Calls of Note Part 2

- Jefferies thinks the decision by News Corp. to take the content distribution services for MySpace in-house, and Google's purchase of YouTube should have no bearing on Akamai's (NASDAQ:AKAM) forward results.

AKAM shares have been weak recently on concerns that the company had lost MySpace as a customer. While Akamai provides content services for Fox that can be accessed through MySpace, MySpace is not a significant Akamai customer. Google's acquisition of YouTube is likely a non-event for Akamai as well.

think MySpace is a pilot customer of Akamai. Firm's review of the content source servers at MySpace indicate that Akamai provides limited amounts of static content hosting for the MySpace site, mostly video ads, "MySpace Specials", and user images. It's probable that Akamai provides consulting services to MySpace as well, but the entire contract is probably immaterial for Akamai. As such, we think recent investor concerns regarding a spillover effect to Akamai from Vitalstream's (VSTR) loss of MySpace as a customer are overblown.

Google acquisition of YouTube should have no effect on Akamai. Firm believes Akamai, at most, provides small amounts of consulting services to YouTube. Therefore, any decision by Google to content distribution in-house will likely be a non-event for Akamai.

Maintains Buy and $59 tgt.

Notablecalls: Maybe it's just that AKAM has had its run? Of course, the story is far from broken but stocks tend to top before the actual slowdown happens. From a trading perspective, I don't think AKAM will bounce on this call.

Calls of Note Part 1

Going to highlight couple of additional comments on the Google (NASDAQ:GOOG)/ Youtube deal:

- CIBC believes YouTube is a great deal for Google due to potential synergies and YouTube's leading social networking platform.

Google brings 1) a large network of advertisers; 2) a system for targeting online consumers that result in higher monetization and CPMs; 3) global infrastructure and hardware investments to scale YouTube's bandwidth and storage needs; and 4) new "search over video" technology.

With nearly $10B in cash and marketable securities at the end of 2Q06, Google has the ability to pay $1.5-$2B for such a deal with more than enough cash cushion left over for capex. That said, Google management indicated that the transaction would be slightly dilutive initially. Firm estimates the transaction is roughly dilutive by $0.15 if YouTube is breakeven to net income in 2007. Based on their preliminary estimates and channel checks, YouTube has the potential to generate $150-$300M in ad revenues in '07 or 08, and it could prove highly accretive if Google finds a way to monetize the traffic with solid execution and new technology in 2-3 years.

In CIBC's opinion, the deal is potentially a big blow to Yahoo! (NASDAQ:YHOO), which recently lost in bidding for a Dell distribution deal and for the search monetization rights to MySpace. According to channel checks, the bid for YouTube was competitively bid by Yahoo!, MSN and others, but ultimately, Google s victory may hint that they are better positioned to monetize these emerging platforms, not to mention the advantage of having a $10B warchest.

They believe the deal illustrates the continued friction between old media /content (TWX, NWS, VIAB, NWSA) and new media/Internet distribution (GOOG, YHOO). Firm believes old media companies may be disadvantaged as new media companies consolidate Web 2.0 platforms and social networks.

- Morgan Stanley notes that $1.65B in GOOG shares is A LOT to pay for a startup with negligible revenue, however...as they were / are positive about eBay's Skype acquisition, they are positive about YouTube (which, based on deal terms, should be dilutive by 1-2% for CQ4). YouTube supports an impressive 72MM unique global users (up 23x Y/Y, per comScore), and 4.7B page views (up 103x Y/Y). In addition, the company indicated 100MM+ video views + 65K uploads daily. All in, YouTube has created a very effective way to distribute new forms of media and engage users.

Firm believes traditional media companies, inspired by rapid ramp in quality / usage + community / ranking / feedback of user-generated video, have realized a pressing need to use the Internet as a distribution channel. In their view, the opportunity has the potential to be measured in billions of dollars in annual revenue within 2-4 years. Per IAB (Interactive Advertising Bureau), US search advertising revenue ramped from $285MM in 2001 to $4B in 2004 (estimated at $6B+ in 2006E) owing to effective monetization of Internet content (words) by Google / Yahoo! - similar ramps will occur in Internet video.

Reiterate positives view on Google - the firm likes big bets that are strategically sound, especially when the majority of short-term number crunchers think the bets are crazy. Google has been analyzing its search queries for years and building its base of servers - they buy Google's view that we are entering an 'Internet video revolution' - and with Monday's announcements, Google just improved its hand and also helped push 'the revolution' forward. In addition, Google improved its weak position in the social networking area. No change in firm's Google estimates for now, but probability for upside in C2008 / C2009 has increased.

Maintains Overweight.

Notablecalls: Not actionable but good to know category. Check out my comments from yesterday.

Paperstand

According to the WSJ, for Dolan family, the time appears ripe for its $7.9bn bid to take Cablevision (CVC) private: The co has been beating most phone co’s and satellite-TV operators in the battle for video, phone and Internet customers. That's also why the bid could fail. The Dolans have taken Cablevision shareholders on a financial roller-coaster ride over the years, and some institutional investors say they are reluctant to sell now that the outlook is brightening. "I'm getting tired of mgmt and private-equity firms trying to steal co’s from underneath our noses, and I think this is another example of that," says John Linehan, of T. Rowe Price, which holds more than 2m Cablevision shares. "Shareholders have been asked to sit through a fairly fallow period of time. As things are beginning to look up, a lot of our upside is being taken away from us."

According to the WSJ’s “Heard on the Street” column, when Vodafone (VOD) recently named Vittorio Colao as its deputy CEO, many investors viewed it as a rare bright spot for a co battling a string of negative developments, a limp stock price and angry shareholders. But some investors say the arrival this week of Mr. Colao, a seasoned and respected manager, is just one of a number of reasons why they now view Vodafone as a stock worth having another look at. Not only is the stock cheap by some measures, supporters say, but Vodafone also is showing some signs that it might be able to withstand the competitive pressures on call prices better than previously thought. And, the co is working to address other concerns, including dumping operations in some countries that aren't viewed as core. "There's been a real sea change in the past 2 or 3 months, where the news has been consistently good," says Adam Steiner, of SVG Investment Managers, which started buying the co's shares about 6 months ago and now owns about $33.7m of Vodafone's stock.

According to the Barron’s Online “Inside Scoop” section, Warren Buffet’s Berkshire Hathaway (BRKA) is adding to its stake in USG (USG) after investors razed the building-materials stock amid concerns over the housing mkt. Berkshire spent more than $17.1m to purchase 371K shares of USG in the open mkt. Berkshire increased its holdings to 17.07m shares, or a 19% stake. Lon Juricic, founder of StreetInsider.com, says that Buffett "has been quite aggressive with the stock being that the whole group is down because of the homebuilding and housing bubble. "It shows that he has quite a lot of faith in USG; that he sees something there that maybe a lot of other ppl don't," he adds.

- Goldman believe Nokia's (NYSE:NOK) new ultra-thin handset platform has been pushed back until Spring 2007 (versus their expectations of an end-2006 launch date). With Nokia already suffering from gaps in its line-up during 3Q as Motorola drives the RAZR deep into the mid-end, and with rival vendors launching a strong slate of new products for the holiday season and beyond, they believe this delay exposes the company to increasing risks.

In their view the chances of a 2004-type market share collapse are slender. Nokia continues to launch attractive high-end products with ground-breaking functionality, and its low-end portfolio (backed by the company's broad distribution) remains solid. However, until mid-end product holes are plugged, the most likely outcome is that Nokia's near-term market share, ASP and gross margins will be in line with or lower than consensus estimates, and the stock will tread water despite its discounted valuation. Firm is cutting EPS by EUR0.01 in 3Q and 4Q (to EUR0.23 and EUR0.30) to reflect these risks, and they are now EUR0.01 below 3Q consensus. 2006E EPS is unchanged as they exclude the cost of CDMA restructuring. 2007E EPS of EUR1.15, Neutral rating and EUR18 price target are unchanged but the firm believes investors will require patience to realise the implied 17% potential upside.

Notablecalls: Motorola is eating Nokia's lunch. I've seen some of the new phone models Nokia plans to release soon. Fighting the likes of RAZR with brick-like phone that has a 4GB HDD just wont do it. Nothing sexy about it.

Calls of Note Part 6

- Goldman is adding AllianceBernstein (NYSE:AB) to the Americas Conviction Buy List. AB ought to benefit from exposure to both institutional assets and solid international fund flows, which we believe isn't fully reflected in consensus estimates or valuation. Recent data points affirm strength in international fund flows, AB's maximum exposure within the retail fund channel. Further, with a solid global institutional client base, which features a favorable asset mix shift and stickier (than retail) assets, AB's discount to the group is undeserved. Firm sees 20% potential upside to our ~$82 price target. Their 06/07 EPS estimates of $3.73 and $4.43 are above consensus.

Catalyst 1) AuM figures reported next week. Forecasting $650 bn in total AuM at 3Q-end, a +16% annualized increase. 2) 3Q EPS (reports late Oct.) ought to show signs of momentum in the institutional channel; expect earnings ahead of consensus. 3) As investors look into 2007 and 2008, $5 in earnings power is realistic given current trends and AuM levels, which would comfortably translate into a $90 stock by the end of 2008 and $82 12-months out. Investors may revisit AB during 4Q2006.

Notablecalls: Expect to see buy interest in AB. Think this one may have up to couple of pts in it over the next days.

Calls of Note Part 5

- Merrill Lynch is raising their 12-month price target on Research in Motion (NASDAQ:RIMM) from $110 to $135, based on applying RIM's 3-yr average forward PE of 28x on CY08 EPS estimate of $4.86. In firm's opinion the new Blackberry Pearl platform extends RIM's earnings momentum till at least 2008, warranting a longer term view on the stock.

Why the firm continues to favor RIM?

RIM's new Pearl smartphone is a unique combination of design and functionality and can be a game changer like Apple's iPod and Motorola's RAZR.

The Pearl benefits from RIM's superior back-end network and software (Slipstream) capabilities, which enable faster web, GPS, search and multimedia features.

Pearl expands RIM's market to 4x larger consumer space. Of the ~80mn smartphones sold in the past year (per IDC), firm estimates only 20% were sold for enterprise applications (RIM's traditional base) while remaining were purchased by consumers. They believe RIM's addressable market could grow substantially (IDC projects 33% CAGR till 2010) and believe RIM could also grow its market share from the current 7% level. We estimate for every 1mn BlackBerry handsets sold beyond our 8.9mn handset shipment projection for FY08, EPS could grow by 7%.

T-Mobile said on Friday that Pearl sales are well ahead of all internal forecasts. Overall firm's positive view on the stock is based on firm's expectations for successful forthcoming launches at Cingular (November) and Verizon (in 2007) as well as other variants of the Pearl, including a full (QWERTY) keyboard in 2007. They also expect a thinner version of the 87xx BlackBerry device, aimed at enterprise segment, to be released next year.

Maintains Buy.

Notablecalls: While RIMM looks extended, this note will create some buy interest.

Calls of Note Part 4

- Deutsche Bank is commenting on the possibility of Palm (NASDAQ:PALM) being an acquisition target.

Adding it all up, they think an acquisition of Palm is unlikely, but they cannot rule it out. For the right buyer, with a genuine need for a better software platform it could make sense, but that buyer would have to justify the premium to their own shareholders.

Palm would offer a buyer:
A fading, but still highly regarded, product line in the Treo A software design team with demonstrated expertise At least $300 million in tax losses, perhaps more in the hands of a
larger company.

At current prices, Palm is within acceptable multiple range of recent transactions. For instance, Motorola recently acquired Symbol for roughly 20x LTM EBIT. As it stands now the firm thinks the company is fully valued, and they have no reason to believe that a deal is imminent. So they are not changing their estimates or rating. Firm cautions investors that even inexpensive' stocks can go down.

They also note that time is not on Palm's side. Or to put it another way, if a deal were to happen they think it would happen sooner rather than later. First, the competitive environment is clearly deteriorating. As RIM demonstrated with its strong guidance two weeks ago, Palm is in line to feel more than its share of the competitive pressure. RIM can at least stand behind its service offering as a barrier to entry, Palm has no such platform. Second, over time a strategic buyer looking for a software fix would get closer to its own solutions. Finally, the company's tax losses are subject to change of control clauses. Since many of these losses came with the acquisition of Handspring, they can be extinguished if Palm is in turn acquired less than three years after that took place.

Maintains Hold and $14 tgt.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 3

- Citigroup is lowering their 4Q06/1Q07 estimates for Texas Instruments (NYSE:TXN), as near-term order conditions have softened, manifesting in a recently implemented hiring freeze.

Firm's fieldwork suggests TI has recently implemented a hiring freeze, pointing to a less certain outlook for 4Q06/1Q07 as the cause. This hiring freeze is not division specific, suggesting the concerns are not necessarily limited to specific chip types.

Above trend analog sales are reverting back to trend line, resulting in below seasonal progression in 4Q06. US retail weakness in DLP HD-TV's adds to concerns. Handset risk exists given shortfalls in Nokia supply chain.

As a result of this lowered outlook, they expect near- term pressure on TI shares, to the advantage of trading-oriented investors. Longer-term investors ought to also consider using pressure as a buying opportunity given favorable outlook for the company in 2007. Firm sees downside risk to about $27 (the low-end of its trading range), but upside to about $36 (the high-end), making risk reward favorable by a 1:1.25 ratio.

Maintains Buy.

Notablecalls: I should have called the note from JP Morgan (Oct 5) actionable! But still, as I noted back then, TXN stock will be lower is couple of months for sure. TXN continues to be the canary in the Semi mine.

Calls of Note Part 2

Two firms comment on Intel (NASDAQ:INTC) over the weekend:

- Prudential thinks that Intel MPU shipments came in at above seasonal rates for the SepQ, but that these were partially offset by a more challenging ASP environment during the quarter.

As a result they are raising Q3 revenue estimate to $8.6 billion from $8.3 billion, and EPS estimate to $0.19 from $0.17.

Firm's PC Hardware team's analysis indicates PC unit growth to slow to 6% in 2007 from 10% in 2006. They also think that Intel will lose share to AMD at Dell, translating to about 4% of the market. Firm is modeling 2% PC unit growth for Intel in 2007. They are raising their 2006 EPS estimates (including options expense) to $0.79 from $0.75, but lowering their 2007 EPS estimate to $1.05 from $1.07.

Firm notes they remain concerned about MPU capacity and pricing for the PC-MPU industry in general, and share loss and margins for Intel specifically. Remains Underweight on Intel with a $16 price target.

- JP Morgan is raising the White Flag....and Intel estimates. Their checks indicate Intel experienced upside in both its processor and chipset business in the September quarter and as a result they believe the company grew its revenues above the mid-point of its guidance for a 4%-11% QoQ increase and above firm's prior estimate of up 6% QoQ.

While they are positive on the share gains, they believe most of the upside was from lower-margin low-end processors and chipsets. As a result, firm's 3Q06 gross margin estimate of 48% remains below company guidance of 49%.

Although they are raising estimates on Intel, the firm remains Neutral on the stock due to belief that gross margins should remain in the high-40% range through 1H07 due to record inventory, aggressive pricing, and higher depreciation.

As a result, they raising C06 revenue and EPS estimates from $34.7 billion and $0.71 to $35.0 billion and $0.74. Firm is maintaining C07 revenue estimate of $37.0 billion, but is slightly increasing EPS estimate from $0.90 to $0.94. They note their C07 EPS estimate of $0.94 is well below Consensus of $1.10.

Maintains Neutral.

Notablecalls: So while Q3 results will be moderately OK due to BTS seasonality, the views on 2007 are growing more negative. I still think INTC is a sell around current levels.

Paperstand

According to the WSJ, citing ppl familiar with the matter, the Dolan family, which controls Cablevision Systems (CVC), has offered to buy out the public shareholders of the co in a deal that values the co at about $7.9bn. The offer comes 16 months after the family, led by Cablevision Chmn Charles F. Dolan and his son, CEO James L. Dolan, made an offer to buy the co's cable unit and spin off its other assets. That offer was resisted by a special committee of Cablevision's board, which found the price and structure of the deal inadequate for Cablevision's public shareholders.

The WSJ reports thah a declaration in a lawsuit between SCO Group (SCOX) and IBM (IBM) raises new questions about whether Microsoft or some of its execs indirectly assisted SCO's legal front against the Linux OS. In the sworn statement, the founder of investment firm BayStar Capital Mgmt testified that he made the investment after several Microsoft execs had said their co would guarantee BayStar's investment in some way. The document raises questions of whether Microsoft indirectly helped SCO pay a law firm led by David Boies. The declaration of Lawrence Goldfarb, who describes himself as BayStar's "managing member," was prepared Sept. 13 and was later filed by IBM along with a motion in the case. Mr. Goldfarb testifies that Richard Emerson, a Microsoft SVP, approached him "sometime in ‘03" about investing in SCO. Mr. Emerson, who is no longer with Microsoft, "stated that Microsoft wished to promote SCO and its pending lawsuit against IBM and the Linux OS. But Microsoft did not want to be seen as attacking IBM or Linux," Mr. Goldfarb testified.

Calls of Note Part 1

- Wachovia is positive on Intuitive Surgical (NASDAQ:ISRG) following Robotic Surgery Symposium. According to the firm both podium presentations and conversations with clinicians at the symposium in Chicago last week supported firm's thesis on ISRG. The symposium, which focused mainly on cardio-thoracic and general surgery, was attended by over 160 surgeons from a wide range of specialties. Many surgeons at hospitals with installed da Vinci Systems indicated that their hospitals are nearing purchases of second or third systems to support additional usage.

Adoption of da Vinci continues to build in prostatectomy (one speaker expects 40% penetration by the end of 2006, ahead of management guidance of 35%), hysterectomy (firm confirmed their market size estimate of 250,000 complex-benign and cancerous cases), and bariatric surgery (where the learning curve with da Vinci is 5 cases vs. 42 for laparoscopy). All of these procedures benefit from the extreme precision that da Vinci provides.

Hitachi's second generation robotic prototype was discussed in a presentation. This device is MRI guided with its use limited to tying knots in sutures thus far. It has just entered the regulatory approval process in Japan but remains years behind ISRG both in terms of capabilities and regulatory approval. Another competitor offers a robot-assisted catheter system but this is perhaps more complementary than competitive.

Wachovia believes that continued adoption of da Vinci in hysterectomies and bariatric surgeries will support increased system and instrument sales for the next few years. For Q3 2006, they expect ISRG to handily beat consensus revenue and EPS targets and would continue to be buyers of ISRG.

Valuation Range: $120 to $132

Notablecalls: ISRG watchers, spot anything new in the note? I sure didn't. Expect a small pop following the comments. Just because ISRG is a former mo-mo play.

Color on rumor: Google (NASDAQ:GOOG)

Couple of firms are commenting on news that Google (NASDAQ:GOOG) is in active talks to acquire YouTube for approx. $1.6bn.

- Merrill Lynch notes YouTube has 46% of user visits to online video sites (100mn videos a day), versus 11% for Google (per Hitwise). Google/YouTube would have a strong user position in the rapidly growing video advertising market, expected to reach $640mn in 2007 and grow to $1.5bn by 2009 (per eMarketer). Ownership of video traffic would help Google capture a bigger portion of advertising revenues from video content distribution deals (Viacom deal signed early Aug.), although content owners would still likely keep the majority.

Firm would view acquisition as positive on 3 of the 4 components of their acquisition evaluation criteria, including: 1) fit with core business (Google's ad network could help fill video ad space), 2) management experience in new business (Google has a large and growing video site) and 3) growth opportunity (video is the second biggest Internet advertising growth driver behind local, in ML's view).

Assuming a $1.6bn acquisition value, a 20% share of the 2009 video ad market for YouTube, 30% operating margins for video and a 30% tax rate, the firm estimates that Google would
be paying 25x potential 2009 net income.

Much of the content on YouTube is free, and many video clips are copyrighted material from traditional media companies. Google could be responsible for filtering out copyrighted material or negotiating revenue sharing partnerships with the owners before aggressively monetizing YouTube. On a positive note, the large YouTube user base could help Google sign new content partnerships.

Maintains Buy on GOOG

- Citigroup thinks the most releveant dpoints re: YouTube: 1) it currently ranks as the 17th most visited Website in the world; 2) its videos are viewed 100mm+ times daily; 3) its biz model is entirely based on advertising, and new advertisers include Cingular, Nestle & American Express; & 4) it is reportedly close to break-even.

Were the deal to take place, the negatives for GOOG: 1) It would be a radical departure from its M&A strategy, which has been almost exclusively based on tuck-in technology deals; 2) Per firm's 08/18 Internet M&A report, the $1.6B would also be almost equal to GOOG's entire M&A spend to date; & 3) It would acknowledge that Google Video has failed to gain sufficient traction.

The clear positive for GOOG -- synergies between the world's 3rd largest user generated content site and arguably one of the world's largest and most scalable advertising/computer networks could be enormous.

Notablecalls: I guess it would be positive for GOOG if they bought YouTube. After all, $1.6 bln is just peanuts for the co. And the service YouTube offers is phat. I know I have lost myself there for hours at a time. The only problem I see with this merger is that in order for GOOG to monetize the thing, they need to apply some pretty harsh censorship. And that could kill the whole concept.

Barron's Summary

Barron’s cover highlights Cisco (CSCO), whose CEO John Chambers at a meeting with analysts said that several mkts look ripe enough to nourish its next growth spurt: oil-rich nations looking to wire their ppl; telephone and cable providers locked in an arms race for Internet gear; corporations bundling e-mail and voice messaging on their networks and a coming flood of Internet video traffic. Anyone of these new mkts could be worth $10bn in annual sales to Cisco within 5 years. Chambers says even he is surprised by the co's early success in these new ventures. "We are winning almost all the new jump balls," he says. "We will become the leading co as the network enables all forms of communication." Since early August, the shares have risen almost 40%. Yet, at 18.8x next year's estd earnings, the stock sports a lower P/E multiple than most other networking shares. As sales and profits begin to flow from new customers and new mkts, Wall St. is likely to raise its stock-price tgts. A number of analysts think the shares easily could tack on another 15%.

Mutual fund special report highlights several fund managers picks. Those include TGT, HD, LM, AB, MMM, VZ, T, BLS, VE, CSCO, CCL, IGT, C, WMT, TOT, ADBE, ERTS, ORCL, HDB, BBV, TELN and LFC.

According to the Barron’s, Sotheby's (BID) shares have soared more than 85% this year, to $34. But, with plenty of life left in the art mkt, they could hit $40. They're cheap compared with stocks of other luxury firms.

Bargain hunters should firmly resist the online-gambling stocks, despite recent declines of about 60%. One could lose an arm trying to catch these falling knives. Stocks particulary mentioned include partyGaming, SportingBet, Neteller, FireOne and CryptoLogic (CRYP).

The shares of Western Union (WU) are off to a slow start, hurt by a clouded outlook for money transfers over the Mexican border. But patient investors could well enjoy a stock climb of 14% or more.

“Follow Up” section highlights American Real Estate Partners (ACP), saying that billionaire Carl Icahn continues to deliver for shareholders of the co. Icahn's forte is buying undervalued assets, often in bankruptcy, and then selling them when business conditions improve. Investors have done well to ride with Icahn. The stock is up 5-fold in the past 3 years. ACP may reap additional profits as Icahn capitalizes on new opportunities, but the shares aren't cheap anymore.

Calls of Note Part 5

BofA notes that at the EADV meeting in Rhodes, Greece, Abbott (NYSE:ABT) presented impressive Ph III psoriasis (PsO) data from its international CHAMPION trial. Humira's PASI 75 (75% improvement from baseline), at 4 months, was statistically significant to both methotrexate (MTX) and placebo.

Although the Humira efficacy is impressive, the placebo rate is much higher than expected. Firm believes the net PASI 75, allows a better comparison. Additionally, CHAMPION didn't allow dose escalation of MTX if patients reached a PASI 50 and the curve for MTX still seemed to be increasing at 4 months, which they believe could overestimate the benefit to MTX. Compared to Enbrel's Ph III PsO data (approved for PsO in 2003), however, Humira still looks to have better short-term clearance. Humira tolerability also looked relatively clean.

Based on IMS monthly data, 3Q06 looks light for Amgen's (NASDAQ:AMGN) Enbrel and firm thinks that Humira's PsO data could gain some incremental market share (5%) among the early dermatology adopters in 2006, but will not meaningfully impact Enbrel's market share until Humira is FDA approved for PsO. Firms feel the biggest hurdle for Humira will be reimbursement, which should improve after approval (likely in 2H07).

Firm is positive on AMGN over the long term and believes AMGN represents the best value opportunity in large-cap biotech (~17x P/E) as much of the CERA risk appears priced in.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 4

Piper Jaffray raising estimates and price tgt on Polycom (NADSAQ:PLCM) on strong demand in voice and video. Firm believes Polycom closed out a solid quarter with strong demand for video endpoints and IP phones more than offsetting modestly disappointing Federal and Network Infrastructure demand. Firm's checks with video conferencing distributors and value-added resellers revealed surprisingly favorable results in North America (56% of sales in Q2) and most of their contacts were also upbeat with respect to Q4 demand.

Given the favorable feedback firm picked up from their channel contacts, they believe Polycom will be able to exceed Q3 consensus revenue and EPS estimates, grow backlog on a sequential basis and guide above the current consensus estimates for Q4.

Firm believes Polycom will be introducing a High Definition video conferencing system within the next month and feedback regarding the quality of this new system has been exceptionally good. They also believe Polycom will be introducing a new IP only MCU relatively soon and anticipate this new video bridge will help the company regain growth in its infrastructure business. Firm anticipates these two new products and the recently introduced HD phones and Skype certified speaker phone will gain traction in 2007 and could provide an incremental boost to the company's growth rate.

Notablecalls: Beat and raise sounds good, but that's what the mkt is expecting from Polycom. Not actionable, but good to know.

Calls of Note Part 3

Deutsche Bank notes that as expected, Starbucks' (NASDAQ:SBUX) upbeat analyst day saw the company raise its long-term stores target, with the target increased from 30k to 40k (20k each in US/non-US) from the current 12.4k stores. Extensive discussion was also focused on new products (hot food to be rolled out to 6.5k US stores through 2008, vending machines, iTunes alliance) and international expansion plans (focusing on China, Brazil, India, Russia, Egypt).

SBUX reaffirmed '06 & '07 guidance metrics, including store growth (2.4k in 2007), comps growth (3-7%), EPS ($0.72-0.73 for '06 and $0.87-0.89 for '07) and capex ($950-1bn '07). LT targets over the next 3-5 years were reaffirmed at 20% annual rev. growth and 20-25% EPS growth. Firm maintains their EPS estimates ($0.73 '06 and $0.90 '07) and LT growth projections (21% EPS CAGR from 2006-10).

As firm had expected, SBUX also announced the end of its monthly comps reports. Firm views this constructively, as they continue to believe it will reduce share price volatility around the report dates and enhance focus on LT performance, eliminating a report with little relevance to valuation.

Following the strong share price performance during Thursday's meeting, we could see a short-term pull-back on elimination of monthly comps. Firm would view any related material weakness as possibly creating attractive entry points.

Notablecalls: Out of several (positive) notes on Starbucks I chose Deutsche's as they had been right in their preview and they seem to be the only ones with something else to say other than praise for the company. With the stock just below the 52-week highs, I dont think the market is going to be as "constructive" on elimination of monthly comps announcements as Deutsche is. Looking for a pullback after $5 run in two days.

Calls of Note Part 2

JP Morgan is trimming estimates on analog/mixed-signal companies on weaker than expected September quarter bookings. Elevated inventory levels, concerns over end demand and a lower-end mix have yielded lower orders, in their opinion. Firm now expects a below seasonal December quarter for the industry.

Computing and consumer markets are likely to suffer the most on an inventory correction while industrial markets should experience seasonal softness.

Firm expects International Rectifier (NYSE:IRF) to meet their and consensus 1Q07 estimates. Looking ahead to 2Q07 (Dec), firm is lowering their estimates from $358M/$0.56 to $348M/$0.52 compared to consensus estimates of $356M/$0.54. Driving their 2% Q/Q revenue growth estimate, which is below normal seasonality of 3-4%, is the delay in Sony's PS3 launch, cooling off in aerospace and defense, and auto slowdown.

Firm expects Maxim Integrated (NASDAQ:MXIM) to meet their 1Q estimates which is roughly in-line with street. Looking forward to 2Q07, they are trimming their estimates from $520M/$0.36 to $510M/$0.35 versus consensus of $514M/$0.35. Firm believes inventory and order mix mismatch will be corrected in 4Q barring unexpected cancellations, resulting in pushout of the missed Sept quarter sales to Dec quarter.

For Intersil (NASDAQ:ISIL) firm is trimming their 3Q estimates from $195M/$0.26 to $193M/$0.25. Looking ahead to 4Q, firm is again trimming estimates (inc. options) from $200M/$0.27 to $195M/$0.26 (EPS excluding options is $0.32) compared to consensus at $203M/$0.34. They are modeling a modest 1% sequential growth versus normal seasonality of 4-5% on seasonal strength in consumer, offset by inventory correction in optical, DSL, and displays.

Firm expects Linear Technology (NASDAQ:LLTC) to meet their and consensus 1Q07 estimates of $293M/$0.37 on seasonal strength in computing, offset by weakness in communication and seasonal softness in industrial. Looking forward to 2Q (Dec), they are trimming estimates from $305M/$0.39 to $295M/$0.37, virtually flat Q/Q compared to 4-5% seasonal growth. Consensus estimates are $303M/$0.38. Driving their estimates is their expectation of seasonal improvements in consumer and computing markets, offset by continued weakness in communication, and slightly lower GM at 78% on mix change.

Notablecalls: Yet another rock thrown at the semi space. Combined with lousy results from Micron, would not be surprised to see weakness in aforementioned companies and in broader semi space.

Calls of Note Part 1

Citigroup out positive on Allegheny Technologies (NYSE:ATI), raising price tgt to $83 from $80, noting the company's concentration in late/non-cyclical markets, and organic growth prospects. ATI's mix of specialty alloys and fabricated products are more differentiated and defensible than exchange-traded base metals, while operating margins and visibility into 2007/08 are superior to carbon steel. In a tough cyclical environment and following a searing "rotational sector meltdown," ATI would be the first Metals stock firm would buy, and the last one they would sell.

Firm highlights following catalysts:

* Stainless steel: Demand continues to surprise. The International Stainless Steel Forum (ISSF) recently raised its 2006 global production forecast to 27.8 mln T, up +14.3% YoY, with melting capacity at nearly full utilization. This reflects a strong capital goods cycle, and heavy investment in oil & gas production/refining, chemical plants, and India/China infrastructure. While surcharge hikes have been common, reflecting higher nickel input costs, ATI notched two base price increases during the seasonally-slow summer period.

* Electrical steel: Prices, volumes are rising. ATI is seeing strong shipment growth in grain-oriented electrical steel, which is used in transformers and power distribution equipment. This is being driven by the electrification of China, plus grid upgrades in the US. ATI is targeting 20% shipment growth in 2007, from 100 kT this year. Electrical steel transaction prices are climbing, as indicated by AK Steel (AKS).

* Proprietary 2003 alloy: Displacing high-nickel austenitic steels. ATI has been taking share with its proprietary, 2003 lean duplex stainless alloy (3% nickel) in offshore oil&gas and chemical processing applications that have typically been the province of higher-nickel 316 alloys (10% nickel). This material is stronger, more corrosion resistant, and cheaper in an era of +$10/lb nickel prices. This material recently achieved qualification under the demanding NORSOK Norwegian offshore oil&gas standards for use in welded pipe & tube.

* Titanium expansion: Taking flight. ATI is expanding aggressively in Titanium sponge and mill products, which should boost shipments from 25 mln lbs in 2005 to 44 mln lbs in 2008, and above 60 mln lbs longer term. This is arguably the most attractive growth market in Metals, driven by aerospace builds, broad- based industrial penetration of light metals, and burgeoning corrosion markets. Demand is likely to run at roughly 8% long-term, while supplies remain critically tight. ATI is ramping internal sponge capacity, at aerospace grades. The Phase I expansion is running at full power with 6 sponge furnaces running. The Phase II expansion is set for 1Q/07 and Phase
III for 1Q/08, while the greenfield Utah plant is in engineering. Current expansion plans through 2008 (not including the greenfield site) could be worth as much as $1.40 to EPS, or $18/share at a 14x multiple. It is important to note that Titanium currently accounts for only 20% of revenues.

Notablecalls: The whole metals sector was very strong yesterday. In case of any signs of continued strength ATI would be my first pick as Citi is really pounding the table on the recent darling that has been trading sideways for the last months.

Calls of Note Part 4

- Jefferies is positive on Advanced Magnetics (NASDAQ:AMAG) after conducting a survey of 33 U.S.-based nephrologists to assess the market potential for AMAG's lead product ferumoxytol. Based on survey results, they revised their ferumoxytol revenue build.

Key survey results: 1) Survey respondents predicted higher- than-expected utilization of ferumoxytol across the key Stage 3 " 5 CKD patient populations. Surprisingly, respondents also predicted modest utilization in Stage 1 and 2 CKD - but we do not include this in our model; 2) Assuming both ferumoxytol (est. approval 1H08) and potential competitor Ferinject (est. approval 2H08/1H09) are commercialized in the U.S., nephrologists predicted higher ferumoxytol utilization vs. Ferinject across each and every stage of CKD, with significantly higher use anticipated in Stages 3 " 5.

Based on survey results, the firm is increasing their FY08 - FY10 ferumoxytol ests. to $34M, $99M and $192M from $24M, $79M, and $131M, respectively. FY08 - FY10 EPS ests. increase to ($0.95), $1.33 and $4.58 from ($1.17), $1.00 and $2.64, respectively.

Price tgt goes to $73 from $42.

Notablecalls: That's a hefty tgt raise. Expect AMAG to see some real buy interest following the comments. But do note the drug in question is still in Phase 3 trials. Were these to disappoint.... Just don't overstay your welcome. The data will be announced in Q406 or Q107.

Calls of Note Part 3

- Banc of America thinks Emmis Communications' (NASDAQ:EMMS) results scheduled for Oct 10 will be ugly. Thats's what they are saying right in the title.

Domestic radio revenue likely will be well short of their $72M estimate on key market weakness and recent programming changes. Firm projects EMMS' domestic radio revenue to decline 5% in FY2Q07. However, they believe that domestic radio revenue could be down as much as 10% YoY. EMMS' 3 largest markets (accounting for ~71% of domestic radio revenue) were down ~4% in the June-August time frame. AND the company underperformed its markets by nearly 500bp in FY1Q07 due to continued ratings weakness in L.A. and NYC. Overall ratings share declines continued in Arbitron's Spring '06 book (down 6%), and the recent format flip (8/17) at KZLA-FM could add downward pressure on revenue growth in FY2Q07 and FY3Q07.

Despite the likelihood that Emmis remains a public entity, they don't expect management to resume its normal practice of providing revenue guidance. They remain cautious on the stock as EMMS is levering up in the face of weak fundamentals. Leverage PF for the special dividend will be ~6.5x. And they expect YoY revenue declines to continue through the balance of FY07.

Maintains Neutral and $13 tgt.

Notablecalls: I don't dare to call this one actionable. But I wouldn't want to be long the common into earnings either.

Paperstand

The WSJ’s „Heard on the Street” column discusses Ford (F), saying that as the co attempts another turnaround, one item drawing particular scrutiny is the auto maker's tightening cash situation, which has already forced the co to eliminate its dividend and could prompt asset sales or other moves in the near future. Ford is starting its latest restructuring with a sizable cash cushion, roughly $23bn, down from $25bn at the start of ‘06 and will likely keep declining for the rest of this year and next. Analysts and ratings firms say the cost of shrinking Ford is growing as the auto maker ponies up severance packages, early-retirement offers and buyout plans in an attempt to eliminate about 44K workers. Ford CFO Don Leclair says the co's gross auto cash position will drop by year's end to about $20bn. The restructuring costs, combined with massive vehicle-production cuts and expected and ever-increasing quarterly losses, will keep eating away at Ford's cash, making asset sales of brands like Jaguar or Land Rover, or even Ford Motor Credit, more inevitable, say analysts. "In going through a turnaround like this, it is clear Ford will consume a lot of cash in ‘06 and ‘07. They will use a lot of cash before the plan kicks in," said Bruce Clark, senior vice president at Moody's Investors Service. "Well, if it doesn't begin to take, they will still be burning cash, and if they need another one of these, they won't have the financial cushion any longer. They simply have to get it right this time," Mr. Clark said.

Barron’s Online discusses Carnival (CCL), whose stock is up nearly 33% from a 52w low in June. The stock has been bid up by investors attracted by a low valuation, the recent drop in oil prices and a relatively uneventful hurricane season. Certainly, Carnival and its stock still face possible headwinds with talk of a slowing US economy that some analysts fear could turn into a recession next year. Yet with profits set to start climbing again in ‘07, the stock still has room to travel. "Anyone with a 12-24 month horizon can make money," says Chris Scheuer, senior analyst with Thrivent Investment Mgmt, citing Carnival's predictable top-line growth, attractive margins and good ROIC. "Carnival is also buying back stock and raising its dividend," Scheuer says. "And that's a nice combination." Adds Tim Fidler, of Ariel Capital Mgmt, "This is a world class co with a low valuation."

“Inside Scoop” section reports that three Goldman Sachs (GS) insiders including its CFO, have started taking profits from the stock in recent weeks as it climbed to new all-time highs. Goldman CFO David A. Viniar, EVP Kevin W. Kennedy, and James Johnson, a director, have sold a total of $17.7m in stock since Sept. 13. Ben Silverman, of InsiderScore.com, says that insiders have been accurate in spotting short-term price retrenchments in Goldman Sachs' share price with their past sells.

Calls of Note Part 2

- JP Morgan notes their checks indicate orders for Texas Instruments' (NYSE:TXN) analog business (37% of 2Q06 sales) have declined recently due to a reduction in lead times and excess inventory, resulting in a book to bill below 1.0 for the first time since the last inventory correction in 2004.

They believe most of the reduction in bookings is for TI's analog business due to an inventory correction, with some reduction in bookings from the wireless end market due to share loss in Japan to Renesas. They do not believe the push-outs are company specific as recently several TI competitors such as Maxim, National Semiconductor and Microchip have negatively pre-announced and/or reported declines in bookings.

Firm notes they been Neutral on TXN stock due to concern that the company's extended lead times earlier in the year might lead to double ordering and an inventory correction, and it appears their fears are becoming realized.

They would note the previous inventory correction led to a roughly 20% reduction in TI's estimates. As a result, they expect the company's revenue and gross margins to be below normal seasonality for the next two quarters.

Due to the declining book to bill, the firm is lowering their C06 revenue and EPS estimates from $14.6 billion and $1.71 to $14.5 billion and $1.67. They are also lowering C07 revenue and EPS estimates from $15.8 billion and $1.88 to $15.1 billion and $1.79.

Notablecalls: TXN is the canary in the Semi mine. Consensus estimates are still way too high and have to be taken down. Think the stock (and the whole Semi space) is going to be lower in couple of months.

Calls of Note Part 1

- Banc of America i previewing Apple (NASDAQ:AAPL) noting that ar this point, they believe that Sept iPod units will be around 8 million, helped by sell in of new products. Firm is at 8.4 million. They believe that CPUs will be approx 1.5 million units, whereas they are currently at 1.4 million units. MacBooks remain the key driver of unit growth in CPUs. Net, the firm sees upside to Street estimates by over $100 million in revs and some modest EPS upside, for the Sept Q. It is unclear what type of disclosure Apple will give below revs for the Sept Q, given its pending options issue. For the Dec quarter, they believe that Apple can deliver 1.5 million to 1.6 million CPUs (we are 1.4) and approx 15 million iPods (we are 15.8), with some tension to the downside. Firm believes that Street estimates are achievable for the Dec quarter, but do not offer much upside. They believe that guidance will likely fall below Street estimates for Dec, if Apple provides guidance, given its pending option issue. They do not see any additional product launches until Jan.

- Prudential is initiating coverage of Apple Computer this AM with a Neutral Weight rating and a $74 price target, based on a 25x multiple on FY'08 EPS estimate of $2.97.

Forecasting Apple to grow its Mac share from ~2.5% to ~4% over the next two years. Near-term catalysts include: 1) the new product ramp based on Intel architecture, 2) recent iMac price cuts, and 3) the potential for an expanded relationship with Best Buy and Circuit City.

Firm's checks indicate Apple has plans for a cellular phone in the near future. We estimate that every 1 point of share in this market represents $0.20-$0.30 of earnings power for the company. However, they are concerned that the combination of a slowing media player market and increased competition from Microsoft adds risk to Apple's iPod margin and market share.

They see risk/reward balanced at current price levels and will remain on the sidelines until they get better visibility into the competitive dynamics of the media player space and/or into new product ramps.

Notablecalls: These two comments appear neutral-to-negative to me. AAPL possibly guiding down for Q4? Hmmm! Also, Prudential notes they are concerned about the combination of a slowing media player market and increased competition from Microsoft.

Color on options investigation: Apple Computer (NASDAQ:AAPL)

Several firms are commenting on Apple Computer (NASDAQ:AAPL) after the co said on Wednesday an internal investigation found irregularities with its past stock option grants, prompting the immediate resignation of a former chief financial officer from the board of directors. The company also said Chief Executive Steve Jobs was aware of some of the stock option grants, but he did not benefit from those grants and was unaware of the accounting implications:

- Goldman Sachs thinks the results of Apple's independent investigation of its stock options grants removes the largest overhang by clearing current management of any misconduct. Theannouncement does not change firm's positive view on Apple's fundamentals but it does give them greater confidence that non-operational issues will not negatively impact the stock. They also believe this removes the potential that Apple would need to delay its earnings report, scheduled for October 18, due to the inquiry. Firm's estimates and price target are unchanged.

- UBS notes that while the SEC has not opened its own formal investigation, they believe the financial impact on Apple will be minimal. Apple continues to believe it is likely that it will need to restate historical financials for non-cash charges, but the review indicates no evidence of irregularities after a January 2002 grant in question.

While CEO Steve Jobs was aware of some favorable grant dates, he did not receive or benefit from these grants. It seems that he was likely unaware of the accounting implications (deduced from Apple's disclosures). While we may hear a bit more about this issue in the news, the firm continues to operate under the view that Jobs is on solid ground based on the current facts. Maintains Buy and $92 tgt.

Notablecalls: Looks like a non-event to me.

Calls of Note Part 4

- JP Morgan notes they have been Neutral on Altera (NASDAQ:ALTR) stock due to concern that Altera's extended lead times earlier in the year might have led to double ordering, and it appears their fears are becoming realized. Firm also expects flattish sequential revenue growth for 4Q06

While their checks indicate the company experienced strong bookings in 3Q06 from the consumer and computing end markets (combined 23% of 2Q06 revenue), they believe the company experienced sluggish bookings in its communications and industrial segments (combined 77% of 2Q06 revenue).

As a result, the firm is lowering C06 revenue and EPS estimates from $1.31 billion and $0.78 to $1.30 billion and $0.76. They are also lowering C07 revenue and EPS estimates from $1.50 billion and $1.01 to $1.46 billion and $0.96.

ALTR is trading at 19X new C07 EPS estimate of $0.96, the low end of its historic range of 20X-35X EPS. Maintains Neutral.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 3

- Piper Jaffray is cautious on Intersil (NASDAQ:ISIL) noting that over the past several months, there has been a growing cloud of uncertainty surrounding the PC and related markets (e.g., optical storage). While they believe 3Q06 revenue guidance could be intact, they are increasingly concerned about revenue projections for 4Q06. Although the firm recognizes that PC demand has recovered somewhat from depressed levels in 2Q06, they believe PC/Optical Storage demand could be less than seasonal, especially in 4Q06 due to the Vista delay and shift in consumer spending from PC-related products toward FPTVs/DSCs/PMPs.

Intermediate term, they believe Intersil's focus markets could become more competitive, especially notebooks. Based on recent analysis and checks into the global power management market, the firm believes the design cycle for 2007 notebooks has become more competitive with traditionally dominant players like Maxim and Intersil now facing incremental competition from Texas Instruments and Richtek.

Given NT concerns, the firm is lowering their 4Q06 revenue growth estimate from 6% Q/Q to 3% Q/Q ($206.8MM to $201.0MM) and non-GAAP EPS from $0.34 to $0.32. They are also lowering oCY06 and CY07 non-GAAP EPS estimates from $1.23 to $1.22 and $1.45 to $1.29, respectively.

Target goes to $25 from $29. Maintains Mkt Perform.

Notablecalls: Expect to see further weakness in ISIL today. I'm betting about 1 pt.

Calls of Note Part 2

- Merrill Lynch is out with a curious little note on Genentech (NYSE:DNA) saying NDC, a third-party prescription data provider, restated Avastin, Herceptin, and Rituxan sales data to significantly below that which was previously reported by NDC for April through August 2006. If the new data are correct then Genentech's cancer drugs could meaningfully miss consensus and firm's estimates in 3Q. However, the firm cannot identify a fundamental reason for such substantial weakness even with two fewer selling days in 3Q, which will hurt sales by only 4%. Thus, while they now believe there is a greater chance for sales weakness in 3Q, they believe the NDC data may be overstating the downside risk to sales estimates.

ML estimates there is one fewer selling day in 3Q06 as compared to 2Q06. In addition, because of changes to Genentech's distribution network, the company has stated that there will be another lost selling day. Thus, with 49 total selling days in 3Q06 vs. 51 in 2Q06, they estimate a 4% effect on sales, which would not be enough to explain a miss of the magnitude suggested by the revised NDC data.

They await further clarity and reiterate Buy rating.

Notablecalls: There are severals firms out there today with positive comments on DNA. I do think this note from ML outweighs them all. Think we will see some weakness in DNA today.

Calls of Note Part 1

- Keefe, Bruyette & Woods' Lauren Smith is adjusting her mid-cap broker estimates in front of 3Q earnings. Biggest downward changes to 3Q are for COWN/ TWPG due to soft equity underwriting in 3Q. Fine-tuning Piper 3Q estimate lower largely due to lower equities revenue. Modestly increasing Jefferies estimates on stronger M&A performance. Raymond James and Greenhill estimates are unchanged.

Ms. Smith is lowering her Q306 EPS estimate for Cowen (NASDAQ:COWN) from $0.14 to $0.06 given what has proven to be a very weak quarter for investment banking, in particular equity underwriting as well as private placement activity. She has also therefore fine-tuned her capital markets assumptions given the lower underwriting activity. As such firm's full year 2006 estimate decreases from $1.02 to $0.93. 2007 estimate remains unchanged at $1.30 at this time.

Investment banking activity is weaker than originally forecast though she points to what seemingly remains a pretty healthy pipeline of activity. She is forecasting investment banking revenues of $29.8 mil compared to $39.5 mil. in the prior quarter. Ms. Smith estimates from secondary data sources that the company was on half the number of private placement transactions this quarter versus last; the company ultimately finished the quarter lead manager on just two deals (one an IPO) and co-manager on just three deals
versus 9 in the prior quarter.

Notablecalls: KBW's 06 EPS est for COWN is now almost 15% below consensus. Would not be surprised to see some weakness today.

Color on news: Imclone Systems (NASDAQ:IMCL)

Couple of tier-1 firms are commenting on Imclone Systems (NASDAQ:IMCL) after Dow Jones said dissident shareholder Carl Icahn refused to support an all-stock, $36-a-share offer made by a "major international pharmaceutical co" in September:

- Goldman Sachs notes they expect the dispute between Mr. Icahn and the Imclone board will continue for some time which could lead to negative investor sentiment and potential departure of key Imclone employees. Nevertheless, the firm believes the intrinsic value of Imclone, supported by Erbitux, approximates $27/share. Future share appreciation will be largely dependent on sales growth and clinical results. With the closing price of $27.07 on 10/3/06, there is essentially no value assigned to the potential new indications of Erbitux with combined potential over $1 Billion as well as the pipeline with 6 products in Phase 1 or 2 trials.

Imclone shares may react positively to the disclosure that there was a bid of $36. However, significant share appreciation will depend largely on data from ongoing Phase 3 studies to expand the indications of Erbitux. They expect Phase 3 data on refractory and second-line colorectal cancer (CRC) in 4Q2006 and first-line CRC in 1Q2007. Phase 3 data on Erbitux for first line lung cancer ($1.0 Billion potential) and pancreatic cancer ($0.3 Billion potential) are also expected in 2007.

- Morgan Stanley continues to be cautious on IMCL saying the disclosure of an outside bidder may give the stock short-term support, but given that this offer appears no longer on the table, and according to the disclosure, it was the highest bid and likely predated several recent negative events for Erbitux, they suspect that short-term negative pressure on the stock may continue.

Overhangs for the stock include: 1) the launch of Amgen's Vectibix, 2) management uncertainty, 3) board controversy, 4) Yeda patent overhang, 5) risk of losing a patent case with Repligen, and 6.) weak Erbitux IMS trends going into 3Q. The rejection of a $36 bid suggests to us that investors will need to wait for more clinical trial data (CRYSTAL trial is next potential positive catalyst in early 1Q) before seeing positive returns.

Maintains Equal Weight and $38 tgt.

Notablecalls: Morgan Stanley Steven Harr makes an excellent point regarding the timing of the bid and recent negative events. But on the other hand, we must assume Mr. Icahn knew what he was doing when he rejected the $36 offer. Think the stock will gap up today by 1-2 pts and then have tough time keeping the gains over the next couple of days. Possible shorting oppy.

Paperstand

According to the WSJ, insiders at Diamond Foods (DMND) keep coming back for more. Since the co went public last year, execs and directors periodically have bought shares in the open mkt, but never so many at one time as they did last week. 3 co insiders, including CEO Michael J. Mendes, bought a total of 14,625 shares for more than $200K.

Barron’s Online „Inside Scoop” section reprots that two hedge fund partners known for their conservative investing style are making an aggressive bet on a small tech co, Multi-Fineline Electronix (MFLX). But investors may want to be wary of the buying activity at the M-Flex. Michael A. Roth and Brian J. Stark have spent nearly $100.36m on behalf of Stark Investments, in order to build a stake of more than 4.5m shares, or 18.4% of M-Flex's outstanding shares. Ben Silverman, of InsiderScore.com, says Roth and Stark, who met each other while attending Harvard Law School, "early on identified an opportunity here" to buy shares. But, "there's not a lot of near-term visibility…and obviously the mkt feels the acquisition is not in the best interest of the co," Silverman says. M-Flex missed earnings ests for 2 consecutive quarters and is facing margin pressure after its largest customer Motorola (MOT) (which makes up 80% of its sales) announced significant price reductions.

Calls of Note Part 4

- Merrill Lynch is yet again cautious on Agere (NYS:AGR) following negative pre-announcement from Marvell (MRVL). Firm thinks MRVL saw significant order declines and cancellations in September suggesting that seasonal pickup is weaker expected in the HDD industry. Production trends at AGR's customers in July and August suggest that AGR's storage business in the Sep-06Q is tracking well below firm's forecast. If production trends at Agere's customers don't improve significantly in September, they think Sep-06Q estimates could be at risk.

Overall unit production at AGR's (35% HDD exposure) customers declined by 7% in July and August (first 2 months of Sep-06Q) compared to April and May (first months of Jun-06Q). Even after adjusting the data for share shifts at MXO in Q2, the firm estimates that AGR's units declined by about 2% in the months of July and August on a Q/Q basis. This is well below ML's current forecast of 10% growth in Agere's storage business for the Sep-06Q.

MRVL's new forecast implies a 20% decline in its storage revenues in the Oct06Q suggesting that orders have come to a stand still in September. It's possible that MRVL's customers (especially 2.5" customers) built aggressively in August expecting a seasonal pickup which did not materialize. Given the magnitude of the miss, the firm thinks it's reasonable to expect MRVL's storage revenues to rebound in Q4 although the magnitude of the rebound will
depend on the health of the PC market.

Notablecalls: First, check my comments on AGR from Sept 6. ML was out cautious on AGR but I didn't dare the call it outright actionable then. I was lucky as the shares took a 1pt hit and then rallied 2.5 pts over the next 10 days. AGR will take a hit today and will bounce again. That bounce will most likely prove to be shortable. Also, notice the comments on MRVL regarding the possible rebound in Q4. That will help MRVL to bounce today.

Calls of Note Part 3

- Goldman Sachs notes that despite a disturbing number of yellow flags from the HDD supply chain in the form of negative preannouncements by Marvell, Komag, Innovex and a disappointing outlook from Xyratex, they still expect Seagate (NYSE:STX) to reach consensus forecasts. Specifically, they think the preannouncements are more about share shifts and inventory corrections than underlying HDD demand for the industry or Seagate. In fact, they continue to expect normal seasonality in the back half of the calendar year and have already seen encouraging signs in the Asia supply chain that reinforce that view.

Firm sees Marvell's lower revenue outlook for the October quarter as driven by an already-expected inventory drawdown at Western Digital and lower orders to Marvell from other hard drive companies that had earlier built up inventory jockeying for Maxtor share. With share positions stabilizing, much of the noise should smooth out in the
seasonally-stronger December quarter.

They would take advantage of weakness in STX shares on the back of Marvell's preannouncement. Low fundamental expectations and a low valuation imply that Seagate could bounce appreciably as it reports in-line September-quarter results.

Notablecalls: Catching STX down 1-1.5 pts in the pre mkt would make a nice trade. Wishful thinking?

Calls of Note Part 2

- Bear Stearns is positive on XM Satellite (NASDAQ:XMSR) after recently completing an extensive check of a number of retailers across the country that suggested 3Q retail gross adds may have been better than firm's original expectations. As a result, they are raising their net adds for the platform to 325k from 270k previously.

Availability of the Audiovox Xpress and Roady2 were spotty in certain locations, suggesting that sales were higher than expected. However, the sporadic shortages likely would translate into either lower sales in 4Q or higher SAC due to air-shipments. Reduced power levels on the FM-mods are not resulting in higher complaints currently, but the sales reps are still suggesting professional installation for $50-$70.

Following the recent FCC re-certification of the FM-mod radios, they think XM will again be able to advertise efficiently in the crucial 4Q. Moreover, Oprah's addition would enhance consumer interest and awareness. While the FM-mod power levels and the installation requirement have not yet impacted retail sales, it is possible that 4q could be affected by sporadic shortages. As such, they are maintaining their FY net adds estimate of 2.2 mn subs and expect XM to end the year with ~8.1 mn subs. However, the firm will continue to closely monitor the retail channel for trends on the FM-mod issue.

Maintains Outperform.

Notablecalls: Bear's estimate was Street low anyway.

Calls of Note Part 1

- Goldman Sachs has added Aetna (NYSE:AET) to the Americas Conviction Buy List, reflecting their expectation for near-term stock upside on 3Q2006 earnings. Firm sees ~18% upside to their 6-month price target of $46 (up from $44), based on 14.2X 2007 EPS. They believe sentiment will continue to improve as Aetna demonstrates stabilization in its commercial underwriting and benefits from the conservative reserving approach it took with its 2Q2006 results. Likewise, their annual employer survey results find Aetna continuing to show strong momentum in its ranking among national account employers relative to other carriers, which the firm believes will translate to strong January 2007 fee-based (ASO, non-risk) national account gains.

While Aetna will continue to face competitive pressure on its core commercial business, the firm thinks 3Q2006 results will help to show that the price and cost trend pressures are more reflective of industry competitive pressures as opposed to "company specific" problems. They therefore believe the market over-reacted to the 2Q2006 trend issues at Aetna specifically, while "under-reacting" to the potential risks ahead for the higher valuation names in the commercial group.

Aetna trades at 12.5X 2007 EPS of $2.85, a more than 10% discount to the commercial managed care average forward P/E, as investor concerns linger on the question of whether the company is an "aggressive pricing outlier" relative other companies, as some have argued.

Notablecalls: Not going to call this one actionable. AET's far too big to be moved by a call like this one. Also, the stock is starting to look weak.

Color on news: Skyworks Solutions (NASDAQ:SWKS)

Several firms are commenting on Skyworks Solutions (NASDAQ:SWKS) after the co announced it is immediately ceasing its baseband operations and will focus completely on its core RF business:

- CIBC is saying they see this as a very positive move with management removing an underperforming asset that in their opinion would always be at a disadvantage to its much larger competitors.

Removing the baseband business will not only provide direct transparency to Skyworks' RF businesses, but will also remove a highly volatile business that took a disproportionate amount of resources (expected savings of $70M annually). FY07 EPS target was put at $0.55-$0.60.

Management's new FY07 top-line guidance of $820-$840M is above firm's previous estimate of $817.5M, which still included a contribution from baseband. They've already been looking for upside to their FY07 projections and believe there are enough design wins in place to support the outlook.

FIrm is raising their price target to $9 from $7; maintains SO.

- Merrill Lynch is somewhat more cautious saying they applaud Skyworks'decision to exit the baseband business and give credit to management for its cost cutting actions. While they expect the stock to trade up, given the nature of the wireless IC industry, secular trends in the company's end markets, and Skyworks' operating history, they see risk to management's FY07 outlook. The firm therefore maintains Neutral rating.

In an unusual move for an RF semiconductor company, Skyworks guided for full year revenue and EPS. Despite the good cost cutting news, the firm still has several concerns regarding Skyworks. TI is targeting its single chip phone, LoCosto, at the low-end handset market, which will likely erode SWKS' transceiver opportunity over the next few years. Also, they're hearing that the company could lose EDGE transceiver share at Samsung to Silicon Labs. Share loss at Nokia gives them concern as well, and they believe that the company's progress in 3G transceiver silicon is lagging.

Notablecalls: So, SWKS will most likely gap up and then at best hold the gains. Just as Merrill noted, the RF co's tend to overpromise and under deliver.

Color on warning: Marvell Tech (NASDAQ:MRVL)

Several firms are commenting on Marvell (NASDAQ:MRVL) after the co issued a warning last night:

- Deutsche Bank notes that while MRVL's exposure to the HDD segment does present rev growth
challenges in the near and LT,they continue to expect a reacceleration in growth in F4Q and beyond as it continues to be a broad-based mkt share gainer (PS3, cell phones, printers, etc). The shares are likely to remain range bound in the mid-teens given current headwinds, but they believe LT investors can use this period as an entry point. Maintains Buy.

MRVL also announced that its internal ESO investigation found that actual measurement dates in the past likely differ from the recorded grant dates. While not a large surprise given MRVL failed to file full F2Q financials, this announcement does reiterate additional risk to the share price and mgmt.

Tgt goes to $23 fronm $27 as FY07 and FY08 rev & PF EPS ests are lowered to $2.25b/$0.71 and $2.92b/$0.77 versus prior $2.38b/$0.85 and $3.21b/$0.93.

- Morgan Stanley notes they continue to believe MRVL will trade in a volatile sideways
pattern for 2-3 months until a) the impact of the semiconductor cycle is more completely understood b) investors incorporate the dilution from the Intel acquisition c) investors understand why the Intel acquisition is a solid strategic move. Firm notes they have been anticipating a $17-$20 trading range for MRVL, but given the magnitude of the revision, in the very short run MRVL likely trades below the low end of this range as short-term investors expecting a more rapid recovery sell their stock in disappointment.

They lowered their C06 adjusted EPS to $0.72 from $0.85. Firm's C2007 and C2008 adjusted EPS have been lowered to $0.98 and $1.54, respectively.

Firm notes they continue to be bullish on MRVL over the long-run and the company's strong competitive positioning and favorable secular forces should become a more important stock driver as cyclical challenges fade.

Maintains Overweight and lowers tgt to $33 from $34.

- TWP comments on the warning noting that according to management, HDD customers
accounted for the majority of the $60mn shortfall because of softer-than-expected seasonality and inventory with top customers. In firm's view, this may be because of WDC and notebook PC customers. WDC, its primary desktop PC customer, accounted for 16% of revenue in F2Q07, and its inventory increased 15% q/q in the June quarter. The balance of the shortfall may be the result of share shifts in the notebook PC market, where STX has been aggressive in ramping its mobile HDDs-at the expense of Toshiba (11% customer) and Hitachi (9%).

They are lowering their F3Q07 estimates to $515mn and $0.13 compared to prior estimates of $582mn and $0.19. As a result, FY07 estimates go from $2.28bn and $0.82 to $2.19bn and $0.74. Firm is maintaining FY08 estimates of $2.63bn and $0.92. In firm's view, the excess inventory situation may be short term in nature and we expect a resumption of growth in
F4Q07.

MRVL shares trade at 25.5x firm's CY07 EPS estimate and 5.4x TEV CY07 sales estimate. Given MRVL's consistent growth outlook and good operational fundamentals, they believe that the shares appear attractively valued and reiterate Outperform rating on MRVL shares.

Notablecalls: MRVL traded down 18% in after mkt. That feels somewhat excessive as the warning was somewhat expected. Also, MRVL is a notorious bouncer. Think the stock has a fair chance of ending the say with a 10% loss.

Paperstand

The WSJ’s „Heard on the Street” column discusses General Motors (GM), saying that the co’s momentum could stall in 2H06. For the past few weeks, GM has been touting the progress of its turnaround, and after slashing its hourly payroll and launching new SUVs, the auto maker appears headed for a substantial improvement in its Q3 earnings. But investors shouldn't necessarily take that as a green light for buying GM stock. Some analysts believe GM may not be able to sustain the rev increases that have helped turn around earnings in the 1H06, especially now that the economy is showing signs of slowing down and GM has planned for significant production cuts in the 2H06. "From a stock perspective, I think the fundamentals are deteriorating, or at least have peaked," said Ron Tadross, of BofA.

The Barrons’ “Inside Scoop” section reports that David J. Bronczek, CEO and president of FedEx (FDX) sold 27K shares for a total of $3m. But Jonathan Moreland, director of research at InsiderInsights.com, says that he finds the exercising and holding of options by five other FedEx insiders in the past two months "more intriguing" than Bronczek's open-market selling. The five insiders exercised and held onto a total of 14,788 shares with a total mkt value of $492K.

The NY Times discusses more and more crowded animated movie sector. Filmmakers plan to release 17 movies in ‘06, compared with 11 in ‘05. Pixar is now part of Disney (DIS), having been acquired earlier this year. DreamWorks (DWA), meanwhile, is still publicly traded and is unlikely to be sold anytime soon, analysts say. DreamWorks must also manage Wall St. One reason DreamWorks’ stock is trading at a low price is that analysts are concerned that a DreamWorks investor, Paul G. Allen, will activate his option to sell shares to the public. Asked by analysts last month if Mr. Allen had activated that option, DreamWorks’ president, Lewis Coleman, said DreamWorks did not have to disclose that information, but had 90 days to respond to Mr. Allen. “In our view, these comments are vague and cryptic enough to suggest that certainly the answer could be yes,” a Prudential analyst, Katherine Styponias, wrote in a report last month. By all accounts, article suggests, DreamWorks and Pixar should be in a good spot to weather the uncertainty.

According to the DigiTimes, citing sources, foundries are bracing for a weak 4Q with inventory issues likely to last through the 1Q07. OmniVision's decreased orders with TSMC as an indication of weak demand for the foundry sector. According to some institutional investors who have visited TSMC recently, the foundry does not have an optimistic outlook for the 4Q, and inventory may last until the 1Q07. Although demand from the motherboard and notebook sectors has grown strong, PC-related ICs account for only 1/3 of foundries' rev. But demand from the communications and consumer electronics sectors, both of which combine for half of the revs for foundries, is weaker compared to previous years.

Calls of Note Part 6

- Stanford comments on Verisign (NASDAQ:VRSN) saying that as they noted earlier on Friday, Senate Commerce Committee Chairman Ted Stevens (R-Alaska) and Ranking Democrat Daniel Inouye (D-Hawaii) wrote to the U.S. Commerce Department this morning urging it to delay approval of VeriSign's six-year extension to run the .com domain.

While the final decision still belongs to the Commerce Department, the firm believes the Senators' letter is likely to result in the Commerce Department holding off on approving VeriSign extension.

The delay could last into early 2007, when the Senate Commerce Committee plans to examine a variety of issues related to the Internet Corporation for Assigned Names and Numbers (ICANN).

At this point the firm would not expect the .com contract to be put out for competitive bids, but there could be modifications to the contract's automatic 7% rate increases and the strong renewal expectancy in 2012.

Notablecalls: Take a look at the intraday chart on VRSN from Friday and you'll see when the comments hit. Not actionable but good to know category for now.

Calls of Note Part 5

- On 30 September 2006 the US Congress passed H.R. 4954 the Safe Port Act, a bill seeking to improve maritime and cargo security. A number of amendments were attempted but only one, relating to Internet gambling, made it through. The measure, "The Unlawful Internet Gambling Enforcement Act of 2006", prohibits acceptance of any payment instrument for unlawful Internet gambling.

The casualty list includes: PartyGaming (stock down 60 percent in Europe), Sportingbet (down 64 percent), 888 (down 45 percent) and gaming software provider Playtech (down 55 percent). Austria's bwin.com Interactive Entertainment fell as much as 22 percent in the first few minutes of trading.

The worst-hit US-listed counterpart is most likely Optimal Group (NASDAQ:OPMR). The co has already issued a PR release saying the news will have significant negative impact on the results of its FireOne Group Plc subsidiary. Optimal Group holds 76 percent of FireOne Group, a provider of payment processing services for the online gaming industry.

Soleil is downgrading OPMR to Hold from Buy saying the unexpected has happened, and the greatest risk to the OPMR story has come to fruition. Firm's model now reflects OPMR retaining the full breadth of the FireOne business through the end of 2006 and the first half of 2007. Should the Fed offer it's interpretation earlier than the 270 day limit, they will adjust their estimates accordingly. Therefore, 2006 estimate remains unchanged at $1.24, but 2007 estimate drops dramatically, from $1.60 to $0.75.

Notablecalls: Expect OPMR shares to be under considerable pressure today. Also, Cryptologic (NASDAQ:CRYP) will likely get hit. The co is a software and services provider to theInternet gaming market.

Calls of Note Part 4

- Piper Jaffray is positive on Smith Micro (NASDAQ:SMSI) saying that based on their monthly handset channel check, they believe Verizon continued to push sales of music enabled handsets due to the recent launch of music-enabled Motorola KRZR, Nokia 6315i, continued sales strength of LG's Chocolate phone, and a price cut for the Samsung A930. With the increasing number of music phones, they believe this trend bodes well for sales of Smith Micro's Music Essential Kits ("MEKs").

While it was clear Verizon store managers were still strongly promoting its V CAST music service and enjoying strong sales of music-enabled handsets such as the LG Chocolate phone and the LG VX 8300, firm's checks also indicated store sales people were more proactively educating customers about MEKs during September. They believe sales of Smith Micro MEKs posted stronger sales during the September quarter.

Reits Outpeform and $18 tgt.

Notablecalls: Not actionable but good to know category.


- Piper Jaffray comments also on Motorola (NYSE:MOT) saying their checks indicated strong North American trends. With new products launching, they believe Motorola is well-positioned to grow its dominant share during Q406. Global checks also indicate solid trends for Motorola. FIrm believes Q406 estimates could prove conservative and maintain Outperform rating.

While firm's checks noted increasing competition from Samsung and LG, they believe Motorola maintained its dominant market share in North America. Further, with Sprint introducing new thin Motorola products such as the Q, KRZR, and RAZR during Q406 combined with the launch of several new Motorola products for the leading North American carriers this holiday season, they believe Motorola should maintain and may even grow its dominant North American market share during Q406.

Due to channel checks and increasing confidence in Motorola continuing to gain global market, the firm believes Motorola is well-positioned for the seasonally strong holiday season and their Q406 estimates could prove conservative.

Maintains Outperform and $27 tgt.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 3

- Merrill Lynch believes there are 5 key reasons to be BUYING Cubist Pharma (NASDAQ:CBST):

1) the stock is trading at a significant discount to the potential of Cubicin, 2) CBST will likely be profitable in 3Q & has significant earnings leverage, 3) they are confident that management's decision on "what's next" will create rather than dilute value for investors, 4) Cubicin is becoming established as a new standard of care for serious bacterial infections, and 5) they believe concerns about resistance should decline.

In a worst case scenario, if Cubicin sales peaked in '07, the firm estimates Cubist stock is trading at a 5% discount to the value of the drug. Based on their peak sales they estimate Cubist is trading at a 30-49% discount to Cubicin's current fair value.

Firm expects Cubist to report its first profitable quarter on a GAAP basis in 3Q. Depending on Cubist's long-term strategy, they believe the company could reduce expenses by $30 MM to $55 MM per year, which could increase profitability by $0.45 to $0.85 and add $5 to $13 of value assuming historical pharma multiples

Investors are concerned about what "Act 2" will be, but Merrill believes management is more likely to create value for investors than significantly dilute shareholders. There are a select few synergistic drugs potentially available for license or acquisition, but if Cubist is unable to build its pipeline externally, they believe it will reduces expenses, maximize cash flow, & package the company for acquisition.

Reits Buy and $35 tgt.

Notablecalls: While there was considerable buy interest in CBST already on Friday (following Jeffco's comments), I suspect comments from Merrill will provide another upward push.

Calls of Note Part 2

- FBR is reiterating their Outperform rating and $22 price target on TeleTech Holdings (NASDAQ:TTEC) and adding the company to the FBR Top Picks List as their focus has shifted to those enterprise services stocks posed to benefit from globalization trends. TTEC continues to secure more business from both new and existing clients, due to the widespread adoption of outsourcing due to domain expertise and efficiencies, having added several new clients during the quarter and announced expansion with others. Firm also continues to believe opportunity exists with the stock as consensus estimates are 30% below guidance due to the uncertainty around Newgen. At 7.8x CY07 EBITDA versus the peer group at 8x, they continue to believe the shares represent one of the best risk/ rewards in firm's coverage universe and remain buyers of the shares.

Firm believes TTEC is positioned for a strong CY07 as the recent client wins in healthcare, media, and communications continue to show the company's ability to seize the organic growth trends in the outsourcing market. TTEC's strong product offering is also proving advantageous in securing more business from existing clients, as the company continues to see relationships expand within its customer base.

Notablecalls: Expect to see some buy interest following FBR's comments.

Calls of Note Part 1

- Morgan Stanley comments on Semiconductor Industry Association (SIA) August revenue data released on Sept 30.

On a three-month-average basis, revenues of $20.5 billion were 2% higher than their estimate, and this represents a recovery from July, when revenues were 2% below firm's estimate. On a quarter-over-quarter and year-over-year basis, revenue growth remained relatively consistent, with 4% sequential (versus 3% in July) and 11% year-over-year (versus 12% in July) growth. While revenues in the month of September will be critical to how the overall quarter turns out, based on the July and August data, the firm currently expects the third quarter to grow 4%-6% sequentially and 5%-8% on a year-over-year basis. These growth rates compare with flat sequential and 10% year-over-year growth in the second quarter.

Quarter-to-date (July/August versus April/May), the overall semiconductor industry grew 7% sequentially on 4% unit growth and a 3% increase in average selling prices (ASPs). Within the major product categories, strength was led by DRAMs (up 19%) and MPUs (up 17%), which clearly reflects the seasonal uptick in PC build rates after a weak second quarter. However, after a 42% comparison in July (versus April), the growth rate in August slowed to 6% (versus May). Provided September represented relatively normal seasonality, then the MPU sector would grow at a low double-digit sequential rate in the third quarter, and AMD (NYSE:AMD) should exceed consensus estimates, while Intel (NASDAQ:INTC) would likely report in line to slightly higher than consensus results.

While NAND flash (up 8%), standard logic (up 8%), discretes (up 4%), and optoelectronics (up 4%) were generally in line with the growth rate of the overall semiconductor industry, most of the other major product segments have declined sequentially during the first two months of the quarter. NOR flash (down 6%) and DSPs (down 4%) represented the weakest segments, and the firm believes this reflects an inventory correction in the cellular phone supply chain.

Overall, they expect the number of negative earnings surprises in the third quarter to increase about threefold sequentially (to 35%-45% of all semiconductor companies). Given the sharp increase in negative earnings surprises, coupled with a deceleration in year-over-year growth rates and what will likely prove to be a decline in average operating margins for the overall semiconductor industry, the firm would expect the strong advance enjoyed by most semiconductor stocks during the last two months to succumb to profit taking in October.

Notablecalls: No real surprises in the SIA data. I hear Citi beating their chest on AMD/INTC saying SIA data confirms their thesis that Sept qtr will be strong. So what? It's the weakness in Dec qtr and beyond I'm worried about.

Barron's Summary

Barron's cover story discusses airlines, saying that it may be time for investors to reconsider their understandable aversion to US airline stocks. The industry may be in its best shape ever b/c of wrenching cost cuts at mainline carriers such as American Airlines (AMR), Continental Airlines (CAL), United (UAUA) and US Airways (LCC), that have made them competitive with low-cost operators like Southwest (LUV) and JetBlue (JBLU). US airlines notched one of their most profitable quarters ever in the 3 months ended in June, despite punishing oil prices in the range of $70-75 a barrel. The reasons: lower cost structures, restrained capacity growth and a robust economy. The just-concluded Q3 looks good, but not as strong as the Q2. For the 1st time since '00, the industry could be profitable in the seasonally weak Q4, owing in part to the recent sharp drop in oil prices and the loosening of federal rules on liquids in carry-on luggage. The outlook for '07 looks bright, barring a sharp economic slowdown. In fact, next year could be the most profitable ever for airlines. Other stocks mentioned include: ALK, AAI and FRNT.

Barron's discusses home builders, saying that unlike in past housing cycles, when co's borrowed heavily from banks, home builders today also use options and off-balance-sheet joint ventures to buy land. When times were flush, these financing vehicles enabled the industry to expand without bulking up its debt. But now that the housing mkt has weakened, land options and joint ventures could come back to haunt some co's, their financial partners and the broader economy, not to mention stockholders. At NVR (NVR), Lennar (LEN), Hovnanian (HOV) and Beazer (BZH), land-option deposits represent a hefty chunk of book value. At Standard Pacific (SPF) and KB Home (KBH), joint ventures account for much of book value.

As PetSmart (PETM) opens 100 new stores a year and aggressively adds pet hotels, sales and profit margins should climb steadily. The stock could rise 25% or more.

"The Trader" column discusses McDonalds (MDC), which is inviting shareholders to flip burgers for burritos. The co is about to distribute the 50.9% of Chipotle (CMG) it owns to shareholders, in exchange for McDonald's shares. Investors have until midnight Thu to tender their MDC shares and receive Chipotle shares in an as yet unfinalized ratio that will give them approximately a 10% discount on the stock. Of course, there are multiple catches. One is that b/c many more shares are likely to be tendered than there are Chipotle shares available to go around, the number of shares in CMG will be prorated. Shawn Collins, of Citigroup, emphasizes that forecasting the proration factor is tough, and arbitrage funds have been busily playing this trade for a month. Still, he ests that investors will receive about 1 Chipotle share for every 5 McDonald's shares tendered. So, there's no sure-thing, highly profitable trade in tendering lots of McDonald's shares to get CMG at a discount. But, Collins notes, retail investors who tender 100 shares or fewer will automatically get Chipotle shares without being prorated, at close to a 10% discount. This could be attractive for anyone looking to take profits in recently strong McDonald's shares by trading them for Chipotle stock below mkt price. Also note that, based on past transactions, after the exchange offer in a split-off, the stock of the parent has tended to decline modestly in the days and weeks after, while the former subsidiary shares tend to rise.

According to the Barron's, with time almost up for Nasdaq (NDAQ) to decide whether it should bid for the LSE, it's clear that investors in Europe's largest stock mart, and its mgmt, can't expect anyone to offer more than the current stock price. Nasdaq itself can ill afford to improve on the price it has paid in building up its 25.1% LSE stake without destroying value for its shareholders. Under UK takeover laws, Nasdaq must make a bid for LSE at a minimum price of $23.18 a share, the price it paid when it last bought shares. The stock trades around that level, valuing the London exchange at 25x earnings for '07. That never looked cheap. But it looks even less so now. In the latest trading update, the LSE's growth looks as if it is stabilizing rather than accelerating. Its number of new issues and avg yield from trades on its electronic trading platform SETS have dipped, reflecting the business' cyclical nature, rather than high growth, as some may still believe.