Tuesday, November 30, 2010

Research in Motion (NASDAQ:RIMM): Upgrade to Buy, Target from $55 to $80: QNX OS Is the Real Deal - Jefferies

Jefferies is upgrading Research in Motion (NASDAQ:RIMM) to Buy from Hold with a $80 price target (up from $55) while raising their FY12 estimates above consensus.

According to the firm the upgrade is due to:

1. QNX better and earlier than expected: Jeffco's checks indicate that the new OS provides a great browsing experience, is scalable so can address low end and high end, is easy to port Android apps to, and is more secure, and requires less bandwidth. Also, the transition to QNX will be faster than expected.

2. International growth should carry RIMM until the new QNX products launch. The strength comes from Blackberry Messenger (BBM) as a free texting service and from the launch of a consumer service in China.

3. Enterprise share loss slower than feared: Jeffco's checks indicate enterprise app stickiness (email-only enterprise users more at risk from share loss due to sandboxing) and non-enterprise app data charges are likely to lead RIMM to only lose 300K enterprise subscribers in CY11.

Previews: They also preview FQ3 (Nov) (firm expects shipments at the very high end of guidance) and upcoming product launches.

Bear case on RIMM is that Nov Q earnings are near RIMM's peak. Consensus estimates FY12 EPS only +3% Y/Y followed by a 10% decline in FY13. They do not believe that will be true due to QNX-based product launches in CY11.

Proprietary Quarterly Handset Survey: overall responses on handset pricing and volumes was very positive. Also, despite poor customer satisfaction responses and market share losses, RIMM handsets are still a high focus of inquiry.

Shannon's Law indicates that wireless spectral efficiency limits are likely to be reached in the next decade, putting increased emphasis on bandwidth efficient solutions like RIMM's.

Global Handset Model: Firm tweaks their estimates higher based on stronger shipments for RIMM and LG.

In the last two years, RIMM's P/E has been in a 7-18x range with an average of 12x. Jeffco's $80 target is ~11x our FY12 estimates ex cash. Risks: 1) Wholesale transition to a new OS is hard execute and difficult to keep customers, 2) Share loss in enterprise.

Notablecalls: So far 3 people have pinged me saying they think this RIMM call from Jefferies is 'a biggie' or 'should work' or 'nice!'.

Looking at the call, Jeffco doesn't have much new to say apart from the fact they think QNX will launch somewhat earlier than expected. The stock is up 15 pts from its recent lows which kind of tells me it should be priced in.

Quite interesting to see a growth story turn into 'RIMM-to-only-lose-300K-enterprise-subscribers-in-CY11'. But I guess that's why its trading only 10x EPS, right?

This call may work today (I think it will trade to $61 or higher) but longer-term it's a dud. Sorry.

Monday, November 29, 2010

Amag Pharma (NASDAQ:AMAG): Update to Feraheme Label - Colour

I don't normally comment on specific news but Amag Pharma (NASDAQ:AMAG) got my attention this morning after the co issued a PR saying Feraheme label will not include a 'Black Box' warning.

Here's the link

Majority of the Street were expecting a Black Box warning to be slapped in AMAG's main growth driver, the Feraheme drug. Here are some recent comments:

- Jefferies (Oct 29) Downgrading to Underperform from Hold (target lowered to $12 from $18) on likely further declining Feraheme sales and upcoming label update for increasing safety concerns. AMAG expects the label change finalization for Feraheme this quarter from the current discussions with the FDA. We highlighted this as a possibility in our 9/24 note entitled "Lowering Estimates on Increasing Safety Concerns for Feraheme" after conversations with our consultants. Also it appears that there is a ~50% probability for a black box warning. Even without a black box, we view a stricter label of any kind would likely decrease its market penetration.

- Canaccord (Oct 29) We are downgrading AMAG to HOLD due to a combination of disappointing Q3/10 sales of Feraheme, AMAG’s IV iron, and uncertainty over safety and label changes. A lot hinges on the outcome of the ongoing label change discussions with the FDA. We do not yet know how these label changes will impact future sales and new indications. While the valuation might look cheap here, we are adopting a cautious stance.

AMAG is currently in discussions with the FDA regarding labelling changes. We think a black box warning could hurt Feraheme’s potential for sales growth and label expansion.

- Needham (Nov 1) We are reiterating our Buy rating, $26 target: we believe that the worst-case scenario has already been priced into the stock. We believe revenues were affected by seasonality (decreased use in summer, which will resolve) and unfavorable Feraheme economics in the dialysis setting (higher Feraheme costs, which will not resolve). We believe the stock has priced in decreasing Feraheme sales, yet the Company stated that the October 2010 sales are encouraging. Importantly, we believe that safety concerns represent a major stock overhang, and the stock has priced in a black box warning, which we agree would negatively impact the market adoption of Feraheme as other IV irons are available. Yet new data presented on the conference call on safety show an expected benefit/risk profile: we think a modest label change is the most likely outcome of the upcoming Feraheme review, with inclusion of cardiovascular side effects not previously on this one-year old label.

- Leerink (Oct 21) We believe AMAG's meeting with the FDA may remove a large overhang.. The market seems to be anticipating withdrawal of Feraheme or a black box warning..fair value estimate of $40 per AMAG share in 12 months. Our DCF analysis values Feraheme at $27/share and the remaining $13/share is cash

- J.P. Morgan (Oct 29) The more critical issue, however, is what comes out of ongoing discussions with FDA on Feraheme labeling given the agency's concerns on safety and the addition of Feraheme to the FDA DARRTS list for cardiac safety. Given that the per patient serious adverse events (SAEs) in the post marketing setting was lower (0.1%) than that stated in the Feraheme label (0.2%) and on a very high background of co-morbidities, we think that a black box warning is ultimately unlikely for Feraheme. Yet, AMAG shares (down 15% to ~$16.50 aftermarket) already imply a black box warning and limited value for Feraheme, an approved drug. Indeed, AMAG has ~$15 in cash/share currently and worst case should have ~$13/share at the end of 2011. Hence, we think that the risk / reward profile is attractive at current levels and while we acknowledge the FDA uncertainty, we believe that Feraheme won’t be pulled from the market and it can still grow to a >$200M product at peak even with a black box, in our view. We are maintaining our Overweight rating.

Notablecalls: The stock is down 26 pts in 4 months, from $40 to $14, partly on Feraheme Black Box concerns. Docs have been reluctant to prescribe the drug in face of uncertainty regarding AERS.

Today's news should alleviate at least some of the concerns & help the stock recover some lost ground.

Note that:

- AMAG has $14/share in cash

- Short interest has been declining but stands at 13%.

- Majority of Jeffco's bear thesis (UP, $12 tgt) was based on the Black Box warning. It may take some time for the Jeffco analyst to fess up but we may get an upgrade here.

- JPM's already lowered target on AMAG is $34 (down from $42). Just to show the potential upside.

- AMAG has been seen as a takeover candidate by many. Resolving the regulatory issues may open a door to discussions.

- Expectations are low. Check out how low the Feraheme estimates have been slashed vs. where they were before.

All in all, AMAG is probably still far from out of the woods but today's news is certainly a new start for the co.

I would not be surprised the stock to retrace some of the recent slide. I'm watching $17 as a 1st target level in the n-t.

Monday, November 22, 2010

Cirrus Logic (NASDAQ:CRUS): Upgrading to Buy: Cirrus Not Only Secure at Apple but with Increasing ASPs - Jefferies

Jefferies is upgrading Cirrus Logic (NASDAQ:CRUS) to Buy from Hold with a $20 price target (prev. $14) saying they believe is well positioned to maintain its share at its largest customer with increasing ASPs driven by higher integration and also has incremental opportunities with emerging products such as audio codecs in non-Apple smartphones, smart meters, LED lighting, and PFC.

Cirrus not only designed into next round of Apple products but with higher ASPs. Firm's checks give them increased confidence that Cirrus has secured wins at Apple (AAPL, Buy) in the upcoming CDMA iPhone, iPad 2, iPhone 5 and iPod Touch (5th gen). More importantly, Jeffco believes Cirrus continues to integrate additional external components and features that allows for increasing ASPs while still bringing down Apple's Bill-of-Materials (BOM). This is the same formula that allowed Cirrus to win its first Apple socket vs. Wolfson (WLF.LN, Buy) as they integrated ~$0.50 worth of discrete components which provided a huge pricing advantage. Their checks suggest Cirrus saw an increase in the ASP of the chip used in the iPods in September to ~$0.95 (from ~$0.75) due to the integration of additional discrete components (saves BOM cost) as well as additional features. Their checks suggest Cirrus will see a similar increase in ASP ($1.45 from $1.25) with the iPad 2 in CQ1:11 and iPhone 5 in CQ2:11.

The roadmap continues - Larger ASPs and larger barriers to competition. Jeffco says their checks suggest Cirrus is not done after this last round of ASP increases, in fact, they believe the next round could provide an even larger step up. Their checks suggest Cirrus potentially could integrate or bundle its audio DSP and/or Class-D amp capabilities with its audio chip for Apple's 2012 devices, which could increase the ASP by another $0.50 or more. It is obviously too early to call any design wins here, but they believe Cirrus continues to distance itself from the competition and will be hard to displace if it continues to deliver to its roadmap.

Raising estimates. Jeffco is raising their estimates to reflect higher ASPs as well as their higher CQ1 expectations. Firm is raising their CQ1 estimate to $86MM (from $81MM) as they now have greater clarity into the ramps of the CDMA iPhone and iPad 2, which help offset normal seasonality in non-portable audio and iPods. They raised their CY11 revenue to $398MM (from $366MM) and CY11 EPS to $1.41 (from $1.19) to reflect higher ASPs in the iPad 2 and iPhone 5.

Notablecalls: CRUS is a recent momentum darling. Over the past 12 months the stock has gone from $6-7 to a high pf $21 only to pull back toward $13-14 where it is today. The latest down leg has been helped by chatter of CRUS losing part or all of Apple music codec IC business that accounts roughly 1/3 of revenues.

This is what makes Jeffco's call noteworthy - they seem to have strong conviction CRUS will not only retain Apple but will be able to increase ASP's.

In fact, Jeffco is confident enough in their checks to raise estimates above consensus.

To add some fuel to the fire, New York Post has a short piece, saying Apple may introduce a thinner iPad early next year with features such as a camera for video calling.

Also note there's a close to 17% short intrest in the name. Not huge but enough to help the cause today.

Should trade toward $15 today. Doesn't trade much pre mkt, so will take a look after open.

Friday, November 19, 2010

Thoratec (NASDAQ:THOR): Upgraded to Overweight at Barclays

Barclays is making a possibly important call on Thoratec (NASDAQ:THOR) upgrading the name to Overweight from Neutral with a $39 price target (prev. unch).

According the firm, this week’s pullback in THOR creates a good entry point because they expect the market to regain confidence in THOR’s market-leading LVAD franchise. The strong results from competitor HTWR’s bridge-to-transplant trial, a.k.a. ADVANCE, led many investors to conclude that THOR’s longstanding position of leadership in the LVAD market was in jeopardy if not dislodged. The results from ADVANCE certainly impressed us and confirmed the threat posed by HTWR. However, it’s important to remember that THOR enters the competition as the market incumbent with a loyal surgeon base. The Heartmate II earned its standing as the “gold standard” over many years of both clinical testing and commercial use. Patient outcomes with the pump steadily improve, solidifying its position. HTWR’s HVAD appears up to the challenge, and clinicians welcome an alternative pump, but the Heartmate II won’t be abandoned.

At its investor meeting on Tuesday, THOR effectively articulated how in some respects the Heartmate II is an easier pump to “manage” post-implant because anticoagulation levels can be easily titrated. Barclays expects the HVAD’s stroke rate to decline with time but, for now, THOR’s pump maintains distinct advantage. Investors are also giving THOR little credit for its pipeline, understandable given the fits and starts for the Heartmate III over the years, but they believe the company will narrow the perceived “innovation gap” with HTWR when we get the pipeline review with 4Q, if not before.

They upgrade THOR to 1-OW because they believe its current valuation doesn’t properly reflect the opportunities for either the Heartmate II or the company’s broader LVAD franchise. Firm notes they have stayed on the sidelines for THOR since launching last year because they never felt expectations were aligned with the LVAD market’s fundamentals. This required patience at times, some might argue stubbornness, but they
now see market sentiment becoming excessively negative.

It's a 16 page note so it's impossible to rely all of it but I did find this part interesting:

We believe Heartware’s HVAD does represent a next step in pump technology, but isn’t the same “leap” forward that Heartmate II represented relative to the Heartmate XVE. Indeed, while the Heartware pump achieved 92% success in ADVANCE, the highest success rate ever seen in a bridge-to-transplant trial, it was only modestly better than INTERMACS control arm, largely Heartmate II’s, at 90%. It was noted to us by some clinicians at the American Heart Association Scientific Sessions that ADVANCE merely demonstrated the HVAD’s non-inferiority to the Heartmate II. The study wasn’t designed or statistically powered to demonstrate superiority. This point was emphasized in the conference call we hosted with Dr. Ben Sun, an ADVANCE investigator and co-author of the New England Journal of Medicine’s article reporting the results of the Heartmate II destination therapy trial. A replay of our call is available at (800) XXX–XX87 (conference ID # XXXXXX).

Notablecalls: I find this call interesting for several reasons:

- THOR was taken to the back and shot following HTWR's trial data. The stock is down 20 pts since its June highs of $47-48.

- Barclays has shown admirable patience, staying Neutral rated throughout the hype only to upgrade the stock now when it has been crushed. This means they have a lot of Street cred. now.

- I find Barclays' comments of HTWR merely demonstrating the HVAD’s non-inferiority to the Heartmate II fairly interesting. HTWR's product is pretty much equal to THOR's it seems. So why should the stock be down 5 pts?

I think THOR wants to go up. It wants to go back above the $27 level and possibly toward $28 if the general tape plays ball.

Wednesday, November 17, 2010

American Axle (NYSE:AXL): Upgrade to Overweight; Higher Backlog/Key Platforms Vols; Labor Saves Likely; See $18-20 in Two Years - J.P. Morgan

J.P. Morgan is making a gutsy call on American Axle (NYSE:AXL) upgrading the name to Overweight from Neutral with a $14 price target (prev. $12) for 2011. Additionally, the firm notes they see potential for an $18-20 stock two years from now.

JPM notes they shifted to a positive bias on AXL on Nov 1st post Q3, but now see improving risk-reward for this underloved stock following yesterday's updated backlog data release and analyst dinner driven by: 1) higher-than-expected 2011 production expectations on key platforms; 2) higher-than-expected backlog, particularly in 2012; 3) stronger conviction on at least $15-20MM of annualized incremental labor savings (achievable perhaps even before Feb 2012 contract expiry); and 4) lower-than-feared future margin pressure from revised commercial terms (negotiated in 2009 but only now coming more into light). Using an unchanged 4.5x EV/EBITDAPO multiple, updated 2010-ending projected pension deficit, and FCF available for debt paydown of $120MM in 2011E and $160MM in 2012E, one arrives at a $14 fair value using their now-raised 2012E EBITDA (15.4% EBITDA margin, 13.2MM US light SAAR) and $19 using their 2013E EBITDA (14.9% EBITDA margin, 14.5MM US light SAAR).

EBITDA is raised for 2011E from $358MM to $371MM and for 2012E from $418MM to $453MM, and JPM sees 2013E EBITDA potential of ~$500MM.

Notablecalls: So, finally JPM has the guts to upgrade AXL to an Overweight. They downgraded the name to Neutral back in 2008, just near the lows (around $2) and have been Neutral rated ever since.

In the n-t this one may be a solid sentiment call as GM IPO is set to open tomorrow after up-sizing the deal.

JPM is raising their out-year estimates and are calling for almost a double by 2013. This should spark some interest.

This one is not going to work in a huge way as the market is acting quite nervous lately but could end up as an OK performer in the n-t.

Human Genome Sciences (NASDAQ:HGSI): Benlysta Gets Thru Label Will Be Restricted-Downgrading to Hold

Human Genome Sciences (NASDAQ:HGSI) is going to be a battleground today after the FDA AdCom recommended company's Benlysta drug for approval but with fairly negative comments on potential labelling.

- Citigroup is downgrading HGSI to Hold from Buy with a $30 price target (prev. $35) saying the label will likely have noticeable restrictions and thin efficacy is already drawing a mixed reception from rheumatologists. Firm says they are concerned about the long-term sales potential given 1) modest benefit, 2) poorer activity in U.S. pts than we originally expected, and 3) now more restricted label. They new DCF value is $30. In Citi's view, mgt is not interested in selling.

Benlysta Gets Thru But Label Narrower — The vote on efficacy was 10-5 but there was a robust debate about modest benefit in U.S. pts + wide concerns that the study was not representative of all U.S. pts. Also, absence of severe patients w/ CNS or renal involvement and lack of activity in African Americans was criticized. There was consensus that the label should be restricted accordingly. The safety vote was 14-1 that the drug is safe.

- 90-Day Extension Possible — With only 23 days until the FDA action data of Dec 10th, a 3- month delay to complete labeling discussions looks quite likely. Citi now models launch in Q2:11 from Q1:11. Benlysta is partnered WW with GSK 50/50.

- Patient Label Exclusion — Citi now anticipates that as many as 45%-50% of pts will be restricted from Benlysta in U.S. and 25% in Europe since the label will likely excl African Americans (25%) and pts w/severe CNS and kidney disease (25%). They did not expect that the panel will be so vocal on the need for this restriction. Firm recalls that ~50% of pts did not respond, so there will be dropouts over time.

- Cutting Sales Ests — More so, the efficacy is in U.S. pts is much more modest than we originally thought and the panel of rheumatologists was not very impressed with the data. As this is a good predictor of broader uptake, they are cutting their 2015 Benlysta sales ests globally from $2.6B to $1.6B.

- Bernstein's Geoffrey Porges says that after a nail biting day the FDA’s Arthritis Advisory Committee voted strongly in favor of approving HGSI’s BenLysta for the treatment of SLE. Their conclusions are much as their expectations were going into the meeting – BenLysta is almost certain to be approved, but the panel’s discussion and the FDA’s comments suggest that there will be extensive debate about labeling, with the potential for a more restricted label than the actual study population in the trials.

The panel voted by a solid 10-5/13-2 majority in favor of the drug's efficacy and approvability, though both were subject to significant caveats and qualifications.

There is likely to be considerable discussion about the specific post approval study obligations and REMS program required of HGSI. All three of these seem to be challenging to resolve in the next 23 days, particularly with a major holiday in between; instead they expect the agency to request a 1 to 3 month delay beyond the PDUFA date to finalize these details.

Based on this outcome Bernstein is pushing their the timing for our launch for BenLysta in the US until Q2 2011, with EU launch in H1 2012. They are also reducing their addressable market in the severe SLE population by 10% to account for a likely exclusion from the initial labeling for patients with Lupus Nephritis or CNS lupus. While their near term revenue and earnings estimates decrease, their longer term forecasts only come down by 5-7% and based on peer company multiple expansion firm's target price increases from $32 to $33 and they are sticking with their market-perform rating. Should HGSI's stock once again tumble into the low to mid $20's range the firm would view the risk-reward more positively.

Notablecalls: This didn't go well for HSGI. Not a disaster but I think the stock was a consensus long ahead of the Adcom.

The stock is going to be a battleground with a slight downside bias, in my humble opinion.

Tuesday, November 16, 2010

Joy Global (NASDAQ:JOYG): Underweight on Valuation & New Competitor in CAT - Morgan Stanley

Morgan Stanley is downgrading Joy Global (NASDAQ:JOYG) to Underweight from Equal-Weight with a $71 price target (prev. $64). The moves comes after Caterpillar announced the acquisition of Bucyrus, JOYG's main competitor.

Conclusion: Morgan Stanley is downgrading JOYG shares to Underweight; risk reward is not favorable and the frim thinks it’s a good time to take profits. They remain very bullish on the mining cycle but prefer CAT for mining exposure. Their ‘11 and’12 ests are 3% and 11% below cons, even after bumping their up a bit. Near-term they see few pos catalysts, with potential downside from underwhelming orders. Longer term the firm expects more hydraulics gain and see CAT as a tougher competitor.

Morgan Stanley sees 3 effects from CAT's bid for BUCY, none of them positive for JOYG

1) JOYG shares appreciated 7% on CAT's bid for BUCY, presumably on the attractiveness of JOYG as a unique asset for strategics or investors. In fact, they think the opposite should've happened, to the extent a bid from CAT was in the JOYG share price a potential positive is off the table. CAT’s bid for BUCY was 14x MSCO's 2012 est (15x cons); JOYG currently trades at 15x their 2012 est, and almost 14x consensus 2012.

2) Competitive intensity increased. BUCY had already been selling bundled product against JOYG, with CAT"s added product and service expertise, the intensity will be higher. Firm sees increased difficulty in meeting consensus estimates. They also have been longstanding believers in hydraulic mining excavators taking share from electric/rope shovels, a trend that seems to be cyclically accelerating.

3) Though less important the consolidation raises the risk that JOYG will see a need to broaden its product line. High quality hydraulic excavator will be difficult to find, other mining assets may be less attractive vs Bucy's very accretive acquisition of TEX mining or CAT's excellent fit with BUCY.

Notablecalls: Call makes sense. JOYG traded 8 million shares yesterday, which means there are trapped longs there.

I think people will be gunning for the $75 level today to inflict maximum pain.

PS: We have couple of firms out raising their tgts on JOYG but it's probably not enough to counter the MSCO downgrade. Also note that Sterne Agee is out with a downgrade. They have been positive on JOYG since mid-2009.

PPS: Am I the only person out there that finds MSCO telling people to take profits here somewhat idiotic considering they have been Equal-Weight rated in the name for ages?

Monday, November 15, 2010

Akamai (NASDAQ:AKAM): Pricing pressures? Downgraded at Oppenheimer

Oppenheimer is out with some fairly cautious comments on the CDN space, downgrading Limelight Networks (NASDAQ:LLNW) to Underperform & Akamai (NASDAQ:AKAM) to Perform from Outperform.

I'll focus on AKAM, that's the bigger player and where the liquidity is likely to be:

- Opco is downgrading AKAM to Perform from Outperform, and removing their $58 price target. They remain positive on secular industry trends (online video, cloud computing, etc.), but fear the recent NFLX news could generate renewed CDN price competition. Firm notes that NFLX currently is not a large customer (~1% of revenue), but usage of more CDN providers limits upside for AKAM in '11-12. They believe the decision to use more CDN providers is based largely on a need for NFLX to optimize cost/bit for vanilla CDN transit and the increasing willingness of LVLT/LLNW to gain scale by competing on price. Bottom line, multiple expansion for AKAM could be capped near term, should price competition become more widespread across the industry.

Contrary to early reports, the decision by NFLX to use more CDN providers (AKAM/LLNW/LVLT vs. AKAM/LLNW previously) appears to be largely based on pricing, rather than network performance issues. Though the precise mix among the three may change over time, NFLX will continue to source AKAM's video and optimization services going forward.

While still an isolated event, this raises concerns regarding increased price competition for basic CDN transit services as LVLT and LLNW compete more aggressively to gain scale. The fundamental strategy is driven by scaling core CDN services to build a broader customer base, upon which to layer more profitable/higher growth value-added services (VAS).

As LLNW/LVLT both trail AKAM by a significant margin in customer scale and breadth of VAS portfolio, Oppenheimer is concerned that the NFLX news is merely the first hint of rising competitive intensity.They fear the two will compete more aggressively for bits of traffic, which could impact growth and margin trends across the industry.

Valuation (15x Oppenheimer's '11E EV/EBITDA) remains fair; given signs of heightening price competition, the firm believes multiple expansion could be capped near term. As such, they are downgrading to Perform. Importantly, their fundamental view on industry trends remains positive, and they would revisit their rating should the feared price competition not materialize.

Oppenheimer is lowering their 2011 revenue estimate to $1,228M from $1,242M. Similarly, their '11 adjusted EBITDA estimate goes to $566M, from the prior $571M. Their operating EPS estimate is reduce modestly to $1.62, from $1.64.

- PS: Note that Jefferies is also out with some cautious comments on CDN's saying Netflix adding Level 3 as a prime CDN provider has raised questions about price and performance differences among CDN providers. They outline why they think pricing declines could pick up a bit in 2011 and why hosting companies might have a performance edge in streaming large profile video content. Firm maintains Hold rating and $45 tgt on AKAM.

Notablecalls: Close your eyes for a second and imagine Akamai's CEO on their quarterly conf call saying they have experienced some pricing pressure over the 'last few months'. Doesn't look pretty, does it? Down an instant 10-15%?

Akamai has been pretty much the only profitable stand-alone CDN company, trading around 30-40x EPS.

'..Akamai's superior profitability is not solely related to higher contract fees – Akamai has long been the only profitable CDN provider. Their industry-high margins come from a software-based solution that scales financially. Their September quarter cash gross margin of 81% and 45% adjusted EBITDA margin speak to the leverage ... Limelight has thus far not been able to sustain net income profitability, and their ability to profitably scale their CDN business has been an outstanding question since the 2007 IPO. In the just-passed September quarter, Limelight reported a 57% gross margin and 14% adjusted EBITDA margin...' (from Jeffco's note)

I think the stock is vulnerable to potential pricing pressure chatter that is raising its ugly head as we speak.

Will the $48 level hold today?

PotashCorp (NYSE:POT): Colour on BHP news - bounce?

We have couple of firms out with supportive comments on PotashCorp (NYSE:POT) after news BHP Billiton has withdrawn its offer for a Canadian company.

- BMO Capital is out saying POT’s price may experience additional short-term selling pressure as event-driven investors liquidate remaining positions in response to this disappointing news. The downside price pressure, in firm's view, is not expected to be large as fertilizer industry fundamentals, notably potash, have strengthened considerably since the launch of BHP’s $130/share bid on August 17. In addition, based on the preliminary rejection of BHP’s bid by the Industry Minister Tony Clement, today’s announcement by BHP should not be overly surprising either. They believe that investors with a fundamental focus should be accumulating POT. BPC’s recently announced potash price increase of $25–30/tonne for S.E. Asia and Brazil has reportedly gained some traction in Vietnam with two small orders: 30 Kmt for IPC and 100 Kmt for BPCat $430/tonne for standard grade. FMB has also reported that BPC has indicated a price of $405/tonne to Chinese buyers if settled immediately or $430/tonne for January/February. The combination of robust crop prices and demand rebound from overly depressed levels in 2009 has restored pricing power to potash producers.

Firm reits Outperform and $175 target on POT.

- Morgan Stanley is even more bullish reiterating their Overweight rating and $180 price target following today’s announcement that BHP will officially withdraw its bid. While They do not view BHP’s action as a surprise, it does officially remove the overhang that they believe has caused Potash Corp. to underperform its peers since underlying grain fundamentals took off in early October. While it is impossible to know how much merger-arb money remains in the stock on the hope that a BHP deal could be resuscitated following the
Canadian government’s preliminary rejection, the arb thesis is now over. They expect valuation to return to fundamentals, which prescribe a $150-$175 share price today.

Is it “no” to BHP or to everyone, and should that matter in valuation? Potash bears argue that Potash Corp. should trade at a discount now that some may argue that it cannot be taken over. Morgan Stanley says they disagree for a number of reasons:

1) Pre-bid, they do not believe that the stock ever traded with an M&A premium (see the
$84 share price from July 2010);

2) While they have no knowledge of potential strategic activity, the firm is not sure that a deal by another party would be turned down, should another party emerge at some point in the future;

3) If it is “no” to anyone, then it would likely also be “no” for the majority of Potash Corp.’s peers, to whom Potash Corp is currently trading at an abnormal discount;

4) They see this as the evolution of the bear thesis now that: i) Fundamentals have reverted materially against bears; ii) The BHP bid has at the very least demonstrated that new entrants understand that economic returns are superior to “buy” rather than to “build” (i.e., Potash Corp’s replacement cost is at least $160 per share, MSCO estimates).

Notablecalls: While is somewhat humorous to see Morgan Stanley calling BHP's back-off a removal of overhang, the stock should not be trading down 10 pts on the news.

It was fairly clear to everyone, the deal was dead in the water 10 days ago.

There will be arb pressure there but I suspect the smart money left the stock weeks ago.

POT is worth keeping on the bounce radar in the n-t.

Thursday, November 11, 2010

Thoratec (NASDAQ:THOR): Enthusiasm Gap Hard to Bridge; Downgrading to Hold - Auriga

Auriga is downgrading Thoratec (NASDAQ:THOR) to Hold from Buy this morning while lowering their price target to $29 (prev. $52).

The firm ntoes they continually hear from large implant centers worldwide that VADs offer impressive, if not life saving, outcomes for end-stage heart failure patients. However, they have seen an “enthusiasm gap” between implant centers and community cardiologists, as noted in their last note published on October 29, “No Surprises; It’s All About DT!” Transplant centers across the board have embraced VADs, but referrals from community cardiologists have not materialized for a number of reasons, the foremost being lack of uniform referral guidelines. As such, very few of the potential VAD patients are ever considered for VAD implantation. Until Thoratec (THOR, Hold) can address these referral challenges, the firm prefers to sit on the sidelines as growth and guidance for 2011 will likely disappoint.

Potentially large patient population, but where are the implants? VADs offer a potentially large addressable market – the end stage heart failure patient population (Class IV) has almost 250,000 patients, with upwards of one-third (80,000+) likely candidates for mechanical circulatory support. However, Auriga notes they have seen a disconnect between the potential pool of patients and number of VAD transplants done. This trend has become more apparent as growth in the DT setting has been relatively anemic (beyond the initial patient bolus) versus the potential.

Transplant centers love VADs. They continually hear from large implant centers and KoLs across the country and world that VAD implant outcomes are impressive across a range of measures - survival, quality of life, improvement in functional class, and cost effectiveness. Hence, in their view, tens of thousands of Class IV and earlier patients ought to receive an implant. Currently, 96% of DT implants and certifications are with these transplant centers. Growth will require broadening into the open-heart surgery centers. However, the DT certification process requires time (~1.5 years) and a massive support structure (VAD coordinators, team of surgeons, admin support and post-op follow ups).

Community cardiologists – not so much. As the majority of class IV patients are still cared for by the community cardiologists, the firm decided to check in with a handful of large community centers. The overwhelming response they received to their queries was that VAD transplants were “not at top of our mind” given the number of other options available for treating these patients. Community cardiologists had two chief complaints. First, they do not know which patients (and when) to refer for VAD implants since there are NO society (e.g., HFSA, AHA) referral guidelines in place. Second, when they did refer patients they often did not get an implant since the patient was either a younger, healthier patient (and thus more likely to be a transplant/BTT candidate) or a very late-stage patient who is either too old or had too many co-morbidities to undergo VAD implantation.

Outreach will take time, money, and resources. Auriga suspects significant growth in patient referrals will only be realized once the above-cited issues are resolved (namely, guidelines on which patients to refer and when)

Patience will be required. As a result, the firm perceives that the potential VAD market remains large, but growth could be challenged in the near term. Growth in 2011 could be less than half the 40% growth of 2010. And 2012 could see additional headwinds as Heartware (HTWR, Buy) could be approved for BTT use in the U.S. Overall, their checks still indicate that, in experienced hands, outcomes between the two devices are similar.

Given the hurdles, they are cutting their 2011 numbers. Firm is cutting 2011 estimates to $438MM/$1.16 from $473MM/$1.38. Their new $29 price target is based on 25x P/E of 2011 EPS.

Notablecalls: I've never been a fan of Auriga, but reading the call they have really done some excellent research on the VAD's space. Looks like general market expectations may be too high in THOR's case. Should THOR guidance disappoint at current valuation...look out below.

The stock is certainly down from its recent highs but given Auriga's comments I suspect we may see some additional downside in the n-t. I'm looking at $30 level to be tested today.

Wednesday, November 10, 2010

Las Vegas Sands (NYSE:LVS): UBS cashing in the chips

UBS is out downgrading Las Vegas Sands (NYSE:LVS) to Neutral from Buy saying that while they remain optimistic on the long-term outlook, they think clients should cash in their chips.

It's just a one-pager:

Remain Optimistic on LVS Outlook; Though Perhaps a Better Entry Point
While we believe there is still upside to our current 2013 Macau and Singapore market estimates of $34B and $13B, respectively, which have consistently been the Street high for most of the year, with the stock up 250% this year, with this strong performance, even though we remain positive on LVS’ outlook and potential to outperform our est., we think there may be more attractive entry points, so we are bringing our rating to a Neutral with a $52 price target.

Foresee Positive Catalysts, But Stock May Offer Better Entry Point
As mentioned above, while it is still quite likely that our market estimates for Macau and Singapore are too conservative - looking for just 14-15% growth after 50%+ growth this year - the stock is reflecting more of our positive view as consensus estimates have moved closer to our ests, with nearer-term upside heavily factored into the stock. With labor issues around Cotai sites 5&6 likely to be resolved shortly and the property on track for an H1’12 opening, we do not see a shortage of positive catalysts, but at current valuations believe many are reflected.

Estimates Unchanged, But Believe They Could Prove Conservative
We continue to believe LVS’ property EBITDA could exceed $4B as soon as 2013, up from $1.1B as recently as 2009.

Valuation: Price Target now $52 (was $44)
Target based on 9-11x LV 2012E EBITDA, 15-17x Macau 2011E EBITDA, 16- 18x Singapore 2011E EBITDA and PV of royalty stream from LVS’ Macau operations to the parent, PV of LVS’ share of Sites 5&6 and Four Seasons condo sales.

Notablecalls: Not much substance there, so this one is a pure sentiment call. Given how heavy the general tape was yesterday, I would not be surprised to see selling in LVS. The stock is up 15 pts (!) in past 2 weeks.

I would not be surprised to see the $50 level tested today.

Tuesday, November 09, 2010

Salix Pharma (NASDAQ:SLXP): Stock going higher today?

Salix Pharma (NASDAQ:SLXP) no stranger to Notable Calls, should be on fire today after reporting surprisingly stong results last night. The analysts? The analysts love it:

- Piper Jaffray is raising their price target to $60 (prev. $58) while reiterating Overweight rating.

Firm says night, Salix reported adjusted 3Q10 EPS of $0.05, well ahead of the Street net loss per share estimate of ($0.15), with Xifaxan sales well ahead of expectations. Management is now guiding to 2010 net income of around $20M, implying 4Q10 net income of at least $34M and 4Q10 diluted EPS of at least $0.52. With Xifaxan demand continuing to grow, plus a label expansion in non-constipation irritable bowel syndrome (IBS) coming in March 2011, they continue to believe that 2011 EPS in excess of $2.00 is a realistic target (the Street is only at $1.48). Piper continues to believe that SLXP is the most compelling emerging growth story in specialty pharma. They reiterate their Overweight rating and are raising their PT to $60 from $58 (mainly due to a decrease in the discounting period).

Significant 3Q upside for Xifaxan. Xifaxan sales of $65M were well ahead of the Street estimate of near $40M. Importantly, sales were not meaningfully impacted by wholesaler destocking. Though this might come as a surprise to the Street, PJ notes that pharmacies were carrying roughly 1-2 bottles of Xifaxan550 (which contain 60 pills), and in an environment with growing demand (particularly a per mg basis), pharmacies have to re-stock when a prescription (Rx) is filled (one Rx for Xifaxan550 is close to a full bottle). Further, the upside is also not all that surprising given that hospital demand (mainly for patients with hepatic encephalopathy) accounts for a meaningful chunk of the mix (30% of sales for the 200 mg dose, and 15% of sales for Xifaxan550 and growing). Hospital demand is not reflected in weekly IMS retail Rx audits, a key reason why they believe the Street has been underestimating Xifaxan's growth trajectory.

Diluted EPS north of $2.00 in 2011 looks highly achievable to Piper. SLXP is guiding to 4Q10 Xifaxan demand of around $80M, and is guiding to 2010 net income of $20M. With a cumulative net loss for 1Q-3Q10 of $14M, this implies a 4Q10 net income target of $34M, pointing to EPS range of $0.52 to $0.60 (depending on the diluted share count). Also, SLXP is now expecting 2010 R&D expenses of $85M, down from its previous expectation of $100M. With Xifaxan already annualizing at over $300M (without the impact of the IBS expansion), coupled with expanding margins, they believe 2011 diluted EPS in excess of $2.00 is realistic (PJCO estimate is $2.69).

Xifaxan approval in IBS in March 2011 still looks likely. Judging from SLXP commentary last night, it still looks like a panel meeting is not likely, and given the strength of the data, Piper does not see why a panel would be necessary.

- Jefferies, the Axe in Salix is also out positive on the name reiterating their Buy and $53 price target on the name.

Firm notes their bullish stance on SLXP rests primarily on the growth opportunity that Xifaxan offers. While investors have been spooked by wkly prescription data that suggests Xifaxan's launch is slowing, they think yesterday's strong 3Q print illustrates just perfectly why placing too much emphasis on this data can often be misleading.

Xifaxan delivers. With the market anxious about 1) the past several months' weekly IMS prescription data for Xifaxan (which implied a slowdown in growth) and 2) the expected but unquantifiable impact of wholesaler destocking for Xifaxan, SLXP absolutely crushed 3Q numbers, reporting $65MM (+53%) in Xifaxan rev, handily beating our est ($38MM), consensus ($41MM), and a recent upbeat est of $50MM. While the 3Q Xifaxan result was in itself impressive, perhaps even more comforting was 4Q Xifaxan rev guidance of $80MM. Based on this, Jeffco remains comfortable with, and maintain their prior 4Q Xifaxan estimate of $89MM, and notes that by annualizing this, they're already running ahead of their current full-yr 2011 Xifaxan forecast of $352MM.

Notablecalls: Xifaxan beat (and I mean beat!) estimates.

Stock has been weak on heels of IMS data but the bears should be out of ammo now.

Stock should move higher today. I would not be surprised to see $39+ levels today.

LDK Solar (NYSE:LDK): 2011 Outlook Substantially Brighter For Top Pick, target to $25 - Piper Jaffray

LDK Solar (NYSE:LDK) should see some serious buy interest today as Piper Jaffray is raising their price target on the name to a new Street high of $25 (prev. $15) following very strong Q3 results & guidance out last night.

This is what Piper's Solar team headed by Ahmar Zaman has to say:

LDK remains our top pick after issuing 2011 guidance that was 32-50% higher than our original forecast. Volumes are strong and will remain so in 2011 as the company is sold out for poly, 80% sold out for wafers and sold out for 1H11 for modules. Capacity expansion will follow for wafers (3.6GW), modules (2.5GW) and cells (1.3GW). Pricing for wafers will increase slightly in 4Q before flattening out in 1H11, and strong module pricing and poly sales will grow margins into the low-to-mid 20s in 2011. We reiterate our Overweight rating and raise our price target to $25 from $15 on a substantially brighter outlook for 2011.

Strong demand drives capacity expansion. LDK is sold out for poly in 2011, 80% sold out for wafers and sold out for 1H11 in modules with prepayments. This strong demand visibility has driven the company to expand capacity by YE2011 to 3.6GW for wafers, from 2.8GW (YE2010), 2.5GW for modules from 1.5GW (YE2010), and 1.3GW for cells from 180MW (YE2010). Poly capacity has already been expanded to 11k MT this year, with the company considering whether to add to this in 2011.

Strong cash flow from operations likely helps pay for 2011 capex. LDK reported cash flow from operations of $140m which on an annualized basis implies $560m cash flow from ops. We believe there is room for improvement to $200m a quarter in 2011. Thus, cash flow from operations plus the line of credit from China Development Bank is more than sufficient to cover projected 2011 capex of $500-$600m, plus likely pay down some debt

Strong 4Q10 and 2011 guidance. LDK calls for $710-$750m in 4Q10 revenue on 580-600MW of wafer shipments and 120-130MW in modules. We look for pricing to remain flat for wafers and to tick down 7%, to $1.75, for modules from very strong 3Q10 levels, putting the company at the top end of its guidance. We conservatively forecast LDK at the bottom of its 2011 guidance of $2.9b-$3.3b, increasing our topline forecast 32% from our previous forecast of $2.2b in 2011. We also model the company at the bottom of its gross margin guidance (22%-28%) at 22.6% to get EPS of $2.50 vs. $1.50 previously.

Notablecalls: This $25/per share price tx from Piper should be an attention grabber today. Stock should move up.

Can't believe they are sold out for H1 2011. Means prices are bound to move up. Means ests may be way too low.

Wednesday, November 03, 2010

AMR Corp (NYSE:AMR): Headwinds Shifting to Tailwinds; Our Top Idea - J.P. Morgan

AMR Corp (NYSE:AMR) is getting very positive comments from two Tier-1 firms this morning:

- J.P. Morgan's Jamie Baker, the Axe in the Airline space highlight AMR as his Top Idea with a $13.50 price target.

JPM expects AMR to turn a significant margin corner in 2011, as alliance immunity, rising industry labor costs, and a shifting Latin/Pacific supply dynamic reverse its multiyear relative margin decline. Based on our theoretical analysis, if AMR relative margins can perform in line with the industry from here, upside equity potential is expected to exceed that of all other U.S. names they cover. If relative margins can narrow their gap to the industry, potential equity upside is still great. Thus, AMR emerges as our top equity pick among U.S. airlines.

Recent margin performance hasn’t been pretty – AMR relative margins have suffered for years, given stubborn labor costs, uncompetitive alliance immunity, a limited Pacific footprint, and superior cost management elsewhere (particularly at United). In 3Q, AMR’s operating margins trailed the industry by ~700 bps.

Headwinds are expected to become tailwinds – JPM expects industry labor costs to migrate toward AMR levels, starting with United and followed by US Airways. AMR’s recently immunized alliance partners should drive RASM momentum in 2011. And 10% Latin supply growth is moderating while Pacific supply is worsening, suggesting RASM relief for AMR and pressure for DAL/UAL.

There’s significant leverage in AMR’s model – Firm sees several outcomes to our theoretical margin analysis. In our best case, industry and AMR operating margins return to prior peaks (~11% EBIT). Mid case, industry gets to prior peak but AMR margins trail by 300-400 bps. Worst case, industry margins suffer and AMR’s relative position gets even worse. Across this range of outcomes, they can envision AMR equity value of between zero and nearly $40, versus a $7.85 current price. As they aren’t modeling for industry strain, AMR emerges as their top equity pick.

And of course, they gravitate toward the underdog – AMR has the highest percentage of Sell & Hold broker ratings of any U.S. legacy. Its year-to-date equity performance has been woefully weak (+2% vs. +46% XAL & +7% S&P). Investors tend to identify labor as an overhang, despite greater risk of cost escalation elsewhere. While the lack of company aggression in pursuing alternative strategies has been disappointing, in JPM's view, that doesn’t stop them from identifying where potential equity upside is greatest. They think they’ve found it.

- Barclays comes out reiterating Overweight and $18 price target on AMR saying the share could rally into year-end.

Firm believes concern about the possibility of a pension expense headwind, among other things, is creating apprehension among investors about performance in AMR shares. Their focus for AMR is on relative margin expansion across the cycle and cash generation during 2011 that they believe will encourage investors to re-think current valuation. As year-end approaches, with a relatively benign current outlook on pension expense for 2011, firm sees opportunity in AMR and believes the shares could rally into year-end as investors anticipate better things to come in 2011.

AMR has dramatically underperformed the sector year to date despite our view that margin upside across the cycle will exceed industry averages. Barclays believes concerns about escalating pension expense in 2011 have contributed to this underperformance, especially as year-end approaches.

AMR is heavily exposed to pension expense and has suffered material margin pressure as a result, but the firm expects a relatively minor amount of headwind in 2011; barring strong market movements in the next two months, they believe the pension impact for 2011 will be around $40mm, which, in their view, is relatively minor.

Cash flows ultimately rule and AMR’s cash generation has lagged with heavy CapEx in 2010. However, current CapEx projections suggest a sharp turn in that dynamic for 2011, when they believe AMR’s free cash flow will approach 35% of its current market capitalization on more normalized levels of CapEx; Barclays expect AMR to screen best in the industry on this metric in 2011.

They believe this level of cash generation will drive AMR shares to a better performance outcome in the year ahead and the market may look to discount these prospects for AMR before the calendar year turns.

Notablecalls: Must say I was pretty surprised to find two Tier-1 firms out so very positive on AMR this morning. JPM's Baker is the Axe in the space which probably means the call will not fall on entirely deaf ears.

Like the chart.

PS: Just remember, my recent performance is trumped by this guy.

Tuesday, November 02, 2010

MEMC Electronic Materials (NYSE:WFR): Upgrade to Buy & add to Top Picks Live, $18 target - Citigroup

Citigroup is upgrading MEMC Electronic Materials (NYSE:WFR) to Buy from Hold and are adding the stock to their Top Picks Live list with a Street high $18 price target (up from $15).

The move comes surprisingly after the co reported below consensus September results but more importantly, the management suspended EPS guidance due to the real estate accounting treatment of the direct sales/leaseback SunEdison projects.

- Citigroup says that while WFR suspended CQ4 guide, revs/EPS delta w/Street are due to acct’g timing in SunEd project biz w/core biz ahead of CQ3 expectations for the first time in a long while. Near term, even assuming flat operating profit in core wafer biz, EPS on a non- GAAP (apples-to-apples) basis looks at least in-line w/Street $0.30 and the value of the SunEd pipeline is crystallizing. Also, WFR finally controls its own destiny on costs & measured poly capacity expansion should add another lever to the model in 2011/2012. Into 2011/2012, using even a conservative set of assumptions and no growth in the SunEd pipeline, Citi estimates EPS power of at least $1.75. On SunEd, their checks and work now suggest this could actually be a >$2B revs business by 2012 w/EBITDA of >$500MM. While valuation is complex, this argues the segment is worth a lot more than the $2-3/share purchase price the Street seems to currently contemplate. Increasing CQ4:10 EPS (non-GAAP) from $0.28 to $0.41 with F2011 EPS increased from $0.81 to $1.59 (PF EPS $1.70) primarily due to firmer conviction on SunEd and could see biz worth >$10/share.

Coming into this Q, Citi says they had been positioning WFR favorably longer term, but have been still looking for more clarity on both its costs and the SunEd pipeline. While cost reductions are still necessary in 2011 to hit margin targets, they think this Q will represent an inflection point in this story. We think there is increasing evidence that this business model can drive at least $1.75 in EPS power within 2yrs if not much earlier. Additionally, costs appear to have turned a corner as internal wafering operations get up and running in 1H:11 and WFR starts to finally expand its polysilicon capacity more aggressively in 2011. This should add another degree of freedom on the upside to revs while the internal cost control on the solar wafer side should mitigate any unexpected negative margin surprises as has been the case the last few Qs.

What Happened — FQ3:10 (Sept) rev/EPS $503M/$0.08, light on surface vs. Citi $592M/$0.09 and Street $531M/$0.13. Better Semi/Solar Matls revs were more than offset by much lower revenues at SunEdison due to project timing. Mgmt withdrew its 2010 guide (and thus CQ4) due to accounting timing uncertainty in SunEd but division commentary suggests EPS at least in-line w/Street $0.30.

Positives — 1) Another operationally clean quarter; 2) poly capacity expansion appears well though-out and more measured than peers.

Negatives — 1) SunEd accounting complexity scares investors away/results in lower multiple; 2) semi/solar wafer margin targets still challenging in 2011.

Notablecalls: I suspect WFR will see green today following the Citi call. Here's why:

- It looks like the miss & guidance suspension have nothing to do with actual fundamentals and everything to do with timing.

- SunEd may be a near-term drag but looking further out, it could be one of the main value drivers for WFR. Citi estimates WFR could do $2bln in revs by 2012 and be worth $14-15 per share alone, which by the way is more than WFR sells currently. Citi is also toying with the idea of a SunEd spin-off at some point.

- Core business was ahead of expectations, which is something people haven't seen in a long time at WFR.

- What I like about this situation is the fact most of the analyst community is still Hold/Sell rated on WFR.

Anyway, WFR should see green today. How green? Well my guess is as good as anyone's these days.

Monday, November 01, 2010

Ford (NYSE:F): Dearborn Revolution: $3 of EPS and Investment Grade Now Within Reach - Morgan Stanley

Ford (NYSE:F) is getting some more love from the Morgan Stanley cabal this morning. Ford's target price is raised to $23 (prev. $20) as the firm sees $3 of EPS and investment Grade now within reach.

Ford is making faster progress towards $3 of EPS and an investment grade credit rating than the firm has anticipated. The company’s 3Q results encapsulate why Ford is Morgan Stanley's top pick in US autos and a Morgan Stanley Best Idea: Significant earnings beats driven by N. America and Finco driving a magnitude of free cash flow that can transform the competitiveness and the risk profile of the company. Ford produced nearly a 10% NA EBIT margin (vs. MSCO estimate of 6%) despite 3Q being their weakest seasonal quarter, US sales still near a 40-year low and Ford not having the benefit of a full ramp up of the Fiesta and no revenue from the new Explorer or Focus. From here, they expect the stock to benefit from product momentum yet to come.

Raising EPS forecasts materially. MSCO's 2011 EPS estimate of $3.00 is 50% above consensus. Following the nearly 20% 3Q earnings beat with net debt cut to ½ what the firm had forecasted, they raise their 2011 and 2012 EPS forecasts by $0.40 and $0.45 respectively. While not firm's base case, they cannot rule out mid to high teens NA margins as the SAAR recovers to 14m units next year. MSCO's $3.00 EPS assumes a 9.9% NA margin.

What's Changed
Price Target $20.00 to $23.00
2011 EPS Estimate From $2.60 to $3.00
2012 EPS Estimate From $2.10 to $2.55

Raising price target to $23 from $20 on higher earnings, higher free cash flow and ‘baked-in’ benefits of a return to investment grade. MSCO's revised target factors in the elimination of debt 1 year ahead of their prior forecast, higher medium-term earnings, a less severe decline in market share in 2011, a repatriation of $4bn of ‘stranded’ cash at the Finco and full utilization of R&D tax credits while allowing for the dilutive impact from convertible debt offers.

Ford is a concentrated and highly levered bet on the recovery of US light vehicle sales. MSCO's forecasts give Ford credit for a transformational turn-around yielding performance far exceeding its own historical averages and places the company amongst a select group of global automotive firms. However, their forecasts also factor in a number of headwinds related to increased price competition medium term with mix deterioration and regulatory headwinds longer-term. The balance of forces is still dominated by a powerful volume recovery we expect will drive 50%-type consensus upgrades for 2011. The more than 60% upside to firm's $23 price target is sufficient to justify an OW rating on the stock.

Notablecalls: As many of you remember, it was Morgan Stanley with their Oct 4 initiation call that turned Ford into a recent momo darling. Now their estimates are even higher. As much as I hate to quote Jimmy Bob Cramer, he's probably right about this one:

"...You want to see how inflation isn't that critical right now? Look at a major buyer of paint and aluminum and glass and rubber and see how it is doing: FORD (F - commentary - Trade Now)! That's a true tell, and I think it is going right to $17..."

Ford is headed to $17 in the near-term. Today I want to see it trade over the $14.50 hump which seems to be the 52-week high for the name. If it can clear that hurdle today with some real volume, there won't be much stopping it.