Thursday, October 27, 2011

Acme Packet (NASDAQ:APKT): Positive checks on Tier-1 VoIP Platforms opportunity - Deutsche

Deutsche Bank's Wireless Eq. team is making an interesting call in Acme Packet (NASDAQ:APKT) saying their latest round of industry checks have meaningfully improved their conviction on the Tier-1 VoIP Platform deal consummation for Acme in Q4.

Further, their checks suggest potential for meaningful upside to Acme's runrate SBC business in Q4, especially from large enterprise SBC deal closures. The SBC pricing and competitive environment remains benign in firm's view, with no meaningful near-term share gains from Acme's competitors (Alcatel Lucent, Genband, Sonus, Cisco etc).

- Firm is adding APKT to their s-t Solar Buy List.

The details:

See upside to Q4 and FY12+ view
Lack of clarity from management regarding the pending Tier-1 VoIP platform award (management guiding to sometime in 1H Q4 for closure of the deal, versus confirming the deal closure, during last week's earnings call) has been a major overhang on the stock, with bears pointing to potential for growth moderation across multiple segments of Acme's business, in addition to potential for the VoIP deal to slip into FY12. We disagree with the bear-case thesis (playing out in the stock somewhat, at current levels) and instead articulate a bullish view on Acme's Q4 and on their FY12+ growth opportunities, based on our latest checks and our view of Acme's market leadership position in the SBC market. Even a slight upside to the $93 m Q4 consensus expectation is likely to be cheered by investors, given that it represents the company's ability to successfully carry $100 m quarters in FY12+ (from an operational and sales execution point of view).

Reiterate our Buy rating
We fundamentally believe that major initiatives such as: 1) carrier VoIP platforms; 2) enterprise SIP trunking; 3) IP session recording; 4) telco and cableco VoIP peering etc., are the next phase of growth opportunities for Acme. We see favorable risk/reward at current levels (stock implying a +20% FY12 growth rate versus our +28% estimate). We reiterate our Buy rating.

Notablecalls: APKT was the (the!) momentum name of 2010 and 2011 as it went from sub $10 to $85.

Now it has given back 2/3 of that in just 4-5 months as the market crumbled and shorts smelled blood in form of AT&T's VoIP platform delays.

The management did a terrible job explaining (or rather not explaining) the delays around last qtr, causing another 20% haircut in the stock price.

Yet now we have Brian Modoff from DBAB saying his intel points to AT&T contract coming through. Also, the SBC business appears to be running strong.

This is a gutsy call. He must know something.

The stock should move up. This could cause a 7-10% move in the n-t.

Friday, October 21, 2011

Actionable Call Alert: Green Mountain Coffee (NASDAQ:GMCR)

SunTrust analyst William Chappell is literally pounding the table on Green Mountain Coffee (NASDAQ:GMCR) saying short seller David Einhorn is utterly wrong with his short thesis on the stock.

- Firm strongly reiterates Buy and adds to Top Pick status with $120 price target.

Chappell notes that Einhorn used their research reports (without their permission) as the basis for his negative conference presentation against GMCR. The report was made publicly available on Wednesday and the firm has since had a chance to “dissect his dissection” of their positive investment thesis.

- While there were no surprises in the presentation, the analyst does want to address several errors and omissions in that report to clarify his case. First, they remain comfortable in their $9 EPS analysis vs. his $3.50 estimate. The major errors to his math come on the “profit to split” analysis in which he appears to double-count the packaging costs, and his assumption for 20% private label share in k-cups, a penetration level which we will explain below to be STATISTICALLY impossible. Suntrust also notes that neither their $9 estimate, nor his $3.50 estimate, include potential profits from the highly profitable away from home segment.

Here are couple of examples of Chappell's counter:

Questioning the Starbucks Economics (slides 32 to 37)—As GMCR has previously said, it will make the same penny profit per k-cup on its brands as it will on partnered brands such as SBUX and Dunkin’ Brands. According to the investor, SBUX has said that it will make 2/3 of the profit and GMCR will make 1/3 of the total profit on each cup which, for the sake of argument, we will assume is correct. The problem lies in the investor’s math. Based on slide 35 he indicated that the total potential profit to share (i.e. split 2/3 to 1/3) is $0.22/k-cup. However, his analysis includes the assumption that BOTH companies will be paying $0.15/k‐cup for packaging when, in fact, SBUX is paying GMCR for the packaging services. If we eliminate this double‐count and assume that the cost of packaging is closer to $0.04-$0.05 per k-cup (based on prior statements by GMCR), the total profit to split is closer to $0.33/cup. If we then say that GMCR only takes a 1/3 of that profit per cup it would equate to $0.11, which is in line with our prior math.

Before leaving this item, we point out that, in our opinion, SBUX needed the GMCR partnership. Over the past decade, consumers were able to purchase single serve SBUX coffee through Kraft’s Tassimo system. But consumers overwhelmingly chose GMCR’s Keurig system (70% + market share of single serve system) vs. Tassimo (6% share), despite not having the option of SBUX. Additionally, SBUX only holds a 7-8% market share of coffee sold at retail and has been looking for new ways (i.e. Via) to expand that share. Again, we believe SBUX will still make more than $0.20 per k-cup so we doubt it looks at this as a bad bargain.

Private Label 20% Share Statistically Impossible (slides 63 and 66)—The second major driver of his $3.50 estimate is the assumption that non‐licensed private label cups will account for 20% of the total k‐cups sold. This comes from a quote from a “beverage Industry expert”. First, there are NO beverage categories outside of water and milk in which private label consists of 20% of the market. Second, private label only accounts for 10% of coffee sold at grocery, a level that has not deviated more than 1% per year for the past 10 years. That means it would take at least a 10‐standard deviation move to get to 20%; statistically impossible in the next five years.

- Second, Suntrust believes the implication that the company may have committed some sort of accounting fraud is a form of double jeopardy. While they do not outright reject the statement of a disgruntled M-Block employee from a six month old shareholder lawsuit, this statement relates to sales made in December 2009 and neglects to mention that GMCR already restated its financial results for FY08, FY09 and FY10 after a thorough review of the accounting.

In short, Chappell remain as confident as ever in the GMCR story and has moved it to their Top Pick among the 21 stocks he covers.

Notablecalls: This seems big as SunTrust's Chappell is countering Einhorn's claims with solid info and numbers. Not your typical 'We believe blah..blah..blah' type of defend we tend to get from the sell side.

Moreover, Einhorn used their models to present his short case. It appears he may have been wrong.

The stock is down 47 pts from its Sept highs, half of that over the past 4 days as funds managers blew out the name not to look stupid.

Greenberg was on CNBC yesterday, which probably attracted the retail shorts. They will get squeezed today. Big time, I suspect.

Given the nature of GMCR I would not be surprised to see it up 6-7 pts on this, putting 74-75 levels in play.

The shorts will have hell of a time keeping this one down.

I'm call this one Actionable Call (trading) Alert!

Thursday, October 20, 2011

Baidu (NASDAQ:BIDU): Take profits after 1000% run - Goldman Sachs

Goldman Sachs is making a major call in Baidu (NASDAQ:BIDU) downgrading the name to Neutral from Buy with a $165 price target (prev. $175)

According to Goldman fears over a China hard landing and global recession have led to a broad de-rating of the Internet and Education sectors over the past month. Although the sector has already bounced off the early October lows, with their coverage universe up 19% over the past two weeks but still down 12% over the past one month, they believe that volatility and uneasy sentiment over the sustainability of the current rally is likely to persist.

Given concerns over China’s economic slowdown next year, investors’ focus has naturally transitioned to the 2012 outlook from near-term fundamentals, with the upcoming 3Q results season unlikely to be sufficient to sustain rallies in the stocks, in Goldman's view. While they believe a managed, soft landing is more likely than a hard landing, nevertheless the lack of visibility into 2012 will likely limit share price performance.


The stock is up 1021% since we upgraded it to Buy on Dec 15, 2008, versus the S&P500 up 41%. While we continue to view favorably Baidu’s improved quality of growth and immense revenue opportunity as e-commerce growth accelerates advertiser adoption, we believe that relative outperformance hereon could be difficult. We consider the weakening advertising environment, which could affect Baidu at the margin despite structural growth drivers from rising online and search advertising adoption, and search as (one of, if not the) highest-ROI advertising channel.

We believe Baidu could be continued to dogged by several concerns: 1) SME tightening concerns, based on reports of lending restrictions plus rising labor costs causing bankruptcies. Looking at Baidu’s top advertiser categories, we would think some segments such as machinery and business services would be more sensitive to the economic cycle and depend on more capital-intensive industries. 2) ecommerce ad spend slowdown. Our channel checks suggest that smaller e-commerce companies are moderating their advertising spend into 4Q11 and likely into 2012 in order to conserve cash, due to heated competition and volatile capital markets hindering fundraising activities.

Baidu will report 3Q11 results on Oct 27 after the market close. We believe risk-reward could be negative going into results, given the strong fundamental momentum the company has already enjoyed boosting near-term expectations, while visibility into 2012 remains limited (with Baidu actually having the lowest visibility among our covered advertising companies owing to its large SME customer base).

Notablecalls: This will likely hurt as Goldman has been one of the most vocal bulls in Baidu. They have played their hand very well and are now telling clients to cash in the chips.

What I like about this call is that the analyst is not pushing her views, but rather attempting to be quite objective. Acknowledging the risks. Saying reward here is not worth the risk. Saying sell ahead of #'s.

This is the type of call that creates selling pressure for days as large clients sell.

I'm thinking BIDU goes below $120 level, possibly towards $118-$119 on this in the n-t.

Wednesday, October 19, 2011

Range Resources (NYSE:RRC): Cut to SELL, takeover unlikely - Canaccord

Range Resources (NYSE:RRC) the recent high-flying Marcellus play is getting downgraded at Canaccord to SELL from Hold with a $60 price target (prev. $61)

According to Canaccord, over the past month, RRC has outperformed the sector by over 20% on apparent takeout speculation. They believe RRC reflects a ~30% buyout premium even though a buyout in their view seems increasingly unlikely. RRC trades at a 14x firms ’12 EBITDA estimate – an almost 140% premium to the sector.


As Range should spend ~60% beyond cash flow next year, we see little potential to accelerate value creation further within the current equity capitalization. The bull case is that the company’s assets are worth more in the hands of a better-capitalized enterprise.

However, we believe Marcellus activity is governed by infrastructure, not capital. In southwest Pennsylvania, limited ethane capacity should preclude further acceleration in liquids-rich production until ’14. In northeast Pennsylvania, a material increase in dry gas activity appears incompatible with the acute regional pipeline constraints.

In time, the Utica Shale is likely to compete with the Marcellus, further amplifying regional price degradation and infrastructure constraints. Based on our conversations, one reported suitor may already have too much on its plate given its previous Appalachian Basin acquisition. Additionally, that same reported buyer all but denied the talk.

Range should exhibit 3% production growth in ’11. Our ’12 production growth estimate of 43% is significantly above company guidance of 25-30%.

Notablecalls: RRC has been on tear of lately helped by all sorts of takeover rumours and results that revealed better than expected production.

The thing is up almost 50% from its Oct 4 low.

Now we have Canaccord throwing cold water on the takeover speculation saying potential suitors have already too much on their plates. It appears one one the suitors denied their interest outright.

Yet the thing trades like it's going to be taken over any moment now.

Don't get me wrong, RRC seems like a powerful Marcellus story that may have legs for the next 10 years. It's just that the stock may have gotten somewhat ahead of itself.

One to watch on the short side in the n-t. Could trade below $70 level once the fast money bails.

RRC has a history of doing secondary offerings so I wouldn't be surprised if we saw one with the stock so strong of late.

Wednesday, October 12, 2011

First Solar (NASDAQ:FSLR): Ticonderoga cuts to Sell with $40 PT

Ticonderoga's Paul Leming is making a very negative call on First Solar (NASDAQ:FSLR) downgrading the Solar leader to SELL from NEUTRAL with a $40 price target (prev. $117)

According to the analyst there will be acceleration into the downside in both pricing and volume expectations for the PV industry.


No Year-End Rally In Germany - Phoenix Solar yesterday announced sharply lower revenue expectations for 2011 and stated bluntly in their press release that "the hitherto expected year-end rally [in installations in Germany] does not appear to be materializing." Germany remains the single largest market in the world for PV - the lack of a fourth quarter surge in installations and the growing support for still further reductions in subsidies in Germany is devastating news for the PV industry in general and FSLR, in particular. Volume assumptions for 2012 are increasingly at risk.

Pricing Declines Accelerating - Pricing throughout PV value chain appears to be accelerating to the downside; consistent with: 1) Disappointing Q4 volumes; 2) Massive overcapacity throughout the value chain and 3) The reality that still weaker volumes in the seasonally soft first half of the year (2012) will soon become a reality in the industry. Thin-film module prices are now at or below 90 cents/watt - a level at which FSLR's module manufacturing is (at best) break-even after operating expenses (SG&A and R&D).

FSLR's Module Business Heading Into The Red - With the increasing likelihood that polysilicon contract prices will break $30/kg over the next nine months, we believe the most likely scenario for FSLR's earnings in 2012 is for their module business to lose money. The company's absurd segment reporting format (which has their downstream project business exactly break-even each an every quarter) completely hides from investors (and the IRS) where the company really makes its money. Transferring modules into their projects at realistic market prices would show a highly profitable project business (with the backlog of attractive projects largely flowing through the income statement by the end of 2012) and a - today - barely profitable module business.

Our 12-month price target of $40 per share is based on the company's shares trading at 10X its $4 of earnings power in 2013.

Notablecalls: This is the Street low target for FSLR. The chart looks like death. The call reads like death. This appears to be going lower.

I'm thinking $51-$52 in the n-t.

Tuesday, October 11, 2011

Aeropostale (NYSE:ARO): Actionable Call Alert!

Jefferies & Co star retail analyst Randal Konik is making a potentially very significant call in Aeropostale (NYSE:ARO) upgrading the teen retailer to Buy from Hold with a $20 price target (prev. $12).

The call is titled 'Upgrading to Buy: We've Seen This Movie Before & We Like the Ending'

Konik highlights 5 reasons why investors should be buying ARO shares here. Most importantly he believes ARO is currently in a similar position to Abercrombie & Fitch (ANF, $67.98, Buy) when the stock reached trough fundamentals back in early 2009. ANF has since seen a turnaround in its business and its stock increase ~165% (vs. S&P up 35%).


Fundamentals Should Improve. In 2011 ARO has seen slowing sales momentum, loss of market share and margin compression as the company lapped peak fundamentals and faced a tough competitive environment. However, we believe the company is now near trough fundamentals and will begin to see improvement in coming quarters as inventories come more in line with sales trends, ARO laps easier comps and some fashion issues are fixed.

We believe ARO margins are currently near trough levels at an estimated ~4% this year, and we expect margins will begin to improve in FY’13 for the following reasons:

1) ARO brings inventory more in line with sales.
2) Comps begin to improve as ARO cycles past easier compares.
3) ARO aims to correct some mistakes in the women’s business
through an improved color palette and fashion.
4) Sourcing cost inflation abates

This Company Is Not Going Away. We continue to believe that ARO's business model is intact and that the company will again prove to be a key teen brand. Further the company's balance sheet and cash flow remain strong despite the tough fundamentals today.

Aeropostale has some of the most productive stores in the specialty retail space. While the sales per square foot metric will be down this year vs. LY, we believe this very high level of productivity shows that the stores are in a cyclical slump, not a secular one.

Aeropostale currently has 5.2m fans on its Facebook page

Sentiment is Already Very Negative. ARO has significantly reduced its earnings outlook this year and the stock is down over 50% YTD (vs. S&P down 5%). Further, sentiment is very negative with short interest near 20% of the float and very few buy ratings on the stock.

Back in early 2009, investor sentiment around ANF was particularly negative. This is illustrated by the high short interest and low number buy ratings among sell side analysts. ANF’s short interest as a percentage of the float peaked at ~19% in April 2009 as investors viewed the brand as largely dead and the company’s long term story broken. Analyst sentiment was also quite negative for ANF with less than 30% buy ratings, ~60% hold ratings and over 10% sell ratings.

What We Expect Will Happen at ARO
Investor sentiment around ARO has become increasingly negative this year following multiple downward earnings revisions and slowing fundamentals. We believe many investors view the ARO story as broken (much like they did for ANF in 2009).

This is evidenced by ARO’s short interest as a percentage of the float which has been increasing and is currently at 16%. Analyst sentiment is also negative for ARO with only 20% buy ratings, over 60% hold ratings and almost 15% sell ratings.

Among our coverage universe, ARO’s buy ratio (defined as the number of buy ratings as a percentage of total ratings) is one of the lowest at 21%. This compares to the average Buy ratio among our group of over 50%.

Risk/Reward Now Compelling to the Upside. With the stock one of the worst performing in our coverage universe, we now see little downside risk and meaningful upside in the coming months as margins and top line begin to recover. As such, we view risk/reward as very attractive at current levels.

Notablecalls: I'm calling this one Actionable Call Alert.

Here are my reasons:

1) Konik has done a very good job in ARO. He cut the name to Underperform on Jan 3 when the stock was trading around $25. Straight down. He kept pounding it all the way, ending with a $12 price target in August.

He upgraded ARO to a Hold on August 16 saying ARO had played out to his thesis with significant top-line and margin erosion YTD.

2) Konik compares ARO to ANF in 2009. A wild ride. But he was right. So right.

3) The call reads well and short interest stands at 18% of float. Sentiment is uber-negative so it won't take much to light up the stock.

I don't see this thing stopping before it hits $13 in the n-t. I suggest you don't chase it too high in the pre market and watch for any pullbacks after open to buy.

Longer term? A potential double or more.

(PS: Posting this around open)

Wednesday, October 05, 2011

Notable Calls Network (NCN): AM, SFLY & CSCO

We have caught some interesting (and profitable!) situations at Notable Calls Network (NCN) in the past couple of days:

1) Shutterfly (NASDAQ:SFLY), American Greeting (NYSE:AM)

Apple announced yesterday at their iPhone 4GS event that they will be releasing an app for iOS devices, where users can create and mail 1 to 1 greeting cards.

- Around 1:28 PM ET a particularly sharp & knowledgeable NCN member hit me with the following remarks:

New iPhone, iPad app called "Cards" allows you to make cards to send to people. American Greetings (NYSE:AM) getting hit on this, Shutterfly (NASDAQ:SFLY) also. "SFLY might get killed on this, " he added.

I quickly blasted the comments to NCN. Here what's happened:

American Greetings (NYSE:AM) went from $18 to as low as $16 (2 pts)

Shutterfly (NASDAQ:SFLY) went from $39 to as low as $33.50 (5.5 pts)

Both trades had ample size to be taken.

- We also caught a couple of analyst defends in SFLY, as around 1:55 PM ET Morgan Keegan was out defense of the name saying Apple has been in the photo market for years with iLife and its latest app does not appear to challenge Shutterfly in events and occasions, design choice, or even on price. (Marked green on the chart)

As you can see that also delivered for us.

2) Cisco Systems (NASDAQ:CSCO)

- Around 10:33 AM ET a hedge fund manager primaly focused on technology sector pinged me with the following snippet:

WASHINGTON (Dow Jones)--A bipartisan pair of senators plans to introduce on Thursday a bill proposing a tax break for U.S. companies that bring home foreign profits.

"= CSCO, MSFT, AAPL," he added.

This made perfect sense. Cisco (NASDAQ:CSCO) buybacks! Offshore cash!

- Here's what happened: $0.50 move in CSCO.

Later a NCN member told me he got $0.20 on 150,000 shares from the call. That's $30,000 profit in one trade.

These are the things that make me smile.

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.

Monday, October 03, 2011 (NASDAQ:PCLN): Upgrade to Overweight at Morgan Stanley

Morgan Stanley's Internet team is taking a bold step and upgrading (NASDAQ:PCLN) to Overweight from Equal-Weight while establishing $650 price target.

Firm believes the market is incorrectly assuming that has limited growth potential in Europe and APAC due to escalating competition and macro weakness, providing investors with a compelling buying opportunity. Morgan Stanley is raising their estimates above consensus.

The details (in short):

European competitive advantage + secular tailwinds outweigh cyclical risk: Based on our checks, still provides the best value proposition to European hotels with the lowest commission rates and largest customer reach relative to competition. Additionally, is well positioned to benefit from the ongoing offline-to-online shift in European hotel bookings, which in our mind, outweighs cyclical risk. We model increasing its share of the European hotel market from ~8% in 2010 to ~18% in 2015.

Asia Pacific: a new opportunity: brings a unique value proposition to Asian hotels with its large European customer base, which local online travel agencies are unable to provide. Additionally, the recent appointment of Darren Huston as CEO of (former CEO of MSFT Japan) brings valuable knowledge on effective APAC marketing strategies. We are not modeling Priceline dominating the APAC market, but rather continuing its current growth trajectory, growing market share from ~1% in 2010 to ~5% in 2015.

Valuation: At current price levels, Priceline trades at 11.5x 2012e EV / EBITDA, a discount to Ctrip at 15x and Make My Trip at 30x. We believe Priceline’s multiple will expand closer to its Asian counterparts, as gains market share in Europe and Asia Pacific

Notablecalls: Big mo-mo names have been under pressure past days, possibly because of JAT liquidations. As one of the top guys on Notable Calls Network (NCN) notes PCLN has fallen too much too fast and is now getting a size upgrade & target.

PCLN is squeeze material. The market needs to cooperate of course.

Same goes for Netflix (NASDAQ:NFLX) which is getting +ve Research Tactical Idea (RTI) from Morgan Stanley.

"The TRIN closed at 3.89 which is a bit panicky, I think we can get a down to up on the day at some point", another trader notes.