Thursday, January 31, 2008
Notablecalls: Makes me say hmmm.... This one will get attention today! Bold call by UBS!
PS: I now hear the takeover comments were made on the box and are not included in the actual note. (although the note highlights HANS as a takeover tgt).
Garmin (NASDAQ:GRMN): Believe the stock can continue to rally from oversold levels, potentially reaching $80-85 near-term - MSCO
They are skeptical of Garmin’s ability to penetrate the handset market and would prefer to see a greater focus on software partnerships rather than the nuvifone hardware approach.
Notablecalls: I like the way MSCO is turning positive on GRMN here.
- Citigroup says they are aggressive buyers @ $65 because: 1) Q4 fundies unambiguously improved - revenue growth acceleration/margin expansion; 2) AMZN is clearly taking ecommerce share; 3) AMZN demonstrating signs of successful product innovation with digital media; 4) AMZN showing NO recession impact; 5) Int'l now at record 46% of total; 6) AMZN guidance likely conservative - AMZN exceeded initial '07 op income guidance by 50%, due in part to 30% margin upside - 5.8% actual vs. 4.5% initial guide; & 7) AMZN trading at 5.4% '08 FCF yield. Price tgt goes to $97 from $119.
- RBC Capital notes Amazon reported a decent 4Q, but the focus was really the FY08 guidance, and in particular, the operating margin guidance. While revenue guidance calling for 26%-33% YOY growth came in ahead of consensus, pro forma operating margin guidance at 5.5%-6.2% came in below consensus at the midpoint. Firm notes that Amazon has historically given conservative initial fiscal year guidance only to revise upward throughout the year; they believe 2008 should be no different.Their thesis that AMZN will continue to gain share, outgrow e- commerce, and ultimately win vs. its competition remains unchanged. Would add to positions on weakness. Maintains Outperform. New tgt is $100 vs prev. $113.
- Banc of America reiterates Buy rating on AMZN and adjust tgt to $110 from $115. They believe the recent sell-off represents an attractive buying opportunity for investors looking for exposure to one of the best plays in worldwide eCommerce growth.
- Morgan Stanley notes that with AMZN posting a strong CQ4 after months of nail-biting regarding retailshopping trends, AMZN shares traded down 12% in the after-market over margin concerns. Firm believes investors who are overly focused on margin expansion may be “fighting with windmills” and miss the opportunity with the stock. MSCO's conviction in AMZN’s ability to deliver 31%+ / 36%+ Y/Y growth in C2008E revenue / operating income (ex. stock comp.) is high, and they would be buyers of AMZN shares on weakness. DCF valuation is $125 (using 11.2% discount rate / 6% terminal growth rate). Believes courage + patience will win out here, reits Overweight.
Notablecalls: I think AMZN is a bounce candidate around $66.
- SunTrust is upgrading Alliance Data (NYSE:ADS) to Buy with a $60 tgt saying risk/reward too compelling to ignore.
Wednesday, January 30, 2008
Today, the network consists of about 30 highly experienced traders/analysts/hedge fund managers sharing their thoughts and flow troughout the trading day. Currently, some share more than others but I'm hoping that over time that too will change.
For example, AMAG Pharma (NASDAQ:AMAG) was pressured by heavy selling today due to concerns regarding a panel review on an iron-replacement treatment Ferinject, a competing treatment to AMAG's Ferumoxytol drug (expected in 2nd half of this yr).
Around 12:57 PM E.T. the NCN got word that Bear Stearns was out defending the stock intraday. The following call was distributed to the members:
- AMAG defended at Bear Stearns saying the FDA's concerns are INJECTAFER SPECIFIC, and should have no read-across to AMAG's Ferumoxytol -
Depending on one's entry and exit, gains of up to 7 pts were to be had as AMAG staged a nice bounce off the lows.
This is just one example of the 50+ calls flowing through NCN daily (Not all are as good as AMAG! We all have bad days and make bad calls). We're all about synergy.
Want to be part of NCN?
It's easy. Just shoot me a brief email that includes a short description of yourself and your AOL nickname.
Please do note that contacts via IM are limited to people with:
- 3+ years of trading experience
- Access to quality research/analyst commentary
- Ability to generate and share (intraday) trading calls
I will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 3 years of experience in the field.
Recent discussions and meetings with YGE management and its poly suppliers reconfirm Piper's belief that YGE has 70%-plus of its 2008 supply under contract; they believe their 250MW estimate for 2008 may be conservative. Given secure poly supply costs and higher ASPs they anticipate gross margin upside to Q407.
Also, as they have previously highlighted, they believe the recent increase in YGE DSO is simply a shift away from troubled German installers to well financed Spanish utilities such as Acciona and Iberdola (under letter of credit which takes longer but is irrevocable letter of credit). Also shipments away from Germany occurred late in the quarter. Based on discussion with management, the firm believes YGE's DSO will drop into the mid 70s and normalize to 60-65 over next two quarters while changing to irrevocable letter of credit terms.
Piper's $65 price target is based on ~25x their 2009 pro forma EPS estimate. Firm believes valuation multiple is justified given YGE currently trades at ~23x 2008 EPS estimate of $0.94 and ~9x 2009 EPS estimate of $2.54, which is at a significant discount to other leading Chinese companies such as JASO and STP that trade at 26-28x 2008 and 17-18x 2009 consensus EPS estimates. Also, YGE has more than $200M in cash and ample bank liquidity for its expansion plans.
Notablecalls: I expect YGE to see strong buy interest following this call. The stock has been absolutely trashed over the past weeks and PJ's Jesse Pichel holds enough weight to pop this at least a couple of pts.
Be early and agressive.
Actionable trading call alert!
- Citigroup is downgrading their rating to Hold from Buy and lowering tgt to $22 from $33 saying 1) With EBITDA likely to be flat to down in '08, there is no reason to give YHOO a premium to traditional media companies; 2) Surprise uncertainty over YHOO's '08 investments and their impact on growth is a new negative; & 3) YHOO appears to be continuing to lose share in Search market. What makes YHOO a Hold and not a Sell are its potential to be acquired, it search outsource option, its still very large Web presence, and its Mainstream Media Multiple - 7.0X EV/EBITDA on '08.
- Oppenheimer is downgrading their rating to Sector Perfrom from Sector Outperform as they now believe that YHOO has become a "show me" story, as management has no credibility with investors as estimates are declining. As such, they have reduced their '09 EBITDA, non-GAAP EPS and FCF estimates by 25%, 26% and 21%, as they expect similar reductions across the Street.
- RBC Capital is more positive saying as painful as it is in the near-term, their thesis on Yahoo in the high-teens remains: a) the company is forced to make shareholder value-enhancing decisions shortly, or b) activist shareholders or potential acquirers could force it upon the management team. Yahoo's $30B market cap should find support from the $14B in other assets ($8B assuming discounts), implying an 8x EV/EBITDA multiple in the after-hours trading. Firm's rating remains Outperform, and their target has been reduced to $24 from $30.
- Morgan Stanley retains Overweight-V rating owing to a bet on: 1) improving financials or 2) catalysts for change –Considering Yahoo!’s holdings in Yahoo! Japan, Alibaba, GMarket are worth $10B (or ~$7 per share, assuming a 25% liquidity discount), net cash is $1.6B (~$1 per share), Yahoo! proper is trading at ~9x C2008E and ~8x C2009E EBITDA. Firm assumes revenue and EBITDA growth accelerates in 2009E, as they believe core strategy is sound and current core business trends seem to support thesis. In markets like the one they are in now, where – for better or worse – investors have a ready / fire / aim attitude and patience can be hard to find, stocks (and companies) get too cheap to resist. Yahoo!’s ability to remain independent may be a function of its ability to deliver compelling financial results (combined with a positive outlook and improved communication) in CH1:08.
Notablecalls: I really have no opinion on YHOO here. I feel it's probably too late to dump it but I just don't see any reason to buy it either. Suspect the stock will sink further in the n-t.
The WSJ’s “Heard on the Street” column out saying that some investors have begun circling retailing stocks like shoppers clawing at the bargain bin. Activist investor Nelson Peltz boosted a stake in Tiffany (TIF) to 7.9%, mostly with purchases since the yr began. Richard C. Breeden bought more shares in Zale (ZLC) and then joined the co's board. William Ackman, an activist investor with stakes in Sears (SHLD) and Target (TGT), has increased his exposure to Target through stock swaps that let him rack up gains or losses on the stock without actually holding shares. Icelandic retail behemoth Baugur Group and its billionaire exec chmn, who hold 8.5% of Saks (SKS), are preparing a bid for the entire co. Carl Icahn announced at an industry dinner Jan. 14 that, with their shares falling off the rack, retailers are attractive investments. Mr. Icahn acknowledges that his timing could be off. "I am not bullish on the economy, and it certainly could get a lot worse before it gets better," he said in an interview, adding that retail shares, in particular, "might well go lower" before they go up. Yesterday, Barington Capital Group and Clinton Group reported that they have snapped up a 5.32% stake in Dillard’s (DDS). Barington chastised the co and called for change. Last week, Sanford C. Bernstein upgraded the US retail sector to the equivalent of Buy from Hold, saying retailing stocks have underperformed the broader mkt for the last 3 yrs. Many retail stocks, including Macy’s (M) and JC Penney (JCP), rose last week. Part of the reason investors are piling in is that the retail sector has been battered more than other stocks. Some retailers, including Coach (COH) and Target, now have forward P/E ratios near their historic lows. Retailers also tend to generate strong cash flow, and some have attractive real-estate holdings.
“Inside Track” section reports that President and CEO of Luby’s (LUB), Christopher J. Pappas, and his brother, COO Harris J. Pappas, bought a total of $5.4m in shares of the co last week, just one week after shareholders favored mgmt-backed board nominees over candidates supported by an activist hedge fund. After the latest stock purchase, the brothers hold a combined stake of 28.6% in Luby's.
Barron’s Online highlights Intel (INTC), saying that though its shares have lost a quarter of their value in just 3 mo’s, it is actually sitting pretty. Despite its hefty size, Intel will likely generate double-digit annual earnings growth over the next 3-5 yrs. And its main competitor, AMD (AMD), is on the ropes. It's a good bet that Intel will extend its already sizable lead in PC microprocessors at the expense of AMD, especially if the economy weakens further. If Intel does gain share against AMD, it could offset a weakening outlook for PCs and lead to upside in Intel's earnings. At a recent price of about $20, Intel trades at just about 12x ’09 EPS. If Intel can achieve the earnings multiple closer to the 15x that the S&P500 garnered most of last yr, its shares would appreciate by about 20%. After cutting headcount by 14% in 2 yrs, shaving costs and moving to more efficient manufacturing of its chips, Intel is a leaner machine that's poised to benefit as rapid growth in emerging mkts help PCs grow at double-digit rates this yr. "So far we haven't seen any evidence that suggests that PCs are falling off a cliff," says Paul Wick, of J&W Seligman.
Tuesday, January 29, 2008
All things being equal, the firm would expect an 8% decline in the value of IMA common to reflect, at most, a like decline in the Series B convertible preferred - from $400 (par) to ~$368. Keeping the number of units (0.08125) per MATR share equal yields a ~$30 value for the stock portion of the deal. Adding the $6.50 cash component results in a total bid value in the area of $36.00-$37.00, well above yesterday's close.
They doubt MATR holders will approve a deal at $31. IMA may have to substitute cash for the preferred (no easy task given current B/S), or other bidders may reemerge. Either way, MATR shares are likely to trade higher.
Notablecalls: Glenn Garmont from Broadpoint is making a name for himself with this call. No doubt about that. Word on the Street is there were several bidders for MATR so they can safely walk away from the deal and have for example Walgreens buy them.
MATR will trade higher following this call. Actionable call alert!
Intuitive Surgical (NASDAQ:ISRG): Believe 2008 sales guidance will fall slightly below Street - OpCo
Notablecalls: These comments can and likely will hurt ISRG stock.
- Citigroup notes their bullish call on SNDK share has been the wrong one in the past four months. However, surprisingly robust 2H07 gross margins augur well for EPS revisions ahead if fundamentals firm as seasonal demand strength and supply headwinds converge in 2Q08 as they expect. US demand risks persist, though trough P/E multiples discount 2008 EPS power 10% below their just-lowered estimates, suggesting the stock may now be overshooting on the downside. Target to $46 from $57 for 89% ETR (aftermarket). Maintains Buy.
- Cowen notes that while rev. and OM are in-line with their ests., they were very positively surprised by the strong product GM guidance which we believe is being driven primarily by increased cost efficiencies as SNDK transitions to 43nm (from 56nm) in 2008. Firm is leaving their 2008 ests. unchanged as SNDK's full year guidance is largely in-line with their expectations.
- Avian Research notes that generally speaking they did not expect much in terms of good news from SNDK given the environment. Maybe a bit worse then they expected was SNDK assertion that MLC based SSDs will launch at the end of ‘08 rather then mid year - although no one realistically estimated any real volumes till ’09. Firm expects NAND pricing to hit bottom over the next two months.
Conditions will then improve, 1st lifting in late April ahead of “Dads and Grads,” perhaps getting another unexpected lift in summer from the Olympics, and then finally coming into balance in late ’08 ahead of the holiday selling season. They have actually been pleasantly surprised at the relatively benign pricing action they have seen so far in January vs their very pessimistic expectations, although like everyone else, they hold little hope that conditions will remain this stable. Firm heard nothing on the call change their recently positive opinion on the name. Given SNDK’s current valuation, the expected reacceleration of demand growth in ’09, continued yield and cost gains, as well as what they are sure will be a greater industry reluctance to add capacity, they think SNDK should be bought at these levels.
Notablecalls: Will SNDK end the day on the green side today? I certainly believe it could. Just check out the margins.
*Citi reits Buy but lowers tgt to $83. Firm sees strong downside support for the stock at $50 which represents ~1x PEG on '08 EPS est. Considering this is the first time VMW has given guidance since coming public in mid-'07, they believe expectations are now set conservatively for VMW to exceed. While they acknowledge few near-term catalysts coupled with an upcoming share lock-up in two weeks creates added volatility, the firm believes the pull back in the shares represents a compelling opportunity for long-term investors.
*Jefferies recommends buying on today's weakness despite the Q4 revenue miss as they feel 2008 revenue and margin guidance looks conservative and that the company's broad themes remain sold. Firm lowered their target to $74 from $129.
- Two firms are cautious on VMware (NYSE:VMW) this morning:
*UBS says they view the company’s 2008 outlook suggests some of the following: 1) low hanging fruit may have been picked and new customer signings could be slowing down, 2) a decline in sales rep productivity or 3) investor exuberance that appears to have gotten ahead of the company post the upside posted in Q3. While their research suggests this is a top growth trend in software, in their view, VMware is now likely to be a ‘show me’ stock until 1Q08 numbers get posted in April
*Baird maintains Neutral rating following lower-than-expected Q4 results and 2008 guidance. Although they remain big believers in VMware's growth prospects longer term, they believe management's expectations of license revenue growth deceleration warrants a wait-and-see approach on the stock given macro uncertainty and potential pricing pressure. Firm would look to become more aggressive if 2008 guidance begins to appear overly conservative. Tgt $80.
Notablecalls: The pre-mkt action in VMW reminds me of AAPL yesterday. Meaning the oppy to buy comes after the open rather than in the pre mkt.
The WSJ reports that the board of Altria (MO) is expected tomorrow to approve a long-awaited decision to split PMI from Philip Morris USA. The move would free the tobacco giant's international operations of legal and public-relations headaches in the US that have hindered its growth. Marlboro Intense is likely to be part of an aggressive blitz of new smoking products PMI will roll out around the globe once the co becomes a standalone entity. The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don't always finish a full-size cigarette. Pointing to his lit Intense, the CEO Andre Calantzopoulos says there are "possibly 50 mkts that are interested in deploying it." The separate entity, for example, would be exempt from U.S. tobacco regulations and out of reach of American litigators. Importantly, its practices would no longer be constrained by American public opinion, paving the way for broad product experimentation. By as early as March, PMI could be operating as an independent co.
Barron’s highlights tech fund top 10 holdings: SNPS, BMC, DOX, MFE, QCOM, CHKP, ORCL, CSCO, MRVL, MXIM.
“Inside Scoop” section reprots that one longtime director at AT&T (T) has made a bullish call on the co's future, increasing his holdings by more than 35%. On Fri Director August Busch III purchased 63K shares for $2.3m. He now holds 139K shares directly, 94K non-voting stock units in a benefit plan, and 6K shares indirectly through trusts. “This buy is unusual in the sense that you don't see a lot of [insider] buying at the former Bells, or at the large-cap telecoms like AT&T, Verizon and Sprint in general," says Ben Silverman, of InsiderScore.com. Busch, along with former director and billionaire Carlos Slim, is one of only 3 insiders at the co to make open-mkt purchases of AT&T stock in the past 5 yrs. "The buy is also intriguing in the sense that there's been a real sea change in attitude toward the remaining big telecoms," says Silverman. "Historically they were viewed as safe income-generating investments that could weather economic downturns b/c of the [stability] of the landline business. Now that the telecom sector has changed, it's the first time the new business models [based on] wireless and broadband are being tested during a recessionary economy."
LightReading reports that Infinera (INFN) has scored another win with a sales pitch centered around "bandwidth virtualization" -- what the vendor is calling its equipment's unique ability to decouple services from optics. The co is announcing today that it won the favor of data center specialist Equinix (EQIX) largely on the density of the equipment and its ability to enable the quick provisioning of new services. Equinix CTO Lane Patterson says his co picked Infinera b/c traditional Wavelength Division Multiplexing (WDM) equipment, clocking in with 32 wavelengths of 10-Gbit/s bandwidth, was not enough for some Equinix customers. "The density of that equipment wasn't where it needed to be," Patterson says. With Infinera equipment, Patterson notes, Equinix can deploy "80 waves before we have to acquire dark fiber." On the provisioning side, Patterson says: "It's helpful that they have point-and-click provisioning and an easy-to-use self-managing platform."
Monday, January 28, 2008
T-Mobile is a big operator - it had more than 34 million subscribers at the end of September 2007. It's worth noting that AT&T had roughly 63 million subscribers when it launched iPhone in late June 2007 - and activated 146'000 subscribers in less than 48 hours. Nobody expected German iPhone launch to match that performance - but considering T-Mobile has more than half of AT&T's mobile subscriber base, the 11 week performance is stunningly weak. France Telecom announced earlier that it sold more than 70'000 iPhones between November 28 and January 10. One of the things that makes the T-Mobile number seem so curious is the common assumption that German consumers have a particularly robust appetite for high-end models with fancy new features.
It took the British operator O2 until January to hit 200'000 activations of the iPhone - longer than most expected. Now operator partners of Apple in both France and Germany have come in below O2 - T-Mobile weakest of all.
This may in part reflect how tough the competition in the European high-end market is getting. Consumers are switching to 5 megapixel camera models in droves, Nokia is packing GPS support into its flagships and Koreans are introducing large touch displays into phones that are 20-30 grams lighter than iPhone. The Apple brand may not be strong enough outside North America to offset this feature gap.
Firm notes they expect the Italian and Spanish launches of iPhone to take place in March-May 2008. In light of the weakness in both Germany and France, the debuts may be even more disappointing - Samsung is launching its latest big-display phone in Feberuary and Sony Ericsson is widely expected to announce an iPhone look-a-like model for May or June debut. It's worth repeating that LG's KU990 has sold more than 550'000 units since its launch in Europe in November - Apple is now in danger of missing the boat in the nascent big-display handset market in Europe due to the weak feature profile of the first-generation iPhone.
As usual, Avian expects knock-on impact on RIMM from any disappointing iPhone news. RIMM's current Blackberry line in Europe and Asia is two steps behind the high-end competition when it comes to camera, display and miniaturization technologies. If the iPhone is having trouble with better-specced competition, it is reasonable to assume that in coming quarters RIMM may face similar headwinds - this is not a company that has ever demonstrated cutting-edge hardware features, opting to depend on software innovation instead. The high-end handset markets of Europe and Asia seem to be making a big leap in display and camera technologies while most models with advanced features are being squeezed close to 100 gram weight or below. This is a competition where smaller vendors with relatively slow handset product cycles like Apple and RIMM are obviously going to struggle.
Notablecalls: Excellent comments by Tero as usual. Yet, I must say it's probably too late to turn bearish on AAPL here.
One of these firms is Bernstein saying that based on their channel checks and additional analysis, they now believe that of the 1.45M phones that were missing in action as of the end of the quarter, 480,000 units (excluding demo units) are in channel inventory in the 4400 non-Apple iPhone distribution outlets worldwide - or just over 8 weeks of inventory on a forward-looking basis - and about 1M are "unlocked" phones, a stunning 27% of all units sold through year end.
Firm continues to believe Apple's 10M iPhone unit sales target for 2008 is aggressive without major price cuts or new models, especially if Apple hopes to maintain the rich economics of the current iPhone business model.
The other firm has asked me to hold up posting until they can dist the call to their paying customers. But I can tell you the comments are ugly. Will post when I hear back from them.
It's starting to look the iPhone will not be the hit product everyone is expecting it to be.
Btw, I fully acknowledge it is likely too late to turn negative on AAPL stock here (down 70+ pts from the highs). So I must add that RBC Capital is out with defensive comments on the stock this morning saying analysis suggests high unlocked iPhone sales (est 25- 30%), not high channel inventory, accounts for variances between recently reported iPhone activations and Apple's 4M unit shipped (3.7M end Q1), equating to 4-6 weeks channel inventory, inline. Unlocked sales, though headache for carriers, are financially positive for Apple, and in their view bode well for global iPhone demand, and for Apple exceeding its 10M 18-mo target.
Sunday, January 27, 2008
Barrons’ “The Trader” column discusses Apple (AAPL), whose shares are down 35% in a month. At 130, shares trade at 20.7x forward earnings, the cheapest in a while. Stripping out its big cash stash, the stock trades at about 13x FCF. While the Street frets about slowing iPod sales, it's easy to forget Apple’s range. Mac revs grew 47% last qrtr. Unit sales are expected to increase at a pace more than double the industry's 11.6%, and Apple continues to gain share in the computer and phone mkts. Investors moaning about the 4m iPhones sold so far forget that Apple had no mobile-phone presence just a yr ago. Margins near 35% should improve with cheaper component prices, and Apple is rolling out its new operating system and iPhones overseas. In fact, Apple's knack for packaging aspiration and creating things ppl feel compelled to own will stand it in good stead in a spending slowdown. The new "MacBook Air," for instance, has inspired lust among existing laptop owners, and the buzz among young media types means consumer magazines will pant after it in print for mo’s to come. If history holds true, profit taking in Apple will exhaust itself about 21 days after the earnings report. Last week, Citigroup analyst Richard Gardner called the sell off "overdone." Deutsche Bank analyst Chris Whitmore has a 225 price tgt.
Barron’s cover out saying that the downdraft in the market may not be over, but some stocks already look inexpensive and worth a long-term bet. "These are some of the best opportunities that I've seen in the past seven yrs," says Mark Boyar, of Mark Boyar & Co. Co’s worth a look include: BAC, WB, WFC, C, PFE, LIZ, HOG, DOW, MET, TWX, CBS, FNM, GCI, IACI, CB, COP, FCX, BA, GE, CMI, DIS, MO and MOT.
Barron’s Roundtable members like WMI, ROH, INTC, XLNX, EUM, FXP, SCJ, FIS, HAFC, BAC, LNC, PAY, CHK, HIG, DVN, ESV, AVT, ROST, ZINC and ELRN. Shorts include: XLY, FXI and DRYS.
Buyers of Chinese IPOs beware. A research house finds many of these US-listed issuers still offer poor governance and accounting, as well as lower-quality earnings. "The results are quite striking," says Victor Germack, of RateFinancials. "And these are from the documents of record, b/c Regulation FD says they have to reveal public information through their filings. This is what investors rely on, not puff pieces from the co." The five are GA, LDK, NPD, YGE and GRO.
If Systemax's (SYX) high gross margins have been fattened by failure to pay out manufacturer rebates, then an end to that alleged behavior might crimp profits, and the share price. "Having a business model that heavily involves rebates, there's nothing inherently wrong in that, as long as you play it fair," says Matthew R. Wilson, a class-action lawyer who's suing TigerDirect and Systemax in a NY federal district court.
The shares of Helmerich & Payne (HP), up nearly 45% since the start of 2007, look poised to climb by at least another 40%, even as rivals with older gear are punished. "What we are seeing is an opportunity to take market share...in a softer environment, because there is such a need for reinvestment and retooling,'' says CEO Hans Helmerich.
According to “The Trader” column, Dan Frascarelli, of Lord Abbett, thinks the 1990 slowdown, with its troubled banks and anemic capital ratios, offers a better comparison than 1998. Then, it took yrs for banks to rebuild their balance sheets. While cyclical stocks do well when the Fed cuts rates, he thinks it's "too early" to take an aggressive stance, partly b/c "we haven't seen the worst of the economic data yet." Frascarelli favors PG, CL, CVS, K, KFT, ABT, JNJ, MRK, FPL and D.
“Follow Up” section highlights Under Armour (UA), saying that the selloff has given long-term investors a chance to snap up a quality, fast-growing sports-apparel franchise at its lowest price in more than a yr. Barron’s thinks the potential reward outweighs the risks. But if its foray into non-cleated footwear is a hit, Under Armour's stock could move back into the low-40s within a yr. The co has made its pricey apparel and football cleats must-haves among young jocks, and bulls think it can work similar magic with cross-training sneakers. Cross-trainers could add $40-50m in rev beginning in the 2Q, and eventually $1bn of sales and more than $2 a share of profits. Says Matt Powell, of SportsOneSource. "I wouldn't be surprised if Under Armour takes a 10% share of the cross-training mkt in the first yr."
“Plugged In” column discusses Apple’s (AAPL) iPhone sales. Last week, AT&T (T) revealed that as of yr-end it had only 2m or so active Apple subs. That's a disconnect b/c Apple just announced with great fanfare at MacWorld that is has sold more than 4m phones. Considering that 3.75m units were sold through Dec31 and assuming about 350K of those were sold in Europe, that leaves about 1.4m US iPhones missing in action, says Bernstein analyst Toni Sacconaghi. "We were anxious about inventory b/c Apple was so reticent about it," Sacconaghi told. Unaccounted inventory "was a little bigger than we thought," he says. There are two things that can account for the missing handsets: carrier inventory and unlocked phones. iPhone owners who didn't want to use AT&T or Apple's European wireless carriers have cracked open the phones to use with unauthorized networks. Nobody knows how big this number is except for Apple and the carriers. Sacconaghi ests that about 20% of all iPhones sold are improperly unlocked, which, he says, means at least 670K iPhones are sitting on the shelves of AT&T and the euro-carriers.
“Technology Trader” highlights Avnet (AVT) that sells thousands of products to more than 100K customers. That makes Avnet a canary in a coal mine for IT spending, semiconductors and hardware. Still, the stock seems to discount any coming weakness. Distributors don't carry high multiples; as CEO Roy Vallee notes, they tend to have relatively low margins and no patents or intellectual property. But Avnet seems to be an underappreciated growth machine. For 7 yrs, he says, it has been increasing its return on capital and cash flow, then using the cash to do "value-creating acquisitions," which boost rev and profit growth. It's also strengthened "core operations, improving scale and scope as we go." But Vallee complains that the Street gives the stock zero respect. Avnet trades at a PEG ratio around 0.5. It trades at a P/E of less than 10x estd ‘09 EPS, and fetches just 0.3x last yr's sales. Says Vallee: "The Street is either not getting our story, or not believing it yet." For tech investors, not a bad place to hide.
“Technology Trader” also discusses Sprint Nextel (S), which has some very valuable unused spectrum, which it intends to use to build out a wireless broadband network. And now Sprint has a new, attractive feature: a stock down 31% this yr. The rumor mill is spinning wildly. The co has often been rumored to be an acquisition tgt for Comcast (CMCSA), but that's a long shot. A more intriguing notion has the co cutting a deal with Google (GOOG), which is currently playing a key role in the 700 MHz bandwidth auction under way. Some think that Google could take a significant equity stake in Sprint, which would be a lot cheaper than building a new service provider. Another theory: Sprint could be bought out by private-equity investors. In Nov Sprint had rejected a proposal from SK Telecom and Providence Equity Partners to invest $5bn in the co and to install Sprint's former chmn, Tim Donahue, as CEO. That was with the stock north of $15. Now it's barely over $9. But the spectrum gets only more valuable over time, the current auction will provide a good gauge of what it's worth. The stock, in short, is simply too cheap to ignore.
Friday, January 25, 2008
Over the last two quarters, Dolby has reported average revenue upside of 11% vs. Street and average EPS upside of 46% vs. Street. While the company has not provided a breakdown of upside contribution, PJ believes a significant portion (50%+) of the upside in each quarter was related to Vista premium sales.
In addition to Vista premium sales, the firm believes there are three catalysts that provide upside potential for Dolby in CY08: Digital TV, High Def DVD, and Digital Cinema.
Reits Buy and $55 tgt.
Notablecalls: UggTrader at NCN (Notable Calls Network) thinks DLB will rip higher after the open. He usually has a very good feel about these things. Let's see what happens.
Apple R&D (reported + capitalized) grew faster in the last three quarters than at any time in the company’s recent history. This line item has proven to be a clear indicator of future product cycles that drive fundamentals and stock performance. MSCO believes the last 9 months present a fourth cycle that is supportive of long-term fundamentals
Ultimately, future product cycles are key to stock performance and they view late Spring/Summer as the next potential timeframe for announcements.
Stock Implication: While macro concerns may prove an overhang in the near-term, investors should take advantage of pullbacks to build positions over the next three months - ahead of March quarter results and potential mid-year product announcements.
Notablecalls: Nice defense by MSCO's Kathryn Huberty. Yet, the news from Synaptics (SYNA) tells us Apple is sitting on excess inventory and that it likely told vendors to expect lower-than-normal ordering in the March quarter. Yet, the June quarter guidance coming from SYNA was OK. So, just a blip, likely bc of ipod. But that should not come as a surprise.
I think SYNA is a bounce candidate here @ $24. and I continue to be positive on AAPL.
Thursday, January 24, 2008
In prior bank stock troughs, there was very clear evidence the banks bottom when the Fed decides to aggressively cut rates, normally leading to steeper curve. This time is different in that curve is inverted and moderately steepens as '08 progresses, which is much different than steep curve environment in prior easing cycles. Overall, the firm ests benefit from lower rates is relatively modest and not enough to offset credit.
While aggressive Fed is one key driver to finding a bottom for stocks, the other is a slowing in the growth rate of NPAs, and they believe we are still early in the credit cycle. Firm believes the stocks partially embed very weak consumer, but are not taking into account the risks regarding CRE and corporate and thus buying banks here is a bet that problems will not bleed into CRE and
The big question the past two days has been who is the incremental buyer behind the huge rally in the bank stocks. Citi believes the buying was driven mostly by short covering by hedge funds, but they believe the later stages of the rally were marked by long only buyers who did not want to miss the bottom. While this is hard to prove, an analysis which sorts the 2-day performance for the bank vs the relative days to cover (short interest divided by average daily volume), and while not perfect they did see a pretty strong correlation behind the top performers and most heavily shorted stocks. Assuming it is mostly short covering, they would expect the shorts to start to come in after the Fed meeting next week and re-establish shorts ('sell on the news') as a strong case can be made that the credit headwinds are getting stronger and there is likely to be more negative data points in 1Q (which is also a seasonally weak quarter)...so firm's view is bank stocks are likely to retrace many of these gains over the next couple months.
Notablecalls: The news out of Societe Generale may also help to stall the current rally in bank stocks. So, despite the current early bullish tone of the mkt, I would not be surprised to see a fade.
Watch Citigroup (NYSE:C) for indication.
According to the WSJ, Citigroup (C) is abandoning a push to open as many as 100 branches a yr in the US, concluding it had little chance to dislodge entrenched rivals in several mkts. Barely 2 yrs after introducing the strategy, execs at the bank now intend to sell or close some of the newest Citigroup locations. The most likely locations to disappear are in places such as Tampa., Fla., where Citigroup's small presence is dwarfed by rivals. Citigroup will focus on several large US metropolitan areas where its mkt share of deposits is strong or growing. "This is about optimizing the use of our resources," said Steven Freiberg, head of Citigroup's US consumer group.
The WSJ reports that Ford (F) will announce as soon as today that it has reached an agreement with the UAW union on terms for a new wave of buyouts that could trim thousands of jobs. The auto maker's goal in offering the companywide buyouts will be to cut as many as 11K hourly jobs and as many as 2K salaried positions, on top of the some 44K jobs the co has shed since the beginning of ‘06. Ford, which may announce the new round of buyouts during its yr-end earnings conference call today, hopes to part with most of the additional workers by the end of the 1Q. Hourly union workers who accept a buyout could be allowed to depart as soon as March 1, while salaried employees could leave by April or May.
“Heard on the Street” column questions, where have buybacks gone? In past mkt stumbles, investors could count on one thing to help stabilize the situation: a round of share buybacks. This time around, there are even higher hopes for such repurchases, given that the stock-mkt rout has made prices cheaper and falling interest rates make it less expensive to borrow money to buy stocks. But most co’s aren't biting. Many bought back shares in recent yrs when they were much more expensive, leaving them with less ability and leeway with their investors to jump back in now. "Co’s are realizing that you can't fight the mkt with buybacks," said Howard Silverblatt, of Standard & Poor's. "It's like using your fist to hit a brick wall. You just keep hitting and hitting, and it just doesn't move."
The Financial Times reports that Societe Generale said on Thu it had discovered almost €5bn ($7.3bn) of losses caused by a rogue trader dealing in European stock futures, which had forced the French bank into an emergency €5.5bn share issue. Daniel Bouton, SG’s long-standing CEO and Chmn, has seen his offer to resign turned down by the board after unveiling the colossal losses, including €2.05bn of writedowns on its structured credit activities. The rogue trader, likely to trigger comparison’s with the UK’s Nick Leeson, who caused the collapse of Barings Bank in 1995, had “deep knowledge” of risk-control procedures from his time at the bank’s middle-office activities, which SG said had allowed him to disguise his positions. The bank said it had no more exposure to the trader’s positions, which were identified and analysed on January 19 and 20, just before stock mkts crashed unexpectedly around the world on January 21.
Wednesday, January 23, 2008
Carl Icahn is now way down on his MOT and will likely be mad as hell looking at numbers posted this morning. Has has suggested breaking up the co and I think the new CEO Greg Brown is open to unlocking shareholder value here.
Think it's only matter of hours when we hear from Carl today.
- Piper Jaffray (the axe in AAPL!) maintains its Buy rating and $250 tgt saying yesterday's weakness is a buying opportunity. While the iPod numbers show continued deceleration in y/y growth, they believe the stock action is an overreaction for two reasons. 1) Mac market share continues to rise, and growth rates are accelerating. Using IDC estimates, Mac market share in Dec-07 was 3.0%, or 50 basis points higher than in Dec-06. This y/y increase ties the largest gain in Mac market share since we began tracking IDC data seven quarters ago. 2) Valuation gives support at these levels. Shares of AAPL are currently trading at 25x NTM EPS, the low over last 2 years is 24x and the 2-year average is 31x.
- Morgan Stanley maintains their Overweight rating noting key metrics were more positive than guidance implyed.
Both total company Mac and International revenue growth accelerated in December. Retail store growth metrics also improved despite tougher US compares and the expansion of non-AAPL retail storefronts. New products, low channel inventory and expanding BBY distribution (314 incremental stores in C1H) should fuel additional Mac growth in C1H08. While slower US-based iPod growth presents the one area of deceleration in the quarter, the firm already reflects this in their C2008 forecast.
- Goldman Sachs notes the nicks in Apple's December quarter - with Macs in line and iPods coming up short - together with current market sentiment, which punishes any blemishes, leave an overhang on the stock nearer-term. That said, Apple has fundamental and valuation underpinnings, which should allow the stock to outperform on an absolute and relative basis longer term, and they are maintaining their Buy rating.
As a result of strong Mac growth, increasing iPhone revenue, better gross margin, and a richer mix of iPods, they are slightly raising their earnings forecast for Apple despite lower revenue and iPod unit assumptions. EPS estimate for CY08 is now $5.40 (prior $5.37) and for CY09 is $6.70 (prior $6.57). New tgt is $175 (vs prev $220).
- Citigroup says the $15+ decline in AAPL shares in the aftermarket discounts a recession scenario.They are aggressive buyers on pre Wednesday-open weakness even though they recognize that potential yoy declines in iPod units during 1HCY08 may keep the shares range bound for several quarters.
AAPL shares now trade at just 16X F12 FCF excluding cash, an attractive valuation given expectation of 20-25% growth in FCF per share during the next two years. Citi's valuation analysis suggests a 12-month target of $212, ~50% above the aftermarket share price.
Notablecalls: I think AAPL is a bounce candidate today. The co is about the only tech stock that shows above average growth rates. The iPod weakness? With the iPhone on the market, who would have guessed, eh? Come on! @ $140 it's been discounted already
The main story here are the Mac's. That's where AAPL is making the most dough. And Mac numbers came in good.
You gotta buy AAPL for a bounce here.
- UBS is raising Q4 growth estimates on Mastercard (NYSE:MA), staying bullish into Q4 rpt on 1/31, tgt unchanged at $220.
- Almost all firms defending Apple (NASDAQ:AAPL) this morning. Will follow up with a longer comments shortly.
The WSJ discusses Sears (SHLD), saying that the co confirmed that it will reorganize its operations into 5 major units in a bid to give mgmt teams more autonomy and control over their groups. Sears identified its real-estate holdings as one of those units. Investors long have speculated that Sears's chmn Ed Lampert may sell some or all of the co owned Sears and Kmart locations to raise capital and then lease them back from the buyer. The trouble is, the continuing credit crisis has sapped the value of residential and commercial real estate alike in recent mo’s. Credit Suisse ests the value of Sears' real estate has "declined materially" in recent months to nearly $4.7bn. CS analyst Gary Balter noted that motivation to sell Sears's real estate could be undermined by the costs of vacating some of Sears's least-desirable locations. Those costs could exceed the amount those properties would bring in a sale. Most of Sears's store sites are of "C" or "D" quality, meaning they are avg or below avg. "We still believe that Sears and Kmart have some excellent locations that will command premium prices should the co decide to sell," CS's Mr. Balter wrote in a research report. "However, the mkt has recently dropped significantly, and...there is a cost, not a benefit, to getting out of weak locations."
“Heard on the Street” column discusses US banks, saying that the Fed's tonic hasn't worked so far. Before the latest move, the Fed chopped rates by one percentage point -- and those reductions didn't appear to have a big immediate impact on bank lending. "It's not clear that this cut will have much of a stimulus, given that the previous cuts didn't have a significant effect," says Joseph Mason, of Drexel University. Of the many worries still facing banks, the biggest is that they will likely have to set aside more money than expected for soured loans on autos and credit cards. These loan-loss provisions soared in the 4Q, and this expense could be higher than bank execs are forecasting. "Banks are in complete denial about the losses that are coming," says Paul Miller, of FBR. Mr. Miller ests that large US banks could book $100-120bn in provisions.
Barron’s Online discusses Siemens (SI), whose shares, recently at $124, trade at a relatively modest 14x estd ‘08 earnings, giving the stock a PEG ratio of just 0.56. Siemens is the number one or number two player, globally, in most of its businesses. Indeed, it was the telecom business that got Siemens in hot water when it was revealed in ‘06 that the firm had paid hundreds of millions of dollars in bribes to win contracts in Saudi Arabia, Nigeria and Russia. Since then, top mgmt has been cleaned out, and last July Peter Loescher was brought in as CEO. John Maloney of M&R Capital Mgmt, who has been buying the stock, tells Barron's that he thinks Siemens could earn $12.73 per share by F’10. Another plus: The co said last yr that it would repurchase up to 10bn euros ($14.6bn) worth of stock by 2010, which could shrink the share count by 10% or more.
“Inside Scoop” section reprots that ValueAct Capital on Fri disclosed it now owns 36.2m shares, or a 5% stake in Sara Lee (SLE), making it the co's 3rd-largest shareholder. "It looks like the fund is out hunting for value again," says Lon Juricic, of StreetInsider.com. "They are long-term investors who take large, concentrated positions in co’s. They are making a bet that going forward the co is worth more than what the mkt's pricing it."
According to the Barron’s Online, one healthcare fund holds: MHS, HOLX, ABT, SONO, TMO, AET, BAX, MRK and WLP.
Tuesday, January 22, 2008
I also like Morgan Stanley (NYSE:MS). The sub-prime losses have been written off and the valuation already reflects the slowdown.
PotashCorp (NYSE:POT) looks good for a buy as well.
According to MSCO, NPD data should help to alleviate some near-term investor concerns about Garmin’s US market share and the PND pricing environment. December US NPD data on personal navigation device (PND) retail sales should be a modest positive for Garmin as the company regained market share following November losses, although spot shortages at TomTom in December likely accounted for a significant portion of the recovery. Strong market growth and December share recovery suggest potential upside to our PND unit forecast of 98% sequential growth for Garmin in C4Q07.
Firm remains Equal-weight-V GRMN but considers the stock oversold near-term at current levels. Believes that their long-term gross margin concerns are largely priced in the stock.
Notablecalls: Not making any calls here. Just letting you know it's out there.
Sunday, January 20, 2008
“Streetwise” section out saying that United Rentals (URI) is the kind of co that would be hurt by a recession. The stock has collapsed to around 16. Though much of that derives from the dissolution of a proposed buyout of UR by Cerberus Capital Magmt, the stock is down to ‘03 levels. What's odd is that even though analysts have cut ‘08 EPS ests, UR recently announced preliminary ‘08 guidance of $2.80-3.00. That's based on rental rev growth of 3%, to $2.71bn, and margin improvement that is more than double '07's rise. In a recession, that guidance may prove optimistic, but UR has $2 a share in cash, a decent balance sheet, and trades at a P/E of less than 6x. If its earnings were to fall 50%, it would trade at a P/E around 12. Short of a nasty recession, UR's stock drop may present a long-term opportunity.
Barron’s cover discusses bloodshed on the mkt. Among the few prescient Street seers is veteran Byron Wien, the chief investment strategist at Pequot Capital. At the start of ‘08, Wien predicted that the S&P 500 would drop 10% this yr, that earnings would decline and that the country's first recession since ‘01 would prompt the Fed to cut short-term rates to below 3%. "We're beginning to see some bottoming signs," he said Fri. "We've switched from complacency to concern but not to capitulation yet." Value-oriented investors are getting excited because there are now plenty of inexpensive stocks, measured either by earnings or book value. CB, ALL, TSO, SUN, JCP, M, LEH, MS, LEN, PHM, TOL, DHI, CTX, NVR, KBH, MDC, WB, WFC, BAC, C. JPMorgan (JPM), which has been relatively unscathed by credit problems, is one of few potential buyers of any size in the battered financial sector. That gives CEO Jamie Dimon plenty of leverage if he decides to pursue a deal. Potential targets include WaMu, SunTrust (STI) and even Bear Sterns (BSC).
Barrons’ Roundtable members picks include UPL, WFR, QCOM, FMCN, AMX, GFA, GLD, AEM, MHK, WHR, AEO, GPC, ENSI, DISH, DTV, CSG, GAP and TVL. Pair trade Long FXY – Short GBP. Short ideas include RIMM and AMZN.
MBIA's (MBI) shares were savaged anew last week, and now its stock looks cheap. It trades for about 8, well below a conservative liquidation value above $30 a share.
Acorda Therapeutics (ACOR), whose stock has been in the low 20s, could hit 28 in the next 12 months if clinical trials go well. And, ultimately, the company could be a takeover target.
“Sizing Up Small Caps” column highlights Shutterfly (SFLY), saying that pricing pressure in the digital photo-print business is clouding the picture at Shutterfly. Even at that level, the shares, up 45%+ in the past yr, sell at 96x trailing earnings and 35x ‘08 profit ests. Prudent investors should balk at paying up for this consumer play just as US economic growth is dimming. VistaPrint (VPRT), a fast-growing and profitable Internet printing and graphics-design services firm that some analysts consider a peer to Shutterfly, trades for 26x ‘08 earnings. Awarding Shutterfly a multiple of 28, a premium to VistaPrint's and to Street's avg est of its long-term profit-growth rate, would value Shutterfly at 16, about 20% below the current price. "We've differentiating ourselves through quality, ease of use, the breadth of our product and design," CEO Jeffrey Housenbold recently said. "If Ford cuts prices on slow-moving cars, Lexus doesn't need to respond." But Shutterfly did reduce prices in ‘05, and some analysts think the co, along with Kodak Gallery will do so again, perhaps by mid-yr.
“The Trader” column discusses Express Scripts (ESRX), saying that investors searching for a recession-resistant growth stock have bid the shares up 120% in the past yr, and at about 69, the stock trades at 24x ‘08 profits, compared with 23.7 times for the larger Medco (MHS) and 21x for other health-care-services co’s. ES pulled back last wk after Medco clinched a contract to provide mail-order drugs for HIP Health Plan. JPMorgan analyst Lisa Gill downgraded the stock, worried that certain contracts due to be renewed in mid-‘08 "could be at risk." The discounting of generic Protonix, for example, also may prove less dramatic, and the takeover premium in the stock may prove optimistic. The CEO of Walgreen (WAG), for one, recently said he has no plans to buy a pharmacy-benefits manager. ES' valuation also is a deterrent. So is its hefty debt load. Long-term debt is about 76% of capital, well above the 18% avg of its peers. Benefit-mgmt profits should grow, but upside for ES may take longer to arrive.
“Up And Down Wall Street” column discusses IHOP (IHP), whose stock is down 40% on continued weak Applebee's results and high costs for the debt. The co is really a financial and operational turnaround in progress, led by a CEO Julia Stewart. The co has a mkt value just under $800m, and took on $2bn in debt to buy Applebee's. The IHOP chain has performed well, showing steady SSS growth, following a menu and ad revamp. A similar plan is slated for Applebee's. There are 1,976 Applebee's locations worldwide, 510 owned by the co. The plan is to sell 475 of those to franchisees at a pace of about 40 per qrtr. That could yield $500m in the end. The co will also be selling and leasing-back Applebee's corporate HQ and other real estate, for perhaps $450m. All of this will pay down debt. Charles Kantor, of Neuberger Berman, points out that Stewart is beloved by Applebee's franchisees, which remain loyal to the brand, given still-decent single-store cash-flow dynamics. Kantor notes the dramatically positive benefits of reducing debt over the next several qrtrs in the form of FCF. Some buy-side ests peg FCF per share at more than $4 in ‘09, up from something more than $2 this yr, and then rising above $6 in 2010. This presumes no store expansion and nothing heroic on SSS results. Even a conservative multiple of 14 on next yr's FCF could place the stock at $60. A 15 multiple on a projected $3.91 in '09 earnings gets you to about the same place.
Friday, January 18, 2008
The CFO sounded excited specifically about the new user interface, innovative application suite and software/hardware integration of the upcoming new Palm products. Avian expects Palm to get experimental with the look and feel of new devices, continuing down the path that Centro started. Its main goal here is drawing a clear distinction to rival models following the Blackberry-lookalike pattern and the iPhone/Voyager/Viewty approach. They think the emphasis on new look, feel and user experience of devices is crucial. Outside the Windows and Symbian OS systems, it is easier to explore novel methods of integrating software into hardware - a clear priority for the new product generation.
Palm seems to be focusing more on consumer-oriented devices with unusual look and feel, while continuing the business device development to hold onto core Treo user base. There is definitely room for smartphones that do not use the sprawling, relatively heavy Windows and Symbian operating systems that ensure smooth multitasking, but can overwhelm average consumers. Palm is aiming to develop products that make multimedia and entertainment applications easy to access - expect a completely new menu structure and an application selection that emphasizes video, music and game downloads in addition to photo/video processing and messaging. Making content downloads easy and intuitive is a laudable goal considering how cold Windows and Symbian leave many consumers regarding content delivery. Firm continues seeing Centro as a transitional model that points towards a new generation of smartphones that are lighter, cheaper and more consumer-oriented than most current mainstream smartphones. To some extent, both Windows and Symbian are held hostage by backward compatibility issues that Palm can to large degree sidestep - this is an exciting angle.
Notablecalls: Excellent color on Palm! Looks like the co is getting its act together.
Davenport notes their estimate for Q4 was influenced by the company's guidance on October 12. That's when the company gave Q4 guidance of $1.20 to $1.48. At the time they thought the guidance was overly conservative, although looking at the industry data we understand why the company guided to such a range. They think mill shipments of stainless products in the month of September were at the worst level in decades! Allegheny was likely stunned at how bad its book of business was in September and felt compelled to warn the Street, not only on Q3 but how bad Q4 would be if business stayed as bad as it was in September. Instead, business appears to have rebounded significantly from a horrible September, as customer orders have resumed with stabilization in nickel/stainless prices.
Firm recommends investors buy ATI aggressively and they can do so before the earnings report. Additionally, they think the stock is deeply undervalued and we are very bullish on the long-term earnings of the company. The stock is trading at an EV-to-EBITDA multiple of 3.9x on their '08 estimate. Thinks this stock should trade at 8.5x given the earnings growth driven partly by the strength in the aerospace market. Reiterates Strong Buy on ATI and price target of $145/sh.
Notablecalls: Actionable call alert! This stock will see strong upside today and over the next week or so. Buy aggressively!
Put simply , they do not believe that US farmers will switch biotech corn acres to soybeans. Rather, the firm expects farmers to switch back non-biotech corn acres (of which there were approximately 20 million out of 93 million total planted corn acres last year).
MSCO reiterates their Overweight rating, their $142 price target, their Base Case F2008 EPS estimate of $2.90 and increasingly believes that the risk to that estimate is to the upside (i.e., Bull Case EPS estimate of $3.20).
Notablecalls: I like this call. A lot. Suspect MON stock will rebound considerably in the n-t.
- Lehman is out in defense of Chicago Bridge & Iron (NYSE:CBI) noting the hares have fallen sharply recently (~27% since 1/1 vs. SPX's ~9% decline and the peer group's ~20% decline). Firm thinks investors worried about a U.S. recession should revisit CBI's key fundamentals and catalysts for '08 that remain unchanged since last quarter. Reits Overweight.
- Citigroup is calling a bottom in DRAM pricing saying the sector is showing signs of heading into cyclical recovery in late 1Q08E. Citi turned positive on the sector in Dec 2007, expecting a sharp slowdown in supply in 2008 to result in bottoming of the sector in 1Q08, not 2Q08.
- SunPower (NASAQ:SPWR): Raymond James reits OP; solar blue chip on sale, under 25x '09 EPS.
Thursday, January 17, 2008
* Firm's ongoing due diligence suggests that a partnership, with a substantial upfront payment, spin-off or sale could materialize sooner than "Street" expectations for the diagnostic division, Ibis Biosciences.
* Mipomersen P3 heterozygous FH (HeFH) trial(s) likely to commence shortly: Jeffco believes that one of the key points of discussion with the FDA centers around finalizing the most appropriate definition of a HeFH patient. Their physician consultants have expressed a large degree of comfort with all of the mipomersen data presented to date. As a result, they believe that safety is not a road-block to initiating P3 trials in the broader FH population.
* 113715, a PTB-1B inhibitor for Type 2 diabetes, could represent a partnership opportunity in 2Q08.
Notablecalls: Take a look at ISIS' chart. The stock has given back most of the huge gain following the GENZ deal. Now we have Jeffy coming out saying they see multiple catalysts, several of which look to be largely unknown to the public.
You have to understand that stocks like ISIS only move in anticipation of catalysts.
You gotta buy ISIS here. Today!
Actionable Trading Call alert!
Firm maintains Cautious industry stance but does not have enough data to call for a sustained downturn. Maintains Underweight rating on PotashCorp (NYSE:POT) and Agrium (NYSE:AGU) and are currently Equal-weight on Mosai (NYSE:MOS).
Notablecalls: Just so you know. Not making any calls here.
Barron’s Online out saying that Apple (AAPL) should pass economic stress test. If the US economy goes into a recession, any public co with an uncanny knack for generating outsize growth may find its shares highly prized by investors. One such co could be Apple, which despite sales of $24bn last year, sells just a fraction of the world's PCs and less than 1% of all cellphones. That tiny mkt share presents plenty of upside for Apple as it makes inroads in both fields. Apple's iPhone has quickly seized significant share of the small but fast-growing mkt for the most expensive phones, putting to shame cellular stalwarts Nokia and Motorola. And all indications are that Apple had a boffo holiday season in computer sales, which could give the shares some support when earnings are announced next week. On Tue, CEO Steve Jobs displayed the kind of chutzpah that keeps Apple in the papers and keeps pushing the co into new mkts, announcing the world's thinnest laptop, the "MacBook Air," and a revamped version of its computer for the living room, AppleTV. It's that doggedness with respect to emerging product categories that keeps adding new chapters to Apple's story as a growth stock. Sales and profit should both grow better than 20% next FY. At a recent price of $158, Apple shares have had a "20% off sale." "Apple's not immune to the cycles of PC buying, but they have a lot of room to grow, and they're doing a lot of things right," says Tony Ursillo, of Loomis Sayles. Ursillo expects Apple's Macintosh computer unit sales to rise 25% this yr, more than double the 11.6% rate of the PC industry overall projected by research firm Gartner. "The story with Apple continues to be how far ahead of their competitors the products are," says Glen Kacher, of Integral Capital Partners. "There is a multiyear path for Apple to gain mkt share in the PC business," says Kacher.
“Inside Scoop” section reprots that the famed activist investor, Nelson Peltz, bought 3.6m shares of Tiffany (TIF) on Tue and last Fri, jumping in after the jewelry retailer's stock tumbled 11% on disappointing holiday sales and a lowered ‘07 profit forecast. Peltz's Trian Fund Magmt now owns 7.9% of Tiffany, or 10.7m shares.
The WSJ’s “Heard on the Street” column discusses Delta Air (DAL) merger plans. As Delta pursues merger talks with Northwest (NWA) and UAL's (UAUA) United Airlines to form the world's largest passenger carrier, a potential linchpin is thousands of miles away in Paris: Air France-KLM. The European airline already is an ally of Delta and Northwest in SkyTeam, one of the 3 major international airline groupings. Air France-KLM also could provide strategic or financial backing in a Delta bid for Northwest, the airline most likely to emerge as Delta's preferred partner. Delta CEO Richard Anderson traveled to Paris after his meeting with Delta directors Fri, at which the board authorized him to formally begin merger talks with the No. 5 and No. 2 US airlines by passenger traffic.
Wednesday, January 16, 2008
INTC hasn’t seen signs of double ordering, and believes that the PC supply chain is healthy. MSCO remains concerned about the macro environment and supply chain inventories. They think order patterns after the lunar new-year (Feb 8) will provide visibility into these issues.
Notablecalls: Sub-$20 is too much for INTC here. I feel the stock will finish above $20 today.
The WSJ reports that Boeing (BA), already 6mo’s behind schedule on its 787 Dreamliner jet program, is close to announcing more delays that might hurt its ability to deliver as many planes as promised in the initial yr of production. The aircraft maker continues to experience problems on a variety of fronts. It has had difficulty getting the first plane ready to fly, and now the 787 may not make its first flight until June. Boeing also has made slow progress in overcoming parts shortages and other issues at suppliers' factories. An announcement that would include a new time schedule might come as soon as today. Further delays would likely make it impossible for Boeing to meet its goal of delivering 109 airplanes by the end of ‘09. If that occurs, the co may have to pay millions of dollars in penalties to airlines for missing delivery deadlines.
“Heard on the Street” column discusses financials, saying that Citigroup (C) now holds the distinction of sustaining the biggest hit of any bank or broker related to the mortgage mess and ensuing credit crunch, easily topping write-downs of $10bn at UBS and $9.4bn at Morgan Stanley. But bears say there is more bad news to come, meaning it is still too early to go bargain hunting among many financial stocks. Citigroup itself practically said so, these investors add, by going out and raising more capital than would be needed if the crisis were passing. "The financials aren't out of the woods yet," says Thomas Vandeventer, of Tocqueville Asset Mgmt. "Other than brief bear-market rallies, it doesn't look like there's a compelling reason to buy these stocks now."
The WSJ highlights Synchronoss Technologies (SNCR), which has seen its share price surge in the past yr on its connection to the Apple smartphone. But Synchronoss is looking beyond the iPhone toward its contracts with several wireless and Internet phone-service providers and the launch of its European operations to fuel long-term growth. "If you look at Synchronoss 2 yrs from now, you will say the iPhone was great," said Eric Kainer, of ThinkEquity. "It really helped the co's mkting efforts and proved what it could do for customers. However, it's not going to be a huge chunk of their business." Yet 25% of the stock's float is held by investors betting it will decline. And with a large portion of its rev coming from AT&T, concerns that the co is too reliant on one customer continue to weigh on its shares. "What brought us there was the completion of AT&T's merger with BellSouth and the launch of the iPhone," said Synchronoss Chmn and CEO Stephen Waldis, responding to critics. "Our business outside of AT&T remains strong."
“Inside Track” section reports that Jana Partners and 5 insiders bought a combined $2.73m in shares of Coleman Cable (CCIX), but co's stock is still just above its all-time low. Jonathan Moreland, of Thalmann Asset Mgmt, said the recent purchases constitute a "solidly bullish insider signal," but he cautioned that only investors with a long-term horizon should look to follow the insiders' lead. "Clearly, this is not something you have to jump into today," Mr. Moreland said. "But I think these are perfectly good indications of longer-term value: both a slew of insiders and a smart value investor."
Tuesday, January 15, 2008
Healthy backlog provides excellent earnings visibility entering FY08, with potential for upside to estimates.
PJ believes that new contract wins will provide a positive catalyst for the shares, following the implementation of new fire protection codes in the iron/steel industry in China.
Mounting concerns around the state of the U.S. economy is drawing more investor interest in companies with China exposure, yet valuations remain attractive relative to growth.
Reits Buy and $18 tgt.
Notablecalls: A lovely call by PJ Michael Cox that should drive the stock higher in the n-t.
VMW shares also appear very reasonably valued, currently trading at 40x 2009 pro-forma EPS of $2.03 and at a PEG ratio of 0.6, based on 3 year revenue CAGR of 63% through 2009.
Reits Buy and $129 tgt on VMW
Notablecalls: Is this call enough to generate buy interest in VMW? I think so!
Firm continues to view PotashCorp as attractively valued given their view that there is potential for potash prices to move significantly higher. They also believe there is substantial value associated with the company's potash expansion projects. If they adjust PotashCorp's current share price for these projects, they estimate that PotashCorp is currently trading at an implied 2009E EV/EBITDA multiple of less than 8x. In comparison, the fertilizer peer group is currently trading at an average 2009E EV/EBITDA multiple of 10x.
Based on analysis, the firm has increased their realized potash price assumptions from $275/tonne to $300/ tonne for 2008 and from $300/tonne to $350/tonne for 2009. Notes assumptions could still be too conservative.
RBC has increased their 2008 and 2009 EPS estimates for PotashCorp from $5.40 and $6.18, respectively, to $6.50 and $8.24.
Notablecalls: This is the news Street high price tgt for POT. The chart is strong and I feel this one has upside today. Keep the other names (MOS, AGU) on your radar as well.
According to the WSJ, Delta Air (DAL) has opened merger negotiations with both UAL’s (UAUA) United Airlines and Northwest Airlines (NWA), and hopes to negotiate a merger agreement with one of the airlines over the next 2 wks. Delta's board gave permission to CEO Richard Anderson on Fri to begin simultaneous talks with both carriers. Either scenario would create the largest airline in the US. Delta execs, who completed a round of preliminary discussions with United and Northwest before seeking board permission for formal talks, plan to move swiftly and present the preferred partner to Delta directors when they next meet in early Feb. A deal could be announced as early as mid-Feb.
The WSJ reports that a unit of Japanese megabank Mizuho Financial will later today announce a ¥140bn ($1.3bn) investment in Merrill Lynch (MER). As part of the deal, Merrill will sell Mizuho Corporate Bank, the core unit of the Japanese banking group, preferred shares which will likely convert to common stock at some point in the future. The deal could close before the end of the month.
“Heard on the Street” column discusses MBIA (MBI), whose stock is up more than 50% from a 52w low hit just 5 days ago, investors should consider a few outstanding issues before getting too comfortable: mounting mortgage-related losses; soaring capital-raising costs; and a tougher playing field for its core business of insuring municipal bonds as well-capitalized newcomers, such as Warren Buffett's Berkshire Hathaway Assurance, line up new clients. Nobody knows where the bottom is for this credit cycle, or what the ultimate losses are going to be," says David Havens, of UBS. That isn't to say investors don't have some reason to cheer. MBIA, whose triple-A rating is under threat of downgrade by rating agencies, could squeak by with a clean bill of health after privately placing $1bn of bonds in a debt issue last week that MBIA says was oversubscribed, perhaps b/c of the 14% yield MBIA agreed to pay. Warburg Pincus says it is still firmly behind MBIA. "We have been and remain 100% committed to closing this deal," David Coulter, a Warburg managing director, said.
According to the Barron’s Online one fund manager likes GEO, CRN, BPHX, SNDA, CROX, KVA, CXW, ATHR and SUNH.
“Inside Scoop” section reports that GSO Capital Partners bought $3m worth of stock of CKE Restaurants (CKR). The hedge fund now owns 1.9m shares of the co, or approximately 3.4%. GSO director, Matthew Goldfarb, sits on the CKE board. Ben Silverman, of InsiderScore.com, says GSO's purchase has added weight thanks to Goldfarb's connection. The transaction is a "good sign of confidence not just from an institutional investor but from somebody with board representation," he says. Silverman adds that the firm's willingness to stray from its leveraged-finance focus also is of interest. "I think the investment is based on the fact that [Goldfarb] understands the co and has faith in the co."
Monday, January 14, 2008
PJ maintains a high degree of confidence in the leadership of Ed Thomas, having observed the successful operations he has established at prior posts.
Notablecalls: This is beautiful stuff from PJ's Jeffrey Klinefelter. I expect to see a nice from WTSLA today and over the coming days. Note that PJ has also added DECK to their Alpha List.
NCN's Solar guy on YGE: PJ's Jesse Pichel the axe in the space.
Notablecalls: I feel YGE will be a $38 stock today based on these comments. Going to call it Actionable Trading Call here.
The firm believe the current despite macro-economic backdrop, SIGM should be able to sustain its growth trajectory given consumers propensity to maintain spending on home entertainment. Remains confident of their estimates for SIGM and believes that at FY09 (end 1/09) PE of 14x, SIGM offers a compelling value.
Reits Buy and $75 tgt.
Notablecalls: As one NCN member said this morning: The market is sorely due for a rally. The news from IBM (NYSE:IBM) will likely give us one and SIGM looks like a good way to play it. Period.
- Banc of America is raising their FQ108 and F2008 ests saying they note particular strength in CPU units, clearly benefiting from the introduction of Leopard. Firm raises revenue estimate to $9.6 billion from $9.3 billion (vs. consensus of $9.4 billion) and raises EPS estimate to $1.60 from $1.52 (vs. consensus of $1.59).
Maintains Buy rating and target price of $200
- RBC Capital notes fresh data from RBC's Technology Adoption Panel (4,600 respondents) and store checks suggests Apple saw massive Mac sales in the holiday quarter (Q1/08 end Dec, reporting Jan 22), despite concerns over consumer holiday spending growth. Firm estimates 2.5M Mac were shipped Q1 (2.4M prior), up 14% Q/Q and 54% Y/Y, breaking the record 2.2M Q4.
F08 ests become $32.8B and $5.11 EPS ($32.7B and $5.08 prior). F09 ests becomes $40.6B and $6.23 EPS ($40.4B and $6.19 prior).
RBC expects MacWorld to be somewhat less dramatic than 2007's MacWorld iPhone launch. Reits Outperform and $215 tgt.
- Lastly, via Reuters: Apple Inc and China Mobile have called off talks to launch the U.S. firm's popular iPhones in China, a spokeswoman for the Chinese company said on Monday, further dashing speculation the device will hit the country's store shelves soon.
A spokeswoman for listed China Mobile, the world's largest cellular operator, said its unlisted parent of the same name had "terminated" discussions with Apple, although she would not say why.
Experts said Apple's iPhone faced a spate of technical and fee issues unique to China, including a standard revenue-sharing agreement that China Mobile disliked.
Notablecalls: So, where from here? We have AAPL trading up 2 pts early this AM. This is probably due to overall positive tone of the mkts and positive analyst chatter from BAC and RBC.
Yet, the China news does not look good. iPhone's China arrival has been considered a pretty much sure thing but now it looks like it's not.
So, my question is: Does AAPL deserve to be up 2pts this morning?
Sunday, January 13, 2008
“The Trader” column highlights Hhgregg (HGG), whose shares have already tumbled 29% this yr. But the co may not be guilty of anything worse than bad timing. For a start, Hhgregg targets a higher-end clientele that appreciates same-day delivery, installation and some personal coddling. Sales and cash-flow growth have been healthy, and it even raised its forecast in Nov. Exports remain one part of the US economy that is still thriving, and fears about the demise of Hhgregg's rust-belt client base may be overblown. "The Midwest didn't participate in the recent economic boom in equal proportion, and I don't think it'll suffer in a recession to the same extent," says Jeff Lick, of Galt Investments. Analysts expect the co to earn $1 a share in F08, guidance Hhgregg recently affirmed. The street, clearly, is worried about ests for it to earn $1.24 for F09. Also, stock selling could pick up after Jan. 15, after its post-IPO lock-up period expires. But longer-term investors buying after that stand to pick up shares of a well-run, growing co at a discount. At about 9.80, shares trade at 9.8x ‘08 profits. Compared with Best Buy, Hhgregg boasts better growth and higher gross margins, Lick says. Hhgregg should rebound heftily if the consumer slowdown proves shallow. But even in a contraction, Lick thinks it is unlikely that EPS next yr will fall below $1.05.
Barron’s out saying that Foster Wheeler’s (FWLT) surge is overdone and suggests investors taking money off the table. Success has made the shares start to look pricey. They trade at 21x estd ‘08 earnings. Also, this is a cyclical co. Earnings multiples are supposed to contract as profits rise in anticipation of the cycle's downside. But that doesn't appear to be happening. If the cycle runs longer than expected, such exuberance will have been justified. If not, the stock could quickly correct. Foster doesn't give earnings guidance, but has said the engineering and construction business should enjoy organic growth, potentially bolstered by an acquisition in 2008. The co's business backlog may be signaling that the cycle is in the late innings. Investors look to the backlog, though lumpy, to predict future earnings growth. The backlog grew 98% and 47%, respectively, in the 3rd and 4th quarters of '06, and slowed to 25%, 11% and 3% in the 1st, 2nd and 3rd quarters of '07, notes John Rogers, an analyst at DA Davidson.
Barron’s Roundtable members like MDVN and WYN. Fund manager top holdings include JNJ, TV, GSK, IBB, MER and ADM.
Terex (TEX), now around 54, could hit 80 in a yr. If it becomes a takeover candidate, a winning bid might reach $100 a share. "Terex is absurdly cheap vs its peers," says Robert Marcin, of Defiance Asset Mgmt.
At 17.25, First Horizon (FHN) is selling for just under book value owing to mortgage woes. Bulls think the attractive state franchise is worth at least twice that. "I think with the recent announcement [about write-offs], we've finally hit bottom in this stock and it should bounce back," says Jerome Dodson, of Parnassus Investments.