buy interest.

I continue to consider Morgan Keegan one the best firms out there. Their calls are usually money makers.

Hansen Medical (NASDAQ:HNSN): Opco ups tgt to $52 from $36

- Oppenheimer is out positive on Hansen Medical (NASDAQ:HNSN) upping their tgt to $52 from $36 after meeting with management last week. The firm notes they continue to see extremely strong interest in the Sensei system. One hundred one procedures were completed in the September quarter (up from 48 from May through mid August). It seems that at the Cleveland Clinic one physician prefers the Stereotaxis (STXS) system, several physicians prefer the Sensei, and several use both systems. It is their view that so long as the preference is equal or better, that up front price will be the deciding factor. Firm expects Hansen's ramp to accelerate.

Additionally, they have learned that the production holding back system installations is actually the production of the disposables. Hansen expects to be able to meet demand with its new production facility in 2008. Firm has spoken to many cardiologists who truly appreciate the significance remote navigation will have on medicine in the future.

On valuation side the firm will now use 10x in line with Stereotaxis even though they believe Hansen will have the faster ramp.

Reits Buy.

Notablecalls: Expect to see strong buy interest in HNSN as the stock is a mo-mo darling and OpCo's tgt represents the new Street high.

Paperstand (CVC, WMT)

According to the WSJ, ClearBridge Advisors, the largest institutional shareholder in Cablevision (CVC), plans to vote next week against the Dolan family's bid to take the co private, delivering a potentially crippling blow to the $10.6bn effort. ClearBridge owns about 14% of Cablevision's public stock. Three other large institutional shareholders that together control about 20% of the vote have already indicated their intention to oppose the buyout.

According to the "Heard on the Street" column, a planned king-size investment pool to acquire mortgage assets and bolster sputtering credit mkts is gaining participants, despite hesitation from some banks and securities firms about joining the effort. The 3 lead banks, Citigroup (C), JP Morgan (JPM) and BofA (BAC), are aiming to round up commitments totaling at least $80bn to make the plan fly. While some people briefed on the plans say that target is fluid, others say that without the kind of critical mass of that large a fund, "it's unlikely to happen," as one put it. The 3 lead banks expect to ante up less than half the total, the same person said. Some other financial-services firms said they plan to steer clear. Rick Waddell, the new CEO of Northern Trust (NTRS), said in an interview yesterday his co has no interest in participating in the superfund as lender or investor, particularly since it has no exposure to the kind of investment vehicles that hold the mortgage securities in question. Mr. Waddell also described the creation of the fund as an aid to Citigroup, which has the greatest exposure of any bank to such structured investment vehicles. "It really is JP Morgan and BofA helping out Citibank," he said.

Barron's Online discusses Wal-Mart (WMT), whose shares are down 23% over the past 5ys. Blame slowing sales, strategic missteps and cash-strapped consumers for the stock's woes. Yet efforts over the last 6mo's to improve margins, increase cash flow and reward shareholders are showing early signs of success. And with multiples bouncing off 10y lows, investors have little to lose, and could gain returns of 20-30% over the next 12mo's. "I haven't liked Wal-Mart for a while, but I think now we have to take a look at it," says Pete Kwiatkowski, portfolio manager of Fifth Third Dividend Growth Fund. "It remains a 'show me' stock. But if they're going to outperform, this is when they will do it."

"Inside Scoop" section reports that 3 insiders of Liberty Global (LBTYA) have decided to take profits in co's shares. Charles Bracken, senior VP and co-CFO, sold 45K of series A and series C shares, for $1.9m on Thu. He retains direct ownership of 38K shares. On Wed W. Gene Musselman, president and COO sold 17K of series A and C shares for $729K. He continues to hold 19K shares directly, with another 5K shares in 401(k) holdings. Mauricio Ramos, president, Liberty Global Latin America, exercised and sold 40K series A and C shares for $1.6m. He continues to hold 7K shares directly, with another 2K shares in 401(k) holdings.

Tuesday, October 16, 2007

Intuitive Surgical (NASDAQ:ISRG): Cautious comments from CIBC

- CIBC is out cautious on Intuitive Surgical (NASDAQ:ISRG) saying the stock has run up 67% since 2Q earnings, and they feel the current valuation is reflecting expectations for another blowout in 3Q. The key metric to watch is still new units. ISRG likely will have to significantly beat CIBC's worldwide 56-unit est for the stock to work higher, which they do not expect.

As for specifics on 3Q, the firm expects ISRG to slightly beat their estimates for sales and EPS of $146 million and $0.85, which are above Street estimates of $143 million and $0.79, respectively. Again, their bottom line is that it will not be enough NT, and so they're very cautious heading into the call.

Even great companies can reach valuation peaks, and ISRG common today may not offer the same returns as those to which its investors have grown accustomed. As growth comes back to earth next year (as the firm expects it will), the premium paid will likely be reduced, and the stock likely would be notably lower than today, heading into 2H08.

Notablecalls: This is the first time I have seen such cautious comments on ISRG coming from a serious player as CIBC. I have gone over the other previews and I must say the sell side hasn't picked up any signals of a major beat. Almost everyone sees ISRG coming in in-line with consensus. Yet, looking at the chart, it's pretty obvious a sizable beat is expected by market participants.

ISRG is scheduled to report in 2 days and I suspect we will see weakness in the stock ahead of the release. Shorting here looks like the sensible thing to do.

Echostar (NASDAQ:DISH): Actionable call Alert!

- Citigroup is out with a groundbreaking call on Echostar (NASDAQ:DISH) saying the shares have been very strong over the last few weeks with most of the run occuring after EchoStar put out a press release suggesting it was contemplating a tax-free spin of some of the non-core assets. They think some of the run-up stems from investors that believe the spin is related to a possible tie-up with AT&T (NYSE:T). Firm suggests the likelihood is fairly high that the SpinCo announcement is linked to an AT&T acquisition of EchoStar.

This view is based on the following:

1) A non-core asset spin is inconsistent with management's prior philosophy of shunning financial engineering.

2) Even if management embraces a new philosophy, SpinCo creates - but does not maximize - shareholder value.

3) By excluding the core satellites from SpinCo, EchoStar has isolated the assets AT&T may be interested in (customers, orbital slots, core satellites) from those they are not (set-top box design and manufacturing, wholesale transponder capacity).

4) If AT&T and EchoStar have had substantive M&A discussions, the creation of a tax-free SpinCo will likely preclude AT&T from acquiring the assets for two years. Thus, SpinCo may be designed to "force" AT&T's negotiating hand.

5) Press reports suggest EchoStar is asking for $65 per share. This makes sense to Citi based on current sub base + its ability to merge with DirecTV in the future ($41 + $27 = $68).

The bottom line, in firm's view, is that SpinCo is good for EchoStar shareholders in its current form. However, they think there is a 65% chance EchoStar is acquired by AT&T within the next 12 months. Maintains Buy rating on DISH with a $59 price target.

Notablecalls: What can I say, grab all the DISH stock you can in the $1-$2 buck range from yesterday's close. It's not every day you see a firm coming out saying there's a 65% chance of a co being acquired with a close to 40% premium. That's bound the generate interest!

Actionable call alert!

Monday, October 15, 2007

EagleTest Systems (NASDAQ:EGLT): Actionable call alert!

- Canaccord Adams is adding EagleTest Systems (NASDAQ:EGLT) to their Best Ideas list with a $22 tgt saying their research leads them to believe that Eagle Test's business is improving off the JunQ3 trough level -- driven by progress at new customers as well as spending environment improvement in the analog/mixed-signal segment.

Firm believes progress at its newer customers will help Eagle deliver sequential growth in SepQ4, potentially at the upper end of guidance. Eagle Test's Q4 guidance was $19-23M/$0.04-$0.11, and they model $22M/$0.10 -- up from Q3's $19.9M/$0.09. Eagle is early in its ramp at multiple new customers, although the firm expects material contribution from at least one major new customer (ST) in Q4. Firm models minimal growth at top customer TI, a potential source of upside. They look to Eagle Test's projects at new customers to drive substantial growth and opportunity for upside looking forward. Adams believes Eagle Test is best positioned to outperform its peers as we near what they believe is the end of the current downturn.

They would be buyers of EGLT at the current price, and maintain target price of $22 (15x C2008E EPS, ex. cash and interest), a 77% potential return from the current price.

Notablecalls: Great call by Canaccord Adams' Dennis C. Wassung! EGLT isn't a widely followed play, so a call like this does carry a lot of weight. If thing are indeed getting better as Mr. Wassung says they are, EGLT looks like a screaming buy here.

I'm going to call this one Actionable here.

Sequenom (NASDAQ:SQNM): Target upped to $15 at OpCo

- Oppenheimer is out with a nice call on Sequenom (NASDAQ:SQNM) after they were able to meet with a portion of the co's management last week. According to the firm the company is making strong progress towards its Down's Syndrome diagnostic prenatal test. They believe this is a potentially ground-breaking test that could revolutionize testing within the prenatal medical arena. Additionally, Sensigen continues to work towards a more specific HPV test. Finally, the company's new nanopore sequencing technology should add another stream of revenue in the future.

Firm views the development in Down's as very positive for investors, as previously the test had simply been a concept. The company will now find additional SNPs to utilize in order to create a test that works in everyone. OpCo expects the company may release interim data at the Society for Maternal Fetal Medicine annual meeting in Dallas at the end of January.

Based on these developments the firm feels they need to adjust their price target and the multiple they use to derive it. Firm believes the Down's test will produce most of Sequenom's revenue in the near future, and now that they believe the chance of a successful test being developed has increased, they are increasing their multiple. OpCo now increases their price target to $15 from $10.

In seeking comparable companies, the firm believes Hemosense (HEM) and Genomic Health (GHDX) are similar, with the ability to change how certain areas of medicine are practiced.

Notablecalls: This is the kind of call that will generate enough interest to push SQNM toward the $9.50-$10 level in the s-t.

Yahoo! (NASDAQ:YHOO): Deutsche cautious ahead of Q3; expect weakness in stock

- Deutsche Bank is out cautious on Yahoo! (NASDAQ:YHOO) saying that with US page view declines of 9% YoY in 3Q and search volumes slowing to the single-digit range, they think that shares are likely trade toward the mid-$20s post earnings.

Firm expects Yahoo! to report 3Q results in-line to slightly below expectations, as a US traffic decline of 9% (vs. -5% in 2Q and +9% in 1Q) and search volume slowdown may pressure growth. They think that their revenue/EBITDA forecast of $1.26bn and $436mn may prove a little difficult due to slowing search vol. growth. These issues, coupled with the potential for future display ad weakness and a re-worked AT&T contract, could place pressures on '08 growth prospects. As such, they think that Street estimates of 16% growth may be difficult to achieve for Yahoo!

DB's recent discussions with folks in the online media industry would suggest that some online advertising weakness may be ahead for the industry and display ad oriented companies such as Yahoo! While 3Q online ad spending was generally solid, the fallout from the financial services and mortgage industries may be a key risk in coming quarters.

Also, they believe that Yahoo!'s existing access partnership with AT&T may be re-worked to reduce the payments made by AT&T to Yahoo! on all new subs brought into the deal. There appear to be at least three other companies that have submitted proposals on the AT&T contract, thereby providing for a truly competitive situation for Yahoo! All in, the firm thinks that more than $200mn in EBITDA (high margins) may be at stake for Yahoo! on its access partnerships.

Maintains Hold and $24 tgt.

Notablecalls: This is a pretty sensible call from Deutsche ahead of YHOO's Oct 16 results. I was a YHOO bull 3-4 bucks below Friday's close but would I want to stay long it ahead of quarterlies? Not really. Too much could go wrong here.

Sitting at my old desk, I would put out a short line in YHOO this AM, looking to cover somewhere below the $28 level. I suspect the stock will gap down following Deutsche's call, so I'd be actively shorting the pre-market.

Sunday, October 14, 2007

Barron's Summary (RRD)

Barrons’ “The Trader” column discusses RR Donnelley (RRD), whose stock is down 15% from a July 19 high. Part of RRD’s drop reflects some speculative air being let out of the price. Mkt chatter that RRD's strong and steady cash flows made it an attractive buyout candidate probably helped push the stock to 45 in July. Yet August's credit-mkt woes have reined in the M&A mkt, and investors who'd piled in hoping for a deal bailed out. RRD’s 2Q earnings report was another factor. Results beat expectations, but the co didn't raise its annual guidance, disappointing some. The headlong stampede out of RRD's stock, however, might be a buying opportunity for long-term investors, with as much as 25-30% upside possible over the next 18mo’s. Many think of printing as a "stodgy, cyclical business, but ppl don't know what Donnelley is about," argues Alexander Roeper, of Atlantic Investment Mgmt. "It's more than a printer of magazines, catalogs, and books, which is roughly a quarter of sales."

Manager likes NT, JDSU, ZHNE, CNXT, MSPD, BKHM, SUP, ARM, AXL, HAYZ, PKD, NR and GW. Dislikes FED, DSL and BKUNA.

At 39, CVS Caremark (CVS) trades for 17 times '08 estimates, roughly in line with rival Walgreen. If Wall Street wises up and starts to value CVS like a drugstore/PBM hybrid, however, the stock could rally into the mid-40s.

The stock of National Oilwell (NOV) isn't cheap, but another 20% of upside is possible if the oil boom continues. Another possibility: buying call options to limit risk.

Fuel Tech (FTEK) parked at 38 in June, only to retreat to 22. Now the stock is on the rise again, along with the company's orders, and some fans think it could top 40 in the next year.

Friday, October 12, 2007

Electronic Arts (NASDAQ:ERTS): Deutsche sees risk to Xmas sales

Deutsche Bank is out with some fairly interesting comments on Electronic Arts (NASDAQ:ERTS) after the co said on Thursday it will buy two video game studios for $855 million in a deal that fills weak spots in its games lineup by adding role-playing and action titles. EA said the deal would be dilutive to its fiscal 2008 earnings by 30 cents to 40 cents per share. Excluding special charges, the purchase would reduce EA's earnings by about 5 cents a share in its fiscal fourth quarter, which concludes at the end of March.

Electronic Arts Inc expects to beat its earlier profit and revenue forecasts for its second quarter ended in September, Chief Financial Officer Warren Jenson said on Thursday. "We will be excess of our guidance," Jenson told analysts on a conference call, saying only that would apply to both net profit as well as adjusted profit.

- Deutsche notes they remain on the sidelines on shares of Electronic Arts, and believe that while the VG Holdings acquisition should help add to the company's title portfolio longer-term, near-term share price volatility surrounding the upcoming holiday selling season in the video game industry has pushed shares of Electronic Arts higher. This is despite potential sell-through weakness for several of EA's major titles, which they will get a better sense of in next week's NPD data release.

The management indicated that September quart revenues and EPS will exceed its guidance, as the company sold its marquis sports lineup in the quarter. While the risk in fiscal 2Q is generally low, more importantly DB thinks that the December quarter represents a risk quarter for EA as the quarter is driven by new releases and re-orders on its existing titles. With title sell-through lower than expectations, they think the likelihood for weakness in fiscal 3Q is increasing (25% growth vs. 5%-10% industry growth in C4Q).

Maintains Hold and $45 tgt.

Notablecalls: First of all, ERTS' FQ3 represents calendar Q4, which in turn represents about 40-45% of the co's annual revenue. Although most firms are likely cheerleading ERTS following yesterday's news, Deutsche's comments throw cold water on it all.

Must say that after going over some sell-side checks over the past weeks, I have noticed some weakness in ERTS's line-up. The consoles are simply not selling well enough. Well, Wii is but considering ERTS is only the 3rd largest supplier to this one, it's not enough to move the needle.

In order to hit CQ4 consensus estimate, ERTS needs to show growth way above the industry average. I see risk to this.

Should the stock gap on this guidance for FQ2, I suggest you short it.

Thursday, October 11, 2007

Paperstand (PGR, RAD)

The WSJ’s “Heard on the Street“ column discusses Progressive (PGR), saying that the co hasn't been making much progress lately. Once admired as the auto-insurance industry's scrappy upstart, Progressive now struggles against idling growth, an uninspiring brand and a dual-pronged business model that puts it squarely against bigger rivals. The co's earnings are flagging as a result. And its battered stock, instead of being a buying opportunity, still isn't a bargain. "Progressive's competitive advantage was that it had a better mousetrap for better pricing," William Wilt, of Morgan Stanley, says about Progressive's innovation in the ‘90s of offering quotes over the Internet, and then passing the cost savings to customers. "But like any business, competitors learn to catch up," says Mr. Wilt.

Barron’s Online “Inside Scoop” section reports that Rite Aid (RAD) largest shareholder raised its stake. On Fri, Canadian pharmacy chain Jean Coutu Group snapped up 1.9m shares for $9.1m. Jean Coutu now owns 251.9m for a 31.9% stake in the retailer. "Jean Coutu is showing a commitment to Rite Aid going forward," says Ben Silverman, of "It is a positive that they actually increased their ownership stake buying on the open mkt, especially coming in after the stock hit a 52w low."

Wednesday, October 10, 2007

Cisco Systems (NASDAQ:CSCO): Actionable trading call Alert from Goldman!

- Goldman Sachs is taking Cisco Systems' (NASDAQ:CSCO) tgt to $40 (from $37) saying they are taking a more bullish stance on Cisco's multiple, based on their view of the sustainability of the company's growth in the mid to high teens. Additionally, results are in for the 36th issue of GSCO's IT Spending Survey series, conducted in mid-August 2007. Results for corporate networking and Cisco were both positive.

2 key points: 1) GSCO believes that Cisco's will trade at a 19-20x PE multiple 12 months from now, as the company will demonstrate to investors an ability to sustain its top-line growth at a 16%+ level through 2009.

2) Firm's positive outlook is reinforced by the results of their proprietary IT survey. Fifty-six percent of respondents expect to increase spending with Cisco over the next 12 months. Historically 50%-70% range has been a positive indicator for Cisco's outlook. The 12-month forward outlook for corporate network spending looks positive with 68% of respondents surveyed expect to increase their spending over the next 12 months vs. 69% in prior survey.

Maintains Buy.

Notablecalls: This is a pretty significant call from GSCO as $40 is the Street high tgt. Most other major firms still have their tgts in the $35 range and I suspect GSCO's call will give them confidence to go higher. This will create another round of buying, likely pushing the stock to a new 52-week high.

Sitting at my old desk, I would be all over CSCO in the pre-market, scooping up any size offered within the 20-30c range. This one's going higher, baby! Actionable Trading Call Alert!

Paperstand (BUD, MGM, THO)

The WSJ’s “Heard on the Street“ column discusses Anheuser-Busch (BUD), which holds 48% share of the US beer mkt. The new SABMiller-MolsonCoors competitor will have a 30% share. This latest attack isn't likely to seriously dent BUD's performance in the US. It also may prompt the co's mgmt to take some intl action, possibly a merger that would give the co greater entry to S-America, E-Europe and India. CEO August Busch IV wrote in a memo to wholesalers and employees that "we must not lose sight of the fact that this joint venture represents an attempt by those co’s to better compete against us." For starters, the SAB-Molson Coors deal was done out of weakness and is all about cost cutting, which highlight's Anheuser's strengths. The 2 co’s expect to see savings of about $500m annually thanks to lower costs for transportation and marketing. But that is an acknowledgment they weren't able to match Anheuser's operational efficiency and had failed to win significant mkt share on their own. The US operations of both SABMiller and Molson, for example, generate operating margins of less than 10%. Anheuser's US operations, by contrast, run on operating margins of about 23%. Anheuser "executes pretty well, they do a good job of blocking and tackling," said Greg Estes, of Intrepid Capital Funds. That isn't about to change b/c a new rival emerges, he added. In addition, Anheuser's "history of stable cash flows" should more than counter recent weakness of the US beer mkt. "In spite of what analysts and others talk about, their declines are too fast and furious for reality," Mr. Estes said. He said Anheuser's stock is fairly valued at current levels, but if the mkt continued to sell it off "sharply" on the SAB-Molson Coors news, "I'd probably add to it."

According to the WSJ MGM Mirage (MGM) plans to announce today a roughly $5bn project for a new resort in Atlantic City. The project, called MGM Grand Atlantic City, is planned to complete in 2012.

Barron’s Online “Inside Scoop” section reports that Walter Bennett, the CFO for Thor Industries (THOR) bought $456K in Thor shares on Fri. The buy represents the first insider purchase at Thor in almost 4ys.

Tuesday, October 09, 2007

Concur Tech (NASDAQ:CNQR): Actionable call alert!

- Deutsche Bank is out with a very interesting call on Concur Tech (NASDAQ:CNQR) saying the co is on the verge of something big. They are raising estimates (2008/2009) and price target following the closure of Gelco and highlight Concur as an attractive holding as it has the strongest market power in our coverage (5-10x the next closest competitor) and will increasingly garner the benefits of scale inherent in SaaS. Firm believes organic subscription growth (recently accelerating from the low 30s in '06 to the mid-to-high 30s) will be fueled by continued customer expansion (400+ adds per quarter) and Travel 2.0. They reiterate Buy and raise target to $40 (from $30).

This quarter Concur is set to release Travel 2.0, an end-to-end integrated travel booking to expense management offering that the firm believes will represent a transformational impact on the market over time. DB sees Concur's SaaS approach as best positioned/value proposition to the corporate consumer and believe it could be potentially disruptive to the travel bookings market. Concur has seen initial success in Travel booking (i.e., over 51% of Travel 100) and has wins at key "lighthouse" accounts (e.g., ADP, HP, and Dupont).

Notablecalls: Is CNQR cheap? No way. Does it have momentum? Hell yes! Software-as-a-service (SaaS) in travel looks to be white hot here. We had two firms initiate the stock with positive ratings last week and I'm sure there's more to come in the n-t. Ride that momentum. While I usually refrain from offering tgts on my calls, I'm going to make an exception on this one. The thing has $36 written all over it. Actionable trading call alert!

Google (NASDAQ:GOOG): Target upped to $670 at BAC; expect buy interest

- Banc of America is upping their tgt on Google (NASDAQ:GOOG) to $670 from $620 as they are raising their Q3 and '08 estimates on strong revenue growth driven by 1) accelerating US search query growth, +60% Y/Y in Jul-Aug, vs. 54% Y/Y growth in 2Q; 2) continued monetization improvements due to the top ad placement algorithm change; 3) growing international footprint, including market share gains in China (+400 bps Q/Q to 22.8% in Q2); 4) few signs of a slowdown in online financial services ad spend, which could even be a tailwind; and 5) positive currency tailwinds with the USD down 2% Q/Q in Q3 (vs. GBP, Euro, Yen).

While it is clear that the Street expects GOOG to continue taking search share from its competitors, what impresses BAC is that Google's query growth seems to be accelerating. An analysis of comScore data reveals that GOOG's Q3 Y/Y search query growth in the US may be accelerating from Q2 levels. Google's core web search volume on its own sites grew 60% Y/Y in July through August 07, compared to 54% Y/Y growth in 2Q07, which gives the firm increased confidence in their Q3 revenue and EBITDA numbers.

BAC is increasing their 3Q07 revenue from $2.97B to $3B (due to stronger than expected query growth), EBITDA from $1.68B to $1.75B, and operating EPS from $3.77 to $3.89.

Notablecalls: While GOOG stock has been a strong performer lately, I suspect today's BAC call will generate some early buy interest as they won't be the only ones upping GOOG's ests in the n-t.

Monday, October 08, 2007

US Steel (NYSE:X): Morgan Stanley's top Short Idea

- Morgan Stanley is initiating coverage of the North American steel industry with a Cautious view. According to them, steel stocks do not appear to be discounting the one-two punch of a deteriorating supply-demand balance and slowing global growth that we expect next year. Firm's top short idea is US Steel (NYSE:X, Underweight). Its profits are at relatively greater risk in their base case pricing scenario, given its high fixed costs and exposure to the commodity tubular market. MSCO's long pick is Nucor (Overweight), a better defensive play as industry growth begins to wane, though they do not recommend purchase. Firm rates AK Steel (NYSE:AKS) Equal-weight. If the US slips in to a recession (bear case scenario, which they currently assign a 30% probability), they think the stocks can retrace much of the gains they have posted in recent years.

A prolonged period of high global steel prices is fueling heavy investment, and capacity additions are now coming online at breakneck speed. As global GDP is expected to downshift in 2008, global steel demand growth appears set to slow and is unlikely to keep pace with global supply.

Notablecalls: MSCO has been out with cautious calls on several sectors lately. And rightly so. Now is the time to be cautious, not when things are down another 20% from here. I very much like MSCO's Steel call here and I think both X and AKS will get hit in the n-t. I would not be surprised to see X slide below the $100 level soon.

Paperstand (SAP to acquire BOBJ; AMR, BMY)

According to the WSJ, SAP (SAP) agreed to acquire Business Objects (BOBJ) for €4.8bn ($6.78bn). The boards of the two companies voted to agree to the deal yesterday. SAP said it plans an all-cash offer of €42 a share for Business Objects, about a 20% premium to Friday's closing price.

“Heard on the Street” out saying that investors feeling ebullient about the recent lift in American Airlines' sputtering share price should be cautious. The co is setting a slower recovery pace than its competitors, and that drag on the stock isn't likely to go away soon. The airline is burdened with higher costs and hasn't been able to muster the kind of recent rev gains seen by its legacy-airline peers. Despite the latest uptick, shares of American's parent, AMR (AMR), are down 15% so far this year. Shareholders have been getting antsy with CEO Gerard Arpey's adherence to a long-term strategy that often eschews short-term, investor-pleasing fixes. During the industry downturn after the 911, American was one of the most frugal spenders and, in some areas, aggressive cost-cutters as Mr. Arpey avoided the easier path taken by rivals in bankruptcy-court proceedings. Now, investments to improve operations for the long haul, including better customer service and new aircraft interiors, are adding to the carrier's high costs. "They have a lot more work ahead of them than other names b/c of the fact that they haven't been through bankruptcy," said S&P's analyst Jim Corridore. Some argue that American could bounce back fast if industry fundamentals improved. "There's such huge financial and operating leverage at American that when they start turning, you're going to see kind of an explosive upside," said FTN analyst Michael Derchin.

According to the WSJ, the FDA is preparing to warn physicians about hazards with drugs used to enhance the diagnosis of heart problems using ultrasound imaging machines. A spokeswoman for the agency said it "has been investigating reports of deaths and serious cardiopulmonary reactions" in patients. The FDA will alert health-care professionals about "these serious risks and to provide guidance regarding the safe use" of the drugs, she said. The warning about the drugs could come this week. The principal drug at issue is Definity, made by Bristol-Myers (BMY). A second drug called Optison, from General Electric (GE) is also expected to receive beefed-up warnings.

Sunday, October 07, 2007

Barron's Summary (CCK, LDK, PAYX, CAH, GEO, CXW, CRN, CREE)

“The Trader” column out saying that the hotel boom may be peaking. Once-laggard hotel stocks have outperformed the mkt as investors catch on to the industry's pricing power, and the mismatch between frenzied demand and sluggish supply. Most sell-side analysts remain bullish, and further gains are possible, but the risk-reward profile has become less compelling. Businesses drive nearly 2/3 of hotel profits, and as Corporate America grapples with slower economic expansion, a less-accommodating credit mkt and record energy costs, greater scrutiny will come to bear on travel budgets. Big-spending financial-services firms, for one, won't be running up as many big hotel bills, and co’s will negotiate hard-to-keep room rates down. "Given that almost all of the YTD RevPAR growth has come from pricing, we expect lower ‘08 rates will have a significant impact," notes Goldman Sachs analyst Steven Kent. HLT, MAR, HOT, OEH.

“The Trader” also highlights Crown Holdings (CCK), saying when the co reports 3Q results Oct. 16, co’s financial outlook will be center-stage, amid worries about stagnant US sales of carbonated soft drinks, smaller crop yields and weakened demand for food cans. Crown is Europe's largest can maker and derives more than a 1/4 of its sales from across the Atlantic, where soggy harvests to the north and droughts to the south now threaten to rain on Crown's parade. The exodus of hedge funds from likely buyout tgts with high cash flow also played a part, and Crown shares have pulled back more than 15% from their July peak. If Crown execs issue a conservative forecast, any stock selling would open a door for longer-term investors. Citigroup analyst Timothy Thein thinks recent concerns have clouded the long-term picture. Many worries are already factored into the stock. "If harvests do come in light this year, it will likely translate into low year-end inventories for food packers and processors," Thein notes. This will drive up prices and encourage farmers to plant more next year, keeping any negative impact short-lived while improving the odds for ‘08. Worries over higher tin-plate costs also may be overblown, since that could make it easier for Crown to raise prices. Slowing soft-drink sales and a recent profit warning from Cott (COT) have also unnerved investors, even though Cott accounts for less than 5% of Crown's operating profits. At about 23, Crown shares trade at about 12x ‘07 FCF, a discount to the 14x for rivals like Ball (BLL). "In a mkt concerned about slowing economies, US dollar weakness, and inflation, Crown's stock should outperform," Thein says.

Barron’s out saying that China’s solar boom loses its luster. LDK Solar (LDK) still looks expensive in light of questions about its accounting for inventory and therefore profits. The shares, already off sharply, could keep heading toward zero. Also mentioned: JASO, STP, TSL, YGE, SOLF and CSIQ.

Investors' worries have created a buying opportunity in Paychex (PAYX) stock. It should return to at least 46 -- about 12% above its current price -- within a year.

In light of expected mid-teens earnings growth in coming years, Cardinal Health (CAH) shares seem cheap, particularly compared with rivals'. Upside potential could be 20% to 45% higher.

Softness in U.S. employment has hurt uniform companies' shares. But the pessimism is overstated. Look for the stocks to rise 15% or so over the next 12 to 18 months. CTAS, GKSR, UNF.

There's money to be made in shares of prison co’s like GEO Group (GEO), Corrections Corp. (CXW) and Cornell (CRN), despite a recent US Census report intimating that the prison population is growing at 4% annually, not the widely publicized 13% forecast by the Pew Charitable Trusts. The Pew data, by Barrons’ reckoning, are almost certainly more accurate. Although all 3 prison co’s trade at lofty P/E ratios, they look reasonable in light of the prison population's likely growth. Corrections Corp., for example, at its recent price around $25, was trading at about 24x its estd earnings for this year of $1.04 a share. The co's earnings, however, look to be growing around 20% annually, helping to justify the price. If the shares keep their current P/E, the price could jump to $30. GEO trades at 26x estd earnings for this year. Net could well rise by more than 25%, perhaps lifting the shares to $35. Cornell also looks pricey at first glance, trading at 30.5x ‘07 earnings ests. But analysts say that earnings could rebound next year to $1.27 a share, sending the stock up by 40% or more.

God bless the brokerage analyst who has the guts to recommend that his clients sell a stock. And we're not talking a Hold that smells like a Sell, either. We're talking a bonafide Sell. Meet Canaccord Adams analyst Jonathan Dorsheimer, who's got the gumption. Last week, Dorsheimer issued a Sell rating on Cree (CREE). LED lighting technology is all the rage, which might explain why Cree's shares are up about 30% over the past 12mo’s. The stock, now in the high 20s, got dinged a tad last week after Dorsheimer issued a Sell recommendation while traveling in Asia and meeting with co’s in the LED supply chain. After 2wks in Japan, Taiwan and China, Dorsheimer concluded that Cree will miss DecQ earnings and rev tgts. He also predicted that "cracks" will begin to appear when the co reports its SepQ. One problem: Cree is going into business against some of its customers by manufacturing lighting fixtures, rather than just the chips that go inside them. While Dorsheimer concedes that the decision might be good for the long term, he sees it hurting the co's chip sales in the short term. Cree has pledged to the Street that it can keep its chip sales flat while embarking on the new strategy. But after talking to industry sources on the ground in Asia, Dorsheimer is convinced that this is impossible. "I knew that Cree's decision would come with some mkt challenges, as Cree overnight became competitive with the majority of its LED customer base," Dorsheimer told. "However, what I didn't fully appreciate was the timing and magnitude of the potential impact. Based on my extensive meetings here in Asia, I now disagree with mgmt's ability to achieve its goal of maintaining flat LED chip sales over the coming qrtrs."

Thursday, October 04, 2007

KLA-Tencor (NASDAQ:KLAC): Actionable short call alert!

- CIBC is out with a negative call on KLA-Tencor (NASDAQ:KLAC) saying they are lowering their FY08/FY09 ests to $2.80/$3.00 (vs. Street $3.17/$3.66), trimming PT to $52 (from $58) s new checks indicate sizeable share loss at Rexchip, the single largest order for semi cap equip in C4Q (Dec). Rexchip is fracturing KLAC's orders among smaller vendors like NANO, RTEC to side-step KLAC's premium ASPs.

Based on checks in the last two days, Rexchip has been pressuring tool vendors for greater pricing concessions, in light of an unexpectedly poor spot/contract pricing environment for DRAM (essentially Rexchip's sole product). In addition, given the slight acceleration of plans (tool move-in by end of March vs. end of May originally), Rexchip has also requested accelerated delivery dates. As CIBC understands it, KLAC has pushed back on further concessions on pricing, and to a much lesser extent, has encountered slight difficulty in pulling-in manufacturing schedules.

KLAC has been resilient given expectations for a +20%-25% Q/Q snap in orders in F2Q (Dec) however, share loss at Rexchip has altered this view, now see order guidance for only +10%-ish Q/Q.

Was this impact already accounted for in KLAC management's lowered order outlook at a conference in September? No.

In conjunction with market share loss at Rexchip, checks also indicate that KLAC has planned for two weeks of shutdown in F2Q (Dec), followed up by another two weeks in F3Q (Mar) next year. While the firm doesn't have concrete visibility on orders/shipments in early 08, KLAC s extensive plan for shutdowns suggests yet another quarter of depressed orders/shipments in early 08.

Notablecalls: Actionable Short Call Alert! KLAC is going to get hit following these excellent comments by CIBC's Gary Hsueh. KLAC has been a real teflon stock lately but these crack are just way too big to ignore here. Short early & aggressively.

Gmarket (NASDAQ:GMKT): RCB cutting Q3 ests below consensus! Also, BIDU looks like a short here

- RBC Capital is out with a surprising call on Gmarket (NASDAQ:GMKT) cutting their 3Q07 estimates below consensus to account for accentuated seasonality as their channel checks indicate that the holidays in Korea had a greater-than-anticipated impact on site activity. Korean Chuseok holiday (Sep. 25) fell midweek this year and lengthened the period of decreased online activity. RBC believes GMKT will report flattish GMV vs. 2Q07. They have lowered their estimates to GMV 775b KRW vs. prior 791b KRW, revenue $60mm vs. prior $62mm, and EPS $0.15 vs. prior $0.18. (Consensus stands at $0.18/ $62.7 mm).

That being said, firm's preliminary read into the level of activity heading into 4Q07 is indicating a sharp rebound and as a result FY07 estimates remain essentially unchanged. They believe investors should look past this period of seasonality and focus on what are actually indications for robust trends for 4Q07 and 2008. Maintains Outperform rating and $27 target.

Notablecalls: As I have stated in the past, I'm firmly bullish on GMKT. Yet, the stock is up over 30% over the past weeks, most likely on heels of the BIDU-induced run in stocks with Asian exposure. I think that at least some players will be unpleasantly surprised by RBC's comments regarding weakish Q3 and will be looking to pocket some of the recent gains.

I also think Baidu (NASDAQ:BIDU) will get hit today as we have Google crossing the wires today saying they are closing the gap with Baidu in China, after years of trying to increase market share in the world's second-largest Internet arena.

"We are closing up the gap with them (Baidu)," said Rebecca Kuei, Google's head of sales and business development for Taiwan and Hong Kong, declining to give specific figures.

Also note that HK stocks have just posted their biggest two-day drop in seven weeks.

Things look set for a pullback.

Wednesday, October 03, 2007

Zoran (NASDAQ:ZRAN): Deutsche positive on Zoran

- Deutsche Bank is out with an interesting call on Zoran (NASDAQ:ZRAN) saying they believe the co is successfully diversifying revenues with strong product cycles in digital cameras and DTV, with new ramps in camera phones and Tier 1 TV manufacturers in 2008.

Firm believes that ZRAN is likely to show upside vs the $135-140M guidance, with strong growth in cameras (vs DB 5% estimate) and DTV (vs DB 15% estimate). For Q4, tey believe that TV will be flat to up, cameras down slightly, and overall revenues down about 10% off a higher Q3. Firm also believes that ZRAN will reach operating margins of 15% in Q3, and they expect that investors will slowly realize the potential for ZRAN to have consistent margins of 15%+ in C08 vs DB 11.8%.

At 16x C08 EPS, they believe that the risk/reward is very favorable. DB's $28 target is based on 22x non-GAAP C08 EPS of $1.27, a discount compared to semi peers trading at 25-30x peak EPS. Reits Buy.

Notablecalls: This is a bit of an out-of-consensus call which is why I like it. If Deutsche's right, ZRAN's headed higher here.

Intuitive Surgical (NASDAQ:ISRG): Oppenheimer takes tgt to $270

Oppenheimer is out positive on Intuitive Surgical (NASDAQ:ISRG) upping their tgt to $270 from $255 after the co was featured at the Mayo Clinic Techniques in the Advanced Endoscopic and Robotic Gynecologic Surgery conference last week. Approximately 150-200 physicians attended this event and judging by the full conference room the firm estimates the event may have sold out. They came away from the meeting believing Intuitive has the ability to address more than just the hysterectomy in the GYN area. Firm spoke with several physicians who were extremely interested in incorporating the da Vinci into their practice. ISRG was also highlighted the da Vinci at the American Urogynecologic Society annual meeting in Hollywood, Florida over the weekend.

After attending these meetings and speaking with GYN physicians, the firm feels utilization may be increasing faster than they had expected. In their newest model, they have slightly tweaked utilization upwards. Based upon this change, firm's estimated revenue has increased from $750.0mm to $768.9mm. EPS forecast has increased from $4.24 to $4.50.

Maintains Buy.

Notablecalls: This is the new Street high tgt for ISRG. Even more importantly, I suspect OpCo's comments may cause other firms to take a look at their utilization ests in the n-t. Expect the call to create buy interest in ISRG stock today, possibly pushing it to a new all time high.

Monday, October 01, 2007

Quick comment on Belo (NYSE:BLC)

It's fairly quiet out there this AM, so I'm highlighting Belo (NYSE:BLC) that just announced a plan to create separate television and newspaper businesses by spinning off the newspaper business into a publicly-traded company.

Note that Citigroup was out on BLC on July 30 with call saying BLC's Newspaper unit trades at 0.3x EBITDA, almost free and well below 10x peer avg, more than accounting for newspaper industry woes. While an LBO or full spin-off of TV business seems unlikely near term, they continue to think BLC would entertain other alternatives like partial spin (ala CCO).

Citi reited their Buy rating and $25 tgt on BLC.

Notablecalls: BLC bound to trade up from here following today's news. This is the news many have been expecting from BLC's management and I would not be surprised to see the stock up as much as 15-20% today.

A simple calculation shows that based on Friday's closing price, if one applies BLC's TV unit with a 07 multiple in line with its peers, the Newspaper group has almost zero value. Considering the Newspaper group can produce an EBITDA of around $140 mln in 07 and applying a low 7x multiple on it (peers trade around 10x), it has a value of around $1 bln. That implies some serious ($9-10) upside.

Being a pessimist by nature, I expect to see 1/3 of this upside occur today. Grab it if you can.

Paperstand (NOK to acquire NVT; ACXM deal goes bust; UBS sees loss)

Accordingt to the WSJ, Nokia (NOK) last night was deep in discussions to purchase Navteq (NVT), marking what would be one of its largest-ever corporate acquisitions. With a $7.61bn mkt cap, Navteq is one of the world's leaders in electronic mapping, which enables in-vehicle navigation devices and a new generation of mobile-phone applications used for shopping, emergency services and advertising. The two sides have been in deep discussions over the past few weeks. It was still possible those discussions could crumble over a series of last-minute issues.

The WSJ reports that private-equity buyers of Acxiom (ACXM) are in negotiations about breaking off their proposed $2.25bn purchase of the data-mgmt co. The sides are trying to work out a settlement. Last night, it appeared an agreement was close, with the buyers probably paying about $65m, well below the $110m termination fee originally agreed to in the deal.

The WSJ reports that UBS (UBS) plans to write down as much as 4bn Swiss francs, or $3.41bn, in assets, including securities tied to US subprime mortgages. The big write-downs will make UBS one of the highest-profile casualties of the recent turmoil in global credit mkts and raises questions about the mgmt of its securities business, especially its expansion into the US. Another casualty is expected to be Huw Jenkins, chief of the bank's investment-banking division. UBS CEO Marcel Rohner is to personally oversee the division, replacing Mr. Jenkins. After taking a 3Q write-down of between 3-4bn francs on its fixed-income assets, UBS expects a loss for the quarter ranging from about 600-700m francs.