Thursday, March 31, 2011

Tesla Motors (NASDAQ:TSLA): America’s Fourth Automaker? - Morgan Stanley

Morgan Stanley is out with one of the boldest calls I have seen in a while - Adam Jonas is upgrading Tesla Motors (NASDAQ:TSLA) with a $70 price target, representing almost 200% upside.

His Bull Case? $135 share - 460% upside. According to the firm Tesla will eventually become the 4th major U.S. Auto manufacturer behind GM, Ford & Chrysler.

The details:

There are few things in business as risky as starting an auto company – especially one that relies on entirely new technology that is not likely to be competitive vs. the established internal combustion engine for more than a decade. However, conditions are ripe for new entrants and we believe Tesla can be a significant volume player in the auto industry. We believe the market for xEVs (plug-in-hybrids or PHEVs and pure EVs) is underestimated as rising oil prices and government support accelerate the shift away from the internal combustion engine. This shift has made room for entirely new players to join the ranks of currently entrenched OEMs, and has afforded Tesla the opportunity to establish itself as America’s fourth automaker. The biggest risk remains Tesla’s own execution of its plan.

Flipping the chessboard: The confluence of structural industry change, disruptive technology, changing consumer tastes and heightened national security creates an opportunity for significant new entrants in the global auto industry. California dreaming? We don’t think so. In our view, the conditions are ripe for a shake-up of a complacent, century-old industry heavily invested in the status quo of internal combustion. The risks are high. So is the opportunity. Enter Tesla.

xEV market entering higher volume and it’s happening right now: We are convinced electric cars will comprise a significant minority of global light vehicle sales medium-term and the majority longer term. Our global xEV model suggests penetration of 5.5% globally by 2020 and >15% by 2025. Even on our forecasts, the Internal Combustion Engine (ICE) remains by far the dominant form of propulsion for a very long time.

Tesla moves from rich man’s toy to mass market: We believe Tesla’s long-term independence can only be secured through the commercialization of mass market EVs in the $30k price range. Premium offerings like the Model S and its derivatives are important stepping stones to the company’s full volume potential of 500k units by 2025. We see a path to a company with $9.5bn of sales, >$1.2bn of operating profit and >$1.0bn of FCF by 2020, based on Tesla capturing 3.6% of the global xEV market by that time. The risks of lagging EV adoption, launch delays and balance sheet difficulties make Tesla a highly speculative investment.

$70 PT offers almost 200% upside, on revenue est. roughly 3x consensus in the out years. On our forecasts, Tesla’s biggest financial challenge comes in 2013 when gross liquidity falls to $146mm. As is not uncommon with start-ups, the biggest question is if Tesla can remain solvent long enough to capitalize on the forthcoming technological break-throughs.

Notablecalls: Smells like a time opportunity to play a call like this one. It's a 50 pg note, so people will have lots of fun reading it in the coming days.

There's a 24% short interest in the name, 10 million shares. At least 2-3 million of these are going to cover in the n-t.

The call isn't coming from Ehenkrantz & Co, it's coming from Mother Morgan. Jonas, the analyst is an out-of-box thinker that was early calling the sell on Auto names at the start of the financial crisis.

The upside is huge, so momentum traders will pile on TSLA like mad in the n-t. Imagine the press this call is going to get.

I have no idea how high this one could go in the n-t? up 25%? To $30? Quite possible!

Wednesday, March 30, 2011


Sterne Agee's Shaw Wu is trying to make a name for himself in a somewhat curious way - he is initiating host of large cap Tech names this morning, among them Cisco Systems (NASDAQ:CSCO) with a Street high target of $29.

I was somewhat stunned to see such optimism, so here's the thesis:

We are upbeat on networking growth and believe CSCO is well-positioned to benefit with the industry’s broadest networking portfolio. According to market research firms and CSCO’s Visual Networking Index (VNI), global IP traffic is expected to quadruple from 2009 to 2014 with an annual compound growth rate (CAGR) of 34%. The biggest driver is video which is expected to make up 1/3 of the traffic. In addition, the growing number of internet users and devices that access the internet, including smart phones, tablets, set-top boxes, and game consoles, is also increasing.

However, one of the big controversies with CSCO these days is that investors have pretty much given up and think the company will have a difficult time turning itself around. While we agree there are issues, we believe they are short-term in nature and fixable. And we would argue that this isn’t the first time CSCO has mis-executed on a product cycle only to turn itself in 12-18 months time. Looking at the stock over the past five years, it hit a bottom in August 2006 and March 2009 at the $14-$17 level, only to see very attractive returns afterwards. We believe we are near that inflection point. Like in the past, we believe CSCO will fix its problems and capitalize on a strong product cycle driven by the mobile internet, cloud computing, and Nexus data center switches.

Regardless, we believe sentiment has gotten too negative with CSCO shares discounting a lot of bad news trading at 9x CY12 EPS (7x excluding net cash). Moreover, we would like to note that about 29% of CSCO’s market capitalization is net cash. We find the riskreward favorable and believe patient investors with a longer-term horizon of 12-18 months will be rewarded.

Notablecalls: It's not every day you get to see a 70% upside call in Cisco (CSCO), so I guess it warrants some attention.

Also, take a look at the chart. After several quarters of disappointing results the stock seems to be forming a bottom of some sort. I wouldn't be surprised to see a bounce in the name in the n-t.

I'm looking for $17.75-18.00 levels.

Monday, March 28, 2011

Nokia (NYSE:NOK): Back to basics strategy creates a turnaround opportunity; up to Buy - Goldman

Goldman Sachs analyst Tim Boddy, the long-term Nokia (NYSE:NOK) bear is upgrading the name this morning to a Buy from Neutral with a $12.40 price target, representing 47% upside.

Nokia’s stock price is down 80% from 2007 highs as it failed to execute on its strategy of becoming an integrated competitor to Apple and Google. Given the strong network effects enjoyed by rival ecosystems, Goldman now believes the decision to focus on smartphone hardware design, assembly and distribution is appropriate and returns Nokia to its core competencies. Despite likely near-term volatility as it goes through a difficult 12-18-month transition period, they believe that cost reduction can be larger than investors anticipate, while the collapse in handset market share and margins implied by the valuation is excessive.

Nokia has large cost cutting potential, a pre-requisite for success
A study of successful Tech hardware ‘turnarounds’ by new CEOs in the last decade (e.g., Xerox in 2002-05, Ericsson in 2003-06, HP in 2005-08, Gemalto in 2006-09) suggests that dramatic cost reduction is a pre-requisite for a transformation of a company’s earnings power. A healthy or improving macro/demand environment is also important, but the key long-term issue is whether or not secular pressures absorb efficiency gains (e.g., Motorola and Nortel in 2003-04, Alcatel-Lucent and Nortel in 2007-08, or Ericsson in 2007).

In this context Goldman's benchmarking analysis vs. handset peers suggests that Nokia spends almost $3 bn more than leading competitors on R&D, which they believe creates a substantial cost-cutting opportunity. With Nokia now relying on Microsoft for software development and most ‘cloud’ services, even taking into account Nokia’s geographic reach and breadth of products they see scope for at least €1 bn in cost reduction over the next 12-18 months. Importantly, Nokia’s robust balance sheet means it can absorb nearterm losses in the process.

See a floor for L/T smartphone share, high single digit margins
With Microsoft an unproven partner, Goldman assumes that Nokia continues to lose smartphone market share at a dramatic pace, with smartphone volume/value share approximately halving from 37%/22% in 2010 to 17%/13% in 2013. Although execution risk is high, and Microsoft’s track record in mobile weak, the firm sees several reasons why investors should believe that Nokia’s smartphone share can eventually bottom (likely in mid-2012):

- Microsoft’s $22 bn annual free cash flow and $37 bn cash pile means it can afford to invest aggressively in a market critical to its future. As a result, Microsoft will likely be one of the leading providers of ‘cloud’ services to consumers (email, search, apps, games, storage, etc) longer-term, and the firm assumes it achieves c.20% share of the overall smartphone market.

- Nokia’s brand is stronger than Microsoft’s in emerging markets (60% of Nokia’s sales), mitigating the risks created by Microsoft’s mixed developed-market brand perception.

- Goldman believes that Nokia’s expertise in low-cost handset development and its scale will allow Microsoft to move Windows 7/8 rapidly to lower price tiers.

- Microsoft can help Nokia gain share in the Enterprise, historically a weak spot.

Despite the likely commoditised nature of the end market, they forecast high single digit long-term smartphone margins for Nokia, reflecting aggressive cost reduction, its success in extracting a share of services/software value from Microsoft in the form of c.$500 mn estimated annual marketing subsidies and its robust intellectual property rights position.

Basic mobile phones share to recover, double digit margins
Attention naturally focuses on smartphones, but in 2010 48% of Device revenues and around two thirds of profits were generated by Nokia’s ‘basic’ Mobile Phones division. Although this business will likely be progressively cannibalized by smartphones, recent ASP stabilization has gone largely un-noticed as Nokia enjoys a product cycle with lowend touch/Qwerty products. Goldman also sees scope for Nokia to materially recover lost market share as it enters the multi-SIM market (as much as 40% of end-demand in India). They see little change in the economics of this business for Nokia, and expect its scale dominance and increased investments in low-cost Internet services to sustain 10%+ EBIT margins.

Nokia’s CEO is highly incentivized to deliver change
If Nokia’s stock price is between €9 and €17 by end-2012, they estimate that the CEO will earn between €8 mn and €39 mn above his ‘baseline’ cumulative compensation of c.€10 mn for the 2010-12 period. They believe that increasing Nokia’s time to market is critical given a track-record of missing key market innovations. Potentially, this could require a more wholesale change of senior management than the February ‘reshuffle’ delivered

Valuation discounts a collapse in share, ‘automotive’ future
Goldman thinks the risk that cost savings are absorbed by falling revenues and gross margins has been discounted by the market. Assuming 0.4x EV/sales for NSN, and 3x EV/sales from NavteQ, they estimate that Nokia shares are currently pricing in a near halving of handset value market share to 10%, and only 3% EBIT margins. As a result Nokia is now nearing the trough valuation levels experienced historically by PC makers/Tech hardware peers, or by structurally challenged industries like Automobiles. Given their belief that Nokia can stabilize its long-term handset value share in the mid/high teens, and achieve high single digit overall handset EBIT margins, they apply a 0.7x EV/sales multiple for Devices to reach their new 12-month price target of €8.8 (ADR $12.40).

Worst case, Goldman sees downside to €4.5/share if Nokia or Microsoft fail to execute and the stock falls to a PC-industry historical trough of 0.3x sales. Best-case upside is €13/share if Nokia can retain 20% value share and earn 10%+ EBIT margins.

Notablecalls: With the stock down 80% from 2007 highs, the sharks are starting to circulate. I think it close to impossible to know how the whole mobile space will evolve in the coming years but as a rule of thumb you start buying former market leaders when they are down 80-90% from highs. You make the leap of faith.

Goldman has been a long-term bear & with them turning positive on Nokia, I think people will take notice. Also, Goldman is gaming the n-t expectations telling clients to expect below-consensus #'s. That takes some juice out of the n-t bear case.

All in all, I think NOK can be bought here for a trade (& possibly looked as an investment).

I'm expecting an outsized move in NOK today, possibly in the $8.75 range. This may feel as a stretch at first glance but when you think about it, it does make some sense.

Friday, March 25, 2011

Research in Motion (NASDAQ:RIMM): Colour on quarter

Research in Motion (NASDAQ:RIMM) reported FQ4 results last night, missing estimates (ex-tax) & guiding lower for FQ1. The company did guide F2010 EPS to above consensus.

- We have 3 downgrades out this morning: from Deutsche, Merrill & Baird. Other firms, including CSFB, RBC, Jefferies & JPM remain Buy rated and are defending the name telling clients to buy weakness. So the Street appears to be pretty much divided on the name.

Yet, I think one should look no further than to read what Deutsche Bank is saying about the name. They are downgrading RIMM to Sell from Hold with a $50 target (from $60).

Here are the comments:

Time is not on RIM’s side. We think this quarter was just a taste of what lies in store for the company. The company is feeling the growth of Android shipments which are replacing Blackberries in all of the company’s markets. In the core enterprise base, a growing number of corporates are opening their e-mail systems to iOS and Android. Emerging markets, which have driven RIM’s growth over the last two years, appear to be slowing as well. We think this trend will only get worse as Android smartphones get dramatically cheaper. We believe fully powered Android phones will be available for $100 by early 2012, and this will threaten RIM’s growth in all markets. Given the choice between a fully-featured Android smartphone and a comparably priced Blackberry e-mail only device, most consumers will go with the smartphone. The company has held up their Blackberry Messenger (BBM) platform as a factor that locks in consumers. We think any such loyalty will prove fleeting as alternative messaging streams open up.

We have remained neutral on the stock on expectation that their new QNX operating system could provide a meaningful improvement in the company’s prospects. We no longer believe this is true. While RIM has grasped some of the important conceptual elements of a modern OS, it now appears that these lessons have not taken root. Instead of offering a single coherent OS strategy, they are fragmenting their own platform by offering multiple elements. In conjunction with their earnings release today, the provided an update on their OS strategy. This includes a Java VM for existing Blackberry apps, a separate Davlik JVM for running Android apps, the Adobe AIR platform, their webworks web-tools OS, and now an NDK. By our count, that is five separate platforms, and we believe this will confuse developers to the point of distraction. This is exactly the “appeal to everyone” strategy that first Motorola and then Nokia pursued which resulted in very low levels of developer interest.

Moreover, the company mentioned that there will be no QNX handsets available until calendar 2012, until then the new OS will only be available on tablets. We think this will limit the size of the customer base and the appeal for developers. While the company has decided to designate these new handsets not as smartphones but as superphones, the reality is that the new devices will at best merely match the capabilities of competing devices. As a result, we think RIM will lose share this year and next.

We also found many questions in their guidance. For 1Q12, they clearly guided below expectations. We find further fault with their full-year guidance. They have indicated that gross margins will likely decline and operating expenses go up with the launch of the Playbook. The company would not break out Playbook gross margins, only saying they would be below 40%. We believe Apple’s gross margins for the iPad are well below that level and Apple’s much larger volumes and internal silicon likely means they have a material cost advantage over RIM. In reaching their FY12 $7.50 EPS guidance, they seem to be assuming a much larger revenue growth rate than we think is achievable with their core Blackberry shipments. We are much more cautious on the potential for the Playbook.

Finally, we believe the company faces a major structural impediment to finding a coherent strategy. The company still has co-CEOs. In all our years covering stocks, we cannot think of a situation where this ended well (with the exception of Motorola where they split the company). We believe there is growing division within RIM and this evident in the fragmentation of their OS platforms. One camp appears to want all the benefits of a proprietary OS while the other wants to go down a more commercial, lower-opex path using Java, Android, AIR and other people’s R&D. Our checks indicate that the company now has multiple parallel working groups aligning along different camps, reduplicating work. This is not only expensive, but looks set to stymie their ability to steer a clear strategic path. In short, we think their market dynamics are working against them and we do not have the confidence that they can solve this problem.

Consequently we downgrade our rating from Hold to Sell

Notablecalls: Brian Modoff & Jonathan Goldberg, CFA say it all. Nothing more to add. I think anyone long RIMM should read this.

Not making a call here, though. It's down 12% pre market & may as well bounce here in the s-t.

Monday, March 21, 2011

EMC Corp. (NYSE:EMC): Adding to the Americas Conviction List - Goldman Sachs

Goldman Sachs is adding EMC Corp. (NYSE:EMC) to Conviction Buy list with a $33 price target, representing 29% upside. They believe 2011 will be a year of “beat-and-raise” quarters for EMC, and have raised their estimates as a result.

Goldman notes their bullish thesis on EMC’s shares remains intact, though they have higher conviction in the absolute upside potential for the shares. Firm believes networked storage will continue to enjoy secular tailwinds throughout 2011, and they believe EMC is well positioned to capture the lion’s share of this market’s growth. In addition, they believe EMC’s leading portfolio of cloud and next-generation enterprise technology assets will allow it to generate sustainable double-digit growth and build an increasingly software-centric earnings profile.

Their latest IT spending survey, published on March 4, 2011, supported firm's view that EMC maintains a strong leadership position in networked storage, particularly in virtualized environments, where 40% of CIOs named it their preferred storage vendor (Exhibit 1). They expect the value of this advantage to grow as virtualized environments become more common across enterprises, and they continue to believe this will be the most important source of networked storage growth over the next several years.

Furthermore, the firm thinks 2011 will be a year of “beat-and-raise” quarters. In particular, they believe EMC’s recent product refresh will allow it to accelerate its share gains in the midrange and enhance its secular momentum amid an increasingly rapid and global transition to next-generation datacenters.

They are raising their estimates. For 2011, the firm is forecasting revenues and non-GAAP EPS of $19.71 billion and $1.54 (vs. consensus of $19.64 billion and $1.48), up from $19.61 billion and $1.50. They now expect revenues and non-GAAP EPS of $21.95 billion and $1.74 for 2012 and $24.34 billion and $1.98 for 2013. This is up from their prior forecasts of $21.51 billion and $1.70 and $23.58 billion and $1.91, respectively.

Notablecalls: The key part of this call is the 'year of “beat-and-raise”'. This is what people need to hear when it comes to EMC. It's not a cheap stock, rarely has been & needs raising estimates to work.

With Goldman out giving their blessing, you will see buyers flock in. Ultimately this thing is a $35 stock.

Friday, March 18, 2011

Apple (NASDAQ:AAPL): Apple to reduce iPad target? - RBS

Royal Bank of Scotland is out with some interesting comments on Apple (NASDAQ:AAPL) saying their supply suggest that Apple might reduce its 2011 iPad forecast to suppliers to c.35m units from 40m-45m units. Although a cut in Apple's forecast would be negative for sentiment toward the supply chain, RBS does not see a material impact on earnings.

Developments: Supply chain checks suggest that Apple will lower iPad outlook

- Our channel checks suggest that Apple (AAPL US, NR) may reduce the indication it gives to suppliers for 2011 iPad shipments to c.35m units from 40-45m units. The new forecast may be given to key suppliers as early as next week.

- We have heard three possible explanations for the reduced guidance: 1) difficulties in the manufacturing process as thinner glass in the touch module is more easily cracked, 2) component shortages which may have been caused by the Japan earthquake; and 3) delay to the iPad 3 which is currently scheduled for launch in 4Q11. Apple’s website is showing that shipping time for all models is 4-5 weeks, which indicates that demand should not be the cause of the lower target.

- There was also a shortage of the iPad 1 soon after launch due to yield issues on both the company’s A4 processor and touch panel modules. These issues were solved within 3-4 months.

Sensitivities: Impact on supply chain earnings minimal
- We currently forecast Apple to ship 35m iPads in 2011. However, the company usually gives optimistic forecast to its suppliers to ensure sufficient components. As a result, we see potential risks to our current forecasts.

Notablecalls: Not making a call here given the hectic tape, but I do think this iPad2 tid-bit is not widely known yet.


Digitimes: Component supply of iPad 2 still about 2-3 weeks; Foxconn to activate backup measures

Thursday, March 17, 2011

Happy St. Patrick’s Day

“Those who drink to forget, please pay in advance.”
- Sign at the Hibernian Bar, Cork City. Ireland

Wednesday, March 16, 2011

Apple (NASDAQ:AAPL): Downgrading on ODM Sales Weakness and Other Elevated Near-Term Risk - JMP Securities

JMP Securities is downgrading Apple (NASDAQ:AAPL) to Market Perform from Market Outperform while reducing estimates.

According to the firm the downgrade comes to reflect risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging even prior to the amplified uncertainty created by developments in Japan. Hon Hai sales growth decelerated from 84% y/y in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the >70% y/y sales growth consensus is looking for in the March quarter and >50% in June. Consequently JMP ise trimming their F2Q11 revenues estimates from $23B to $22B (Street $23.1B; guidance $22B) and GAAP EPS from $5.49 to $5.10 (Street $5.27, guidance $4.90) and CY12 GAAP EPS estimate from $27.50 to $27.00 (Street $27.63). Analyst notes they don't know the source of the Hon Hai deceleration, but possible causes could include simply in-line iPhone sales due to more significant Android competition, weakness in computing products as tablet demand grows, and/or product transition risk around the iPad 2. While they see Apple's five-year track record of upside surprises (averaging 23%) and YTD outperformance (AAPL +7.1% vs S&P 500 +1.9%) as exposing the stock to near-term downside risk towards its $300 200d MA, longer term they see current valuation levels at ~13x JMP CY12 GAAP EPS of $27.00 as appropriate relative to firm's low-teens coverage mean.

- JMP's more cautious stance is heavily predicated Hon Hai sales deceleration rather than any longer-term fundamental concerns with Apple technology or technology roadmaps. Apple and Hon Hai sales growth was tightly coupled throughout 2010, and given Apple's scale we view it as unlikely that a correlation isn't still in effect as Hon Hai slows.

- Investor reaction to large cap tech misses have been vicious recently, and they sense a large degree of complacently has been built up over the course of five years worth of upside surprises that have averaged 23%. Recent Street commentary appears biased towards the momentum continuing, with most numbers moving higher around the CDMA iPhone and iPad 2 launches where clear demand trends have yet emerge.

- The firm notes their downgrade is also factoring in iPhone and Japan developments that they view as compounding near-term risk. At the iPad 2 launch, Apple updated WW iPhone sales to over 100M units, implying only in line QTD performance relative to JMP's 15.2M target (Street 14.66). Apple derives 6% of sales from Japan, as well as key components such as HDDs and NAND flash.

Notablecalls: Lots of shock value here guys. Everyone knows iPad 2 is sold out everywhere, so it has to be the iPhone that is getting hit. If you think about it, it does make some sense given the recent popularity of Android.

Hon Hai reports monthly revenue #'s, here's the March 15 one that JMP seems to be refering to. In the release they are touting 'strong shipments of Apple Inc.`s iPad'. So it's definitely new info.

Another possible explanation for the slowdown is tied to Chinese New Year, a 15 day holiday during which many workers are allowed to visit their families.

Given the fact iPhone is a far larger revenue generator than iPad, the downgrade warrants attention. As JMP notes, the market is not in a forgiving mood when it comes to missing estimates. They are highlighting $300 level as possible support for the stock which serves to create some anxiety among holders.

Should trade down today once the details of the downgrade start circulating.

Tuesday, March 15, 2011

Netflix (NASDAQ:NFLX): Enough demand for multiple players; raising estimates - upgrade to Buy - Goldman Sachs

Goldman Sachs is upgrading Netflix (NASDAQ:NFLX) to Buy from Neutral this morning with a $300 price target (prev. $210), implying 50% upside.

With shares down almost 20% in the last month and trading at a 1.0X 2012E PEG, the firm believes that NFLX shares overreacted to more visible signs of competition, while at the same time, sub momentum has been better than expected, Canada is near 10% penetration in 6 months, and Goldman's proprietary survey shows explosive growth for online video. As a result, they raise their 2015E paid sub estimate from 50 mn to 60 mn and their EBITDA margin from 16% to 20%. Our 2011- 2013 EPS estimates are now $4.56/$6.72/$8.72, up from $4.52/$6.21/$7.58.

Goldman upgrades Netflix to Buy as:

1) NFLX benefits from rapid growth of online video consumption, driven by the proliferation of connected devices - 27% of US consumers now stream TV shows/movies, up from 16% yoy according to GS Internet Usage Survey;

US consumers reported that the video sites they use most for watching video content online are Netflix (34% penetration), followed by YouTube (18%), iTunes (16%), and Amazon (13%).

2) Netflix now has sufficient scale to make it difficult for new entrants given low price points and expensive content costs; and

3) Competition to date has been underwhelming and Goldman believes that demand for streaming online content could be large enough for multiple players.

Goldman believes that Netflix could announce partnerships with broadband ISPs outside of North America, bundling the Netflix service with broadband access. These partnerships could speed the time to market entry, pull forward break-even points (as Netflix has to pay for content upfront in new geographies to attract subscribers), and share in the marketing costs with Netflix, potentially lifting margins in new markets.

Facebook – A potential “frenemy”
While consumers do not currently watch TV shows or movies on the Facebook platform, we could see Facebook evolving into an ecosystem where users could eventually download or consume different types of media, as they do with YouTube on Facebook.

Goldman notes, however, that Netflix could be among the players to also leverage the Facebook platform. In January 2011, Netflix pulled back from Facebook Connect as very few people had signed on for this service. According to Netflix’s blog1, the company will be “testing new concepts” on Facebook, including “getting our members connected to Facebook and in the coming months [the company will] add new ways for members to find interesting TV shows and movies to watch based on friends' recommendations.”

Catalysts include:

(1) International broadband ISP partnerships, allowing for sooner break-even points; (2) New market and product announcements; (3) Additional streaming content deals, including the possible renewal of the Starz Encore agreement; and (4) Earnings – Goldman expects 1Q sub growth and 2Q guidance to be strong

Notablecalls: Not making a call here on NFLX. Goldman's $300 price target is highest among Tier-1 firms. And they are talking about potential Facebook tie-up. So you know it's out there.

The market is a mess right now.

Friday, March 11, 2011

Notable Calls Network (NCN): Green Mountain Coffee (NASDAQ:GMCR)

I haven't mentioned Notable Calls Network (NCN) in a while. How are we doing? We're doing great, with now over 160 members strong and growing.

The markets lately have been no picnic for even the most seasoned traders but we're hanging in there.

Just to show you a quick example of the intraday trading flow, we had great trade in Green Mountain Coffee (NASDAQ:GMCR) on Thursday.

As most of you know GMCR finally signed a K-cup deal with Starbucks (SBUX) causing the high-octane stock to take a giant leap higher.

While most of the analyst community had fairly moderate comments on the possible impact of the deal on Green Mountain Coffee's (GMCR) fundamentals, Brian Holland & Mitchell Pinheiro from Janney Capital Markets wanted to differentiate themselves from the herd:

- Around 11:42 AM ET a member pinged me with the following:

'Janney raising GMCR px target to $90 from $62, SBUX deal enormous positive for GMCR on several levels'

Knowing what kind of impact this call would have on the stock, I immediately distributed the call to all Notable Calls Network (NCN) members.

As you can see from the chart above a 5 pt rally followed. GMCR had a 25% short interest coming into the SBUX news and I knew people were trying hard to gun it down. This call would make it impossible. You could literally feel the situation slipping out of their hands.

GMCR was the type of call that could yield profits in the $100's of thousands if played right.

This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

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.

Netflix (NASDAQ:NFLX): Deal with Facebook in works - Pacific Crest

The good people at Pacific Crest are out very positive on Netflix (NASDAQ:NFLX) this morning. The firm is calling recent sell-off overdone as their research has uncovered something very interesting:

PACS' Andy Hargreaves says Netflix is working with Facebook & may be in the first stages of launching a joint service.

Excerpts from the call:

Facebook integration could boost global subscriber growth. We believe Netflix is working with Facebook to tightly integrate Netflix into Facebook’s platform. This could help increase time spent in Facebook and drive incremental Netflix subscribers domestically and in new international markets.


We believe that, on top of its existing momentum, the company is working with Facebook to launch deeper integration of Netflix into the Facebook platform. The first stages of these efforts are likely to launch within the next few months, and we believe they could drive incremental subscriber growth domestically while helping to accelerate Netflix’s international expansion.


Deeper Facebook Integration Could Boost Global SubscriberGrowth
Warner’s launch of $3 a-la-carte rentals of The Dark Knight on Facebook prompted increased concern about Facebook’s potential to compete with Netflix. We do not believe this is warranted. First, we believe The Dark Knight rentals were initiated by Warner, with little to no involvement by Facebook. Second, we believe Facebook is much more likely to be a beneficial partner than a competitive threat to Netflix. In the most recent quarterly letter, Netflix management mentioned efforts to increase integration with Facebook. We believe this includes direct work with Facebook to deeply integrate the key aspects of Netflix’s service into the Facebook platform. We believe this could drive incremental domestic Netflix subscribers and would likely allow Netflix to accelerate international expansion, while increasing time spent on the Facebook platform.

Risk/Reward Appears Positive; We Recommend Buying NFLX at Current Levels
Recent competitive entrants have not altered our subscriber growth outlook for Netflix. Consequently, we recommend buying NFLX and reiterate our $270 price target, which is based on our DCF model.

Notablecalls: It's pretty clear the analysts at Pacific Crest know more than they are willing to share publicly.

NFLX is down 16% since the announcement of the Amazon Prime video service on Feb. 22 and Warner’s launch of $3 a-la-carte rentals of The Dark Knight on Facebook.

This PACS call should help to alleviate these concerns & add fresh optimism to the mix. Can I hear international expansion?

Another squeeze coming? Possibly! GMCR surely showed it's possible.

Imagine what the stock would do if we got FB deal news intraday - 15-20pt upside in an INSTANT!

Tuesday, March 08, 2011

Turbulence, Yes…Crash Landing, No – Upgrading EXPE To Buy - Citigroup

Citigroup's Internet Retail team is upgrading Expedia (NASDAQ:EXPE) to Buy from Hold with a $29 price target (prev. unch), representing 38% upside.

Since late-October, Expedia’s shares have materially underperformed the market, declining 28% vs. a same-period increase in the S&P 500 of 12%. EXPE has been the worst performing stock in Citi's Internet coverage space. The firm believes at least five factors have been behind this underperformance: 1. Uncertainty due to the dispute with American Airlines, which has stopped providing its inventory to Expedia; 2. Risk to TripAdvisor’s growth due to the select displacement of TripAdvisor in Google Organic Search rankings by Google Places results; 3. Concerns over the growth outlook of EXPE’s Hotel Merchant Model in North America, given the potential rise of competing Agency models; 4. The pending Google-ITA merger and concerns that this could increase the competitive complexity facing all Online Travel Agencies; and 5. EXPE’s issuance of below-Street-expectations single-digit OIBA growth for 2011, due to heavier than expected investment plans.

According to Citi, trading at 11X 2011 P/E with a 12% FCF yield, EXPE presents as the Best Value Play among Internet stocks. 4 Key Upgrade Factors:

1. Despite Steep Competition, EXPE's U.S. Share Has Actually Increased — Vs. Priceline and Orbitz, EXPE’s Domestic Bookings share increased from 54% in 2009 to 55% in 2010. EXPE’s International position isn’t as strong, but still accounts for 36% of its total bookings and is growing a very healthy 25% Y/Y.

2. EXPE's TripAdvisor Faces Disintermediation Risk, But Remains A Very Solid Growth Asset — TripAdvisor (13% of revenue, 20% of profits) has experienced a deceleration in its traffic growth due in part to the impact of Google Places. But the firm believes TripAdvisor can continue to deliver solid double-digit revenue growth given that a majority of its U.S. traffic is non-Google based, and TripAdvisor & Expedia still rank among the top Organic Search results in almost 90% of Citi's study results.

Citi's proprietary review of TripAdvisor and Expedia’s rankings in Google’s Organic Search results for a series of U.S. hotel destinations actually shows a very strong presence. The details are in the exhibit below, but out of the 30 Searches they conducted, TripAdvisor showed up in the top 3 Organic Search results 50% of the time. Meanwhile, Expedia showed up in the top 3 Organic Search results 70% of the time. Which means that Expedia or one of its properties showed up in the top 3 Organic Search results a very high 87% of the time. This is a very strong presence.

3. Channel Checks Show No Change In EXPE's Merchant Model Appeal — A recent concern has been that EXPE’s attractive cash flow Merchant Hotel model might be under pressure from competing Agency models. Citi's extensive checks with Hotel suppliers and other OTAs has uncovered no evidence of this. They believe EXPE’s blended Merchant & Agency global approach remains well intact.

4. Industry & Financial Catalysts Are Identifiable — Citi believes a negotiated outcome with American Airlines is likely in ’11 and notes this is not factored into ‘11 estimates. B. EXPE has a consistent track record of share repo’s, and current valuation could trigger a larger than normal financial catalyst.

Throughout 2010, EXPE bought back 20.6MM shares for an aggregate purchase price of $489MM (as at average price of $23.71 per share). Further, EXPE currently has about 19.4MM of repurchase activity/authorization still available, which amounts to about 7% of shares out.

Notablecalls: With EXPE you have the following situation:

- Beaten down stock, down 40% in a fairly short time. One of the sector leaders.

- Several problems, many of them appear fixable at to least some extent. Citi believes the American Airlines dispute will have a negotiated outcome in 2011. Based on their work and on the work of Citi Airlines Analyst Will Randow, they believe the dispute has been detrimental to both companies.

- Citi highlights the co still has buyback authorization for 7% outstanding. That should support the stock.

Citi was smart enough (or lucky enough) to downgrade it back in October, near the highs, so the call will get attention.

The tricky part here is how to trade it. It's going to open @ 22 bucks, which is +5%. Not sure you want to buy it there. Wait for a pullback & then possibly ride it to 22.50+. (provided the mkt holds up).

Friday, March 04, 2011

GS cut at Merrill, COF upped at Morgan Stanley

We have two tier-1 firms out with pretty significant calls in the fins:

- Merrill Lynch/BAC is downgrading Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) to Neutral from Buy.

Common denominator: expected weakness in Q1:11 results. Results unlikely to be dismal, and should show improvement over Q4, but they don’t expect seasonal improvement as strong as often seen in the past. Client engagement remains subdued, Mid-East turmoil likely only to further reduce customer risk appetite. Thus Merrill is making significant cuts to theri forecasts, and expect consensus to decline over the coming weeks.

Increasingly, the firm believes investors will look to the theme of improving cash flow/ return of capital via dividends/ buybacks, and also to play financials that are less– or even positively – affected by restrictions on banks such as Volcker Rules. In Merrills coverage, this includes names such as BX and KKR, as well as LAZ. This, together with low valuation relative to current earnings, drives keeping JPM “Buy”.

GS: Cut 1QE to $3.91 from $5.39, implies 13% ROE. YoY comps challenging, but they see trading improvement vs. weak 4Q. IB weaker vs. robust

Though conditions could improve at any time, it has historically been true most years that Q1 sets the bar for the year’s ROE, and if Q1 is disappointing, it may keep the stock treading water until ROE potential clearly improves. Also, in the wake of some global peers recently reducing ROE targets, it seems possible that GS might reduce its traditional 20% ROTE goal given the increase in regulatory capital mandates.

GS tgt is lowered to $174 from $182.

- Morgan Stanley is out very positive on Large Cap Banks: Expect Significant Declines in Card NCOs; Upgrading COF.

Investment conclusion: They expect very significant declines in credit card charge-off rates, normalizing at a median 4.5% in 2012 vs. MSCO's previous estimate of 5.9%. Early stage roll rates down more sharply than expected, coupled with faster than expected jobless claims declines drive their lower loss estimates. The firm is taking up their estimates for AXP, BAC, C, COF, DFS, and JPM as a result, and upgrading COF to Overweight. They expect COF to be a primary beneficiary of lower charge-offs and loan growth, and view the current valuation (trading at 9x our 2012 EPSe) as an attractive entry point.

Upgrading COF to Overweight: Morgan Stanley is upgrading COF to Overweight with a $60 price target (22% upside vs current levels). They expect COF to be a big winner as charge-offs decline substantially vs current levels and loan growth picks up in 2011-2012. Firm's price target triangulates to 11x their 2012e EPS, vs COF’s historical median of 13x.

Notablecalls: Merrill's GS downgrade is surely the more out-of-consensus one of the two and hence gets my vote. More of a sentiment trade, if you will.

On the other hand, COF almost always moves on rating changes. With the rating coming from Morgan Stanley one would expect a 2-3% move putting $50-50.50 range in play.

Neither of the calls feels very urgent so no need to overpay in the pre market.

Thursday, March 03, 2011

Italy removes solar power incentive cap - Reuters

Italy removes solar power incentive cap

Solar power 8,000 MW incentive cap removed - source

* New rules to be introduced in June on sector

* Solar operators had been unhappy about cap

(Adds detail, background)

ROME, March 3 (Reuters) - Italy's government has removed a cap on incentives for solar power production, a ministerial source said on Thursday, following growing dissatisfaction from operators in the sector.

The source said the final version of the government decree on renewable energy approved on Thursday no longer included the suspension of incentives after 8,000 megawatts of solar capacity had been installed.

Investors and industry players had feared such a cap could have slowed down the growth of Italy's photovoltaic sector.

But the source said there will be new legislation in June to review the rules governing the sector.

On Wednesday, Industry Minister Paolo Romani said solar power production incentives would cost Italians 35 billion euros ($49 billion) over 10 years.

Italy's solar market has boomed since 2007 when production incentives, among the most generous in Europe, were launched.

Notablecalls: The removal of the 8GW cap in Italy will be considered as a major surprise for the Solar space. Italy is among the largest markets and people were expecting some pretty harsh austerity measures there.

Many of the Chinese Solar players like JKS (most exposure to Italy), LDK, YGE, JASO etc will be up 5-7% today. Let's not forget FSLR here as well.