JMP Securities notes that FDA documents recommend new CNS side-effect warning on Ditropan for overactive bladder (OAB). OAB is a $1.4B market with Detrol and Ditropan as market leaders. Indevus' (NASDAQ:IDEV) Sanctura currently has 2-3% market share which firm anticipates will grow with the launch of once daily Sanctura XR. The FDA detailed concern on CNS side effects of J&J's Ditropan in pediatric and elderly populations in advance of tomorrow's advisory committee meeting reviewing pediatric post-marketing data for multiple drugs including Ditropan. The FDA recommends a warning of potential CNS events specific to pediatric and geriatric populations and discontinuation if adverse events (AEs) are seen. The current label doesn't include age-specific AEs or recommend discontinuation.
Sanctura's active ingredient does not enter the CNS unlike other OAB drugs. Ditropan crosses the blood-brain barrier (BBB) leading to CNS AEs. Pfizer's Detrol also crosses the BBB and was the subject of a 1994 recommendation to add a pediatric CNS stimulation label warning. Sanctura does not cross the BBB and has shown the lowest rates of CNS side effects of the entire drug class, often lower than placebo rates.
CNS AE scrutiny will further differentiate Sanctura XR further before approval. Sanctura also has the lowest overall side effect rate of OAB therapies. IDEV has a commercialization partnership with Esprit Pharma for Sanctura. Sanctura XR is currently under FDA review with an August
PDUFA date. Firm believes IDEV and Esprit are looking for a primary care co-promotion partnership. This competitor speed bump may make the commercial opportunity more compelling for possible partners and improve economics for IDEV.
Notablecalls: Indevus is relatively uknown as only few analysts follow the company. As such, this call may go unnoticed despite being quite interesting.
Wednesday, April 11, 2007
Calls of Note Part 2
Deutsche Bank says that despite tight lips from Finisar (NASDAQ:FNSR) mgt, their checks indicate that Finisar has received approval for 10 Gig transceiver (X2 SR) shipments to Cisco on major platforms including Catalyst 3000, Cat 4000 and flagship Cat 6000. Certification on Cisco's major product lines for the X2 form factor is a key milestone and is core to firm's thesis on Finisar shares.
While late on certification, firm still expects Finisar to be the major supplier of X2 (10 GigE) transceivers into Cisco: 1. Cisco has mandated two laser sources of which Finisar is one 2. Finisar has the "home court advantage" as global transceiver leader 3. Firm's contacts maintain this to be the case.
Firm expects Finisar to report Q4 2007 (Apr) in early June. Although early, they expect results slightly above the midpoint of management's $104M to $110M guidance, or inline with their $108M estimate (street $108M). Their July quarter estimates move from $114M and $0.04 to $117M and $0.05 largely on better visibility into the 10 Gig ramp at Cisco. They had probability weighted certification at Cisco at 50% in the July quarter and now believe that this hurdle is behind the company.
Firm has Buy rating with $5 tgt for the stock.
Notablecalls: While the stock has made a move already, Cisco win should sound appealing enough to create additional buying interest.
While late on certification, firm still expects Finisar to be the major supplier of X2 (10 GigE) transceivers into Cisco: 1. Cisco has mandated two laser sources of which Finisar is one 2. Finisar has the "home court advantage" as global transceiver leader 3. Firm's contacts maintain this to be the case.
Firm expects Finisar to report Q4 2007 (Apr) in early June. Although early, they expect results slightly above the midpoint of management's $104M to $110M guidance, or inline with their $108M estimate (street $108M). Their July quarter estimates move from $114M and $0.04 to $117M and $0.05 largely on better visibility into the 10 Gig ramp at Cisco. They had probability weighted certification at Cisco at 50% in the July quarter and now believe that this hurdle is behind the company.
Firm has Buy rating with $5 tgt for the stock.
Notablecalls: While the stock has made a move already, Cisco win should sound appealing enough to create additional buying interest.
Calls of Note Part 1
Piper Jaffray raising estimates and price tgt for Crocs (NASDAQ:CROX) to $73 from $70 given their upbeat view of LT growth prospects.After hosting investor meetings with CEO, Ron Snyder, in New York, firm has increased confidence in near- and long-term growth prospects for the Crocs brand on a global basis. The company is actively diversifying its product mix while adding new points of distribution and managing a demand driven operating model. Firm expects the company to report solid FQ1 results and they believe bookings for the summer and fall periods are measuring up to aggressive growth expectations.
Stock-outs at many retailers suggest demand for new spring styles remains high and validates Crocs' strategy to segment the channel by price and product. Classic styles (Beach/Cayman) continue to sell-through on a positive comp basis, evidenced by Y/Y sales trends at mature stores and company owned kiosks. On balance, firm estimates the Beach/Cayman styles will represent near 30% of sales exiting FY07, down from 61% at year-end FY06. Jibbitz tie rates have exceeded initial expectations and licensed properties add regular freshness to the line.
Strong sales trends in European markets are being led by the U.K., Germany, and France. The company is currently operating at roughly 4M units/month in capacity and expects to near 4.5M units by mid-summer. Firm thinks the company's ability to manage demand driven and replenishment order flow while at a similar rate introducing new styles into the marketplace speaks to the flexibility and speed inherent in the global procurement process. Based on this, they think international sales on a run-rate dollar volume basis could exceed domestic sales by year end FY07.
Warm March weather and a strong response to initial shipments of new products likely resulted in a strong finish to FQ1. Firm is raising their FQ2-FQ4 estimates based on increased unit sales assumptions and solid sales momentum. They expect increased investment during the year in store level fixturing, placement, and marketing in an effort to secure year-round floorspace, purported by solid booking trends for 2H style launches. Upside to estimates remains based on the potential for continued strong demand trends, performance of late-FY06 acquisitions, and strong response to new styles and licensed products. Firm is raising PT from $70 to $73, continuing to utilize 30x their revised FY07E EPS of $2.44.
Notablecalls: Expect to see some buying interest in the name.
Stock-outs at many retailers suggest demand for new spring styles remains high and validates Crocs' strategy to segment the channel by price and product. Classic styles (Beach/Cayman) continue to sell-through on a positive comp basis, evidenced by Y/Y sales trends at mature stores and company owned kiosks. On balance, firm estimates the Beach/Cayman styles will represent near 30% of sales exiting FY07, down from 61% at year-end FY06. Jibbitz tie rates have exceeded initial expectations and licensed properties add regular freshness to the line.
Strong sales trends in European markets are being led by the U.K., Germany, and France. The company is currently operating at roughly 4M units/month in capacity and expects to near 4.5M units by mid-summer. Firm thinks the company's ability to manage demand driven and replenishment order flow while at a similar rate introducing new styles into the marketplace speaks to the flexibility and speed inherent in the global procurement process. Based on this, they think international sales on a run-rate dollar volume basis could exceed domestic sales by year end FY07.
Warm March weather and a strong response to initial shipments of new products likely resulted in a strong finish to FQ1. Firm is raising their FQ2-FQ4 estimates based on increased unit sales assumptions and solid sales momentum. They expect increased investment during the year in store level fixturing, placement, and marketing in an effort to secure year-round floorspace, purported by solid booking trends for 2H style launches. Upside to estimates remains based on the potential for continued strong demand trends, performance of late-FY06 acquisitions, and strong response to new styles and licensed products. Firm is raising PT from $70 to $73, continuing to utilize 30x their revised FY07E EPS of $2.44.
Notablecalls: Expect to see some buying interest in the name.
Paperstand (WFC, DCX, NDAQ, FCX, VIAB, TRMP)
The WSJ’s “Heard on the Street” column out saying that Wells Fargo (WFC) has hit some ruts, b/c of its exposure to risky subprime loans. Shares of Wells Fargo are taking an unusually harsh beating as many investors worry that the end of the subprime sector's woes is nowhere in sight. Wells Fargo originated $83bn in subprime loans last year. This has caused some concern since Wall St. seems increasingly leery of any subprime exposure. Grumbling aside, there is plenty of evidence to suggest Wells Fargo isn't a disaster about to happen. In recent weeks, execs have been telling analysts that the bank is shielded from any problems on about 65% of the subprime loans. The reason: Wells Fargo says most of its subprime loans are made under what it calls "co-issue arrangements," in which it acts only as the servicer of the loans. In such cases financial risk is borne by investment banks and other firms that securitize the subprime mortgages. The deals eliminate the possibility that the bank will be forced to repurchase loans if borrowers miss payments. Wells Fargo is "very smart with credit," concludes Sam Lippe, of Tamarack Value Fund. It holds about 230K shares of the co. "We don't see the co blowing up at all," Mr. Lippe says.
The WSJ reports that ConocoPhillips (COP) became the first major US-based oil co to add its voice to the call for a federal global-warming-emission cap. ConocoPhillips said it was joining the US Climate Action Partnership, a group of corporations that have called for a US emissions cap and have outlined broad principles that they want any cap to include. "We believe that the science is quite compelling and that climate change is certainly attributed to human activity and to the substantial use of fossil fuels," said Jim Mulva, Chmn and CEO of ConocoPhillips.
According to the WSJ, a top DaimlerChrysler (DCX) exec is scheduled to meet in NY this week with bidders for the Chrysler unit, but it appears that Kirk Kerkorian's Tracinda isn't among those invited. Tracinda was working up to the last minute in hopes of being included in the scheduled round of meetings with DaimlerChrysler exec Rüdiger Grube. Among the issues: DaimlerChrysler and its bankers are questioning whether Tracinda's bid, which came with several significant conditions, is competitive given proposals from 3 rival groups. Mr. Grube is scheduled today to kick off meetings with representatives from the tandem of Blackstone Group and Centerbridge Capital; Cerberus Capital; and a partnership between Magna Intl. (MGA) and Ripplewood.
The WSJ reports that Nasdaq (NDAQ) is in talks to buy the Philadelphia Stock Exchange. A move would give the Nasdaq a sizable foothold in the options business. The two exchanges have been talking for months, but a deal isn't expected anytime soon, and may take several weeks to put together. The discussions between the two mkts have intensified in recent weeks as Nasdaq looks for its next step after a failed bid to buy London SE. Some followers of the Philadelphia exchange say that with increased exchange valuations in recent years, the co could be valued at $250-300m.
The WSJ reprots that Federal regulators said they will seek a temporary restraining order and preliminary injunction to halt Western Refining's (WNR) $1.13bn acquisition of Giant Industries (GI). The FTC said the proposed buyout would lead to reduced competition for the bulk supply of light petroleum products, including motor gasoline, to northern New Mexico.
“Inside Track” section reports that 5 board members of Freeport (FCX) reported buying more than $16m worth of co shares last month before and after Freeport completed its acquisition of Phelps Dodge. InsiderScore.com research director Ben Silverman said the directors' purchases are a bet on strong demand and high prices for copper. "I think that this buying is really a bullish bet on copper pricing more than anything else," Mr. Silverman said.
Barron’s Online out saying that there’s plenty of value in Viacom's (VIAB) ultra-cheap stock, value that could reward patient investors as Redstone and other top execs fix what's broken with Viacom's old-media operations while bringing in rising rev from new media. With shares trading at 10x this year's projected EBITDA, compared to 15x for News Corp., Viacom shares could see 20% or better returns this year as its film business turns out more hits and its Websites start to contribute meaningfully to the top line. "Destination content will become more valuable b/c there will be more and more ways to make money off of it," says Bill Nygren, of Oakmark Fund. Henry Berghoef, Oakmark's director of research, says Viacom is perhaps the most undervalued Big Media co around, based on what are very reliable cash flows at the cable networks.
“Inside Scoop” section reports that Carl Icahn’s investment groups reported that in the last 2 weeks they have raised their holdings in Motorola (MOT) to 69.1m shares, or a 2.9% stake. That's up from 64.9m shares, or a 2.7% stake. Icahn said he intends to send his own letter out to investors on April 13 asking for support at the co's May 7 AGM.
The NY Times discusses Trump Entertainment Resorts (TRMP), saying that 2 of the 3 TRMP casinos in Atlantic City rank dead last in terms of gambling revs among the 11 casinos in town. And in an industry that sometimes seems like a legal means of printing money, the co lost $19m last year, in no small part b/c it is freighted with a staggering $1.4bn in debt. “Most casino co’s tend to be awash in cash, but we are not,” said COO Mark Juliano. “As a result, reinvestment was not done until fairly recently, causing the hotels to become somewhat less competitive from a facilities point of view. “You’ve got casinos here spending like mad to remake themselves and go up-mkt,” said the general manager at one rival property. “And you’ve got casinos with their heads in the sand who aren’t doing much of anything.” And then there’s the Trump Plaza, Trump Marina and Trump Taj Mahal, which he said occupy a third category by themselves. “You almost have to feel sorry for them,” this exec said. “They’re trying, but you have to wonder if they can pull it off.” “These properties are not earning what they could or should be earning,” said Adam Steinberg, of Morgan Joseph.
The WSJ reports that ConocoPhillips (COP) became the first major US-based oil co to add its voice to the call for a federal global-warming-emission cap. ConocoPhillips said it was joining the US Climate Action Partnership, a group of corporations that have called for a US emissions cap and have outlined broad principles that they want any cap to include. "We believe that the science is quite compelling and that climate change is certainly attributed to human activity and to the substantial use of fossil fuels," said Jim Mulva, Chmn and CEO of ConocoPhillips.
According to the WSJ, a top DaimlerChrysler (DCX) exec is scheduled to meet in NY this week with bidders for the Chrysler unit, but it appears that Kirk Kerkorian's Tracinda isn't among those invited. Tracinda was working up to the last minute in hopes of being included in the scheduled round of meetings with DaimlerChrysler exec Rüdiger Grube. Among the issues: DaimlerChrysler and its bankers are questioning whether Tracinda's bid, which came with several significant conditions, is competitive given proposals from 3 rival groups. Mr. Grube is scheduled today to kick off meetings with representatives from the tandem of Blackstone Group and Centerbridge Capital; Cerberus Capital; and a partnership between Magna Intl. (MGA) and Ripplewood.
The WSJ reports that Nasdaq (NDAQ) is in talks to buy the Philadelphia Stock Exchange. A move would give the Nasdaq a sizable foothold in the options business. The two exchanges have been talking for months, but a deal isn't expected anytime soon, and may take several weeks to put together. The discussions between the two mkts have intensified in recent weeks as Nasdaq looks for its next step after a failed bid to buy London SE. Some followers of the Philadelphia exchange say that with increased exchange valuations in recent years, the co could be valued at $250-300m.
The WSJ reprots that Federal regulators said they will seek a temporary restraining order and preliminary injunction to halt Western Refining's (WNR) $1.13bn acquisition of Giant Industries (GI). The FTC said the proposed buyout would lead to reduced competition for the bulk supply of light petroleum products, including motor gasoline, to northern New Mexico.
“Inside Track” section reports that 5 board members of Freeport (FCX) reported buying more than $16m worth of co shares last month before and after Freeport completed its acquisition of Phelps Dodge. InsiderScore.com research director Ben Silverman said the directors' purchases are a bet on strong demand and high prices for copper. "I think that this buying is really a bullish bet on copper pricing more than anything else," Mr. Silverman said.
Barron’s Online out saying that there’s plenty of value in Viacom's (VIAB) ultra-cheap stock, value that could reward patient investors as Redstone and other top execs fix what's broken with Viacom's old-media operations while bringing in rising rev from new media. With shares trading at 10x this year's projected EBITDA, compared to 15x for News Corp., Viacom shares could see 20% or better returns this year as its film business turns out more hits and its Websites start to contribute meaningfully to the top line. "Destination content will become more valuable b/c there will be more and more ways to make money off of it," says Bill Nygren, of Oakmark Fund. Henry Berghoef, Oakmark's director of research, says Viacom is perhaps the most undervalued Big Media co around, based on what are very reliable cash flows at the cable networks.
“Inside Scoop” section reports that Carl Icahn’s investment groups reported that in the last 2 weeks they have raised their holdings in Motorola (MOT) to 69.1m shares, or a 2.9% stake. That's up from 64.9m shares, or a 2.7% stake. Icahn said he intends to send his own letter out to investors on April 13 asking for support at the co's May 7 AGM.
The NY Times discusses Trump Entertainment Resorts (TRMP), saying that 2 of the 3 TRMP casinos in Atlantic City rank dead last in terms of gambling revs among the 11 casinos in town. And in an industry that sometimes seems like a legal means of printing money, the co lost $19m last year, in no small part b/c it is freighted with a staggering $1.4bn in debt. “Most casino co’s tend to be awash in cash, but we are not,” said COO Mark Juliano. “As a result, reinvestment was not done until fairly recently, causing the hotels to become somewhat less competitive from a facilities point of view. “You’ve got casinos here spending like mad to remake themselves and go up-mkt,” said the general manager at one rival property. “And you’ve got casinos with their heads in the sand who aren’t doing much of anything.” And then there’s the Trump Plaza, Trump Marina and Trump Taj Mahal, which he said occupy a third category by themselves. “You almost have to feel sorry for them,” this exec said. “They’re trying, but you have to wonder if they can pull it off.” “These properties are not earning what they could or should be earning,” said Adam Steinberg, of Morgan Joseph.
Tuesday, April 10, 2007
Calls of Note Part 6
Raymond James recently completed their iRobot (NASDAQ:IRBT) channel checks at various retailers across the country and found that Scooba stocking is down significantly, Roomba's movement through the channel has been slow, and overall competition in the specialty floor care category seems intense. The latter two findings seem to make sense and were well intimated by management. However, the lack of stocked Scooba in a broad sense at various retailers was a surprise and has us questioning their view on the market size of that product, the appropriate price point of that product, and really the true breadth of the co's floor care product line.
There were four key Scooba findings from the survey:
* Inconsistent Scooba Stocking: Five of the six retailers contacted were not consistently carrying Scooba product. Most said the product was not selling well.
* Discounts: The one retailer consistently carrying the product was using a heavy dose of incentives to move product. This makes us wonder if the $299 price point works for the channel. It is ironic though that the more expensive $399 price point seems more popular in direct sales mode.
* Intense Competition: Firm noticed a few significant new floor care products being stocked potentially at the expense of Scooba. While none of these compete directly with Scooba it appears that there is a "floor care" saturation point at retailers. Dyson, Dirt Devil, and Electrolux all seemed to grab incremental shelf space. There are also rumors that Dyson is once again eyeing the robot segment of the market.
* Uncertain Future: Firm received a divergent set of responses from store representatives regarding the product's future. It seemed fairly well split between those believing that the product was "permanently discontinued" and those believing that they "would probably have it in the future". Time will tell what the future holds.
Firm believes the focus on Scooba is essential during 1H07 given that it is one of the largest drivers of average selling price (ASP) performance for home robots. It is likely that this variable will be the single most watched item for investors to gauge what combination of volume increase and ASP erosion can combine to make 20% home robot growth achievable for the year.
Notablecalls: Expect to see pressure on the shares today.
There were four key Scooba findings from the survey:
* Inconsistent Scooba Stocking: Five of the six retailers contacted were not consistently carrying Scooba product. Most said the product was not selling well.
* Discounts: The one retailer consistently carrying the product was using a heavy dose of incentives to move product. This makes us wonder if the $299 price point works for the channel. It is ironic though that the more expensive $399 price point seems more popular in direct sales mode.
* Intense Competition: Firm noticed a few significant new floor care products being stocked potentially at the expense of Scooba. While none of these compete directly with Scooba it appears that there is a "floor care" saturation point at retailers. Dyson, Dirt Devil, and Electrolux all seemed to grab incremental shelf space. There are also rumors that Dyson is once again eyeing the robot segment of the market.
* Uncertain Future: Firm received a divergent set of responses from store representatives regarding the product's future. It seemed fairly well split between those believing that the product was "permanently discontinued" and those believing that they "would probably have it in the future". Time will tell what the future holds.
Firm believes the focus on Scooba is essential during 1H07 given that it is one of the largest drivers of average selling price (ASP) performance for home robots. It is likely that this variable will be the single most watched item for investors to gauge what combination of volume increase and ASP erosion can combine to make 20% home robot growth achievable for the year.
Notablecalls: Expect to see pressure on the shares today.
Calls of Note Part 5
Thomas Weisel reduces their industry rating on the semiconductor capital equipment industry from Favorable to Neutral following recent industry analysis that suggests the outlook for equipment orders in 2Q07 and 2H07 will track well below levels implied by Street estimates. With their industry downgrade, they are lowering their ratings on both VSEA and ASML from Overweight to Market Weight. They are also reducing estimates on AMAT, ASML, LRCX, VSEA, FORM, NVLS, KLAC and CYMI. While they believe that a modest downturn in DRAM orders (45-50% of 4Q06 total) now expected for 2Q07 and 3Q07 is already reflected in current semi cap valuations, firm's analysis indicates that separate, compensating positive catalysts anticipated by many investors are unlikely to materialize. In the current environment, they favor technology-driven (rather than capacity-driven) stories with expanding addressable markets that are trading at attractive valuations, including VRGY, LRCX and AMAT.
Firm is reducing their 2007 capex growth estimate from an above-Street 10% y/y to a below-Street 0% y/y. Firm expects recent negative capex commentary to characterize 1Q07 earnings calls.
Bad news is bad news, for a change: In contrast to the stock behavior around prior semi cap equipment order cycles, firm does not expect cautious capex commentary or evidence of equipment delivery push outs to serve as positive catalysts for stocks in the group. Their discussions with investors suggest to us that at current valuations negative demand datapoints will dominate over the positive psychology historically associated with oversupply corrections.
Semi cap group fairly valued given lack of near-term catalysts: Semi cap equipment stocks trade at an average 2007E and 2008E P/E of 19x and 14x, respectively, versus the lower-risk reference points of the SPX, which are currently at a respective 16x and 15x for 2007E and 2008E.
Notablecalls: There are lots of calls on semiconductor capital equipment today (notably BofA raising AMAT rating, JP Morgan once again praising ASML, LRCX getting positive comments from CIBC), so it will be interesting to see how the stocks react. Fundamentally I would rather agree with Thomas Weisel, but I'm not sure if the mkt agrees today.
Firm is reducing their 2007 capex growth estimate from an above-Street 10% y/y to a below-Street 0% y/y. Firm expects recent negative capex commentary to characterize 1Q07 earnings calls.
Bad news is bad news, for a change: In contrast to the stock behavior around prior semi cap equipment order cycles, firm does not expect cautious capex commentary or evidence of equipment delivery push outs to serve as positive catalysts for stocks in the group. Their discussions with investors suggest to us that at current valuations negative demand datapoints will dominate over the positive psychology historically associated with oversupply corrections.
Semi cap group fairly valued given lack of near-term catalysts: Semi cap equipment stocks trade at an average 2007E and 2008E P/E of 19x and 14x, respectively, versus the lower-risk reference points of the SPX, which are currently at a respective 16x and 15x for 2007E and 2008E.
Notablecalls: There are lots of calls on semiconductor capital equipment today (notably BofA raising AMAT rating, JP Morgan once again praising ASML, LRCX getting positive comments from CIBC), so it will be interesting to see how the stocks react. Fundamentally I would rather agree with Thomas Weisel, but I'm not sure if the mkt agrees today.
Calls of Note Part 4
Susquehanna introduces their proprietary Baidu Query Tracking for Baidu.com (NASDAQ:BIDU), which monitors the search volumes of approximately 2,000 key words on Baidu.com. These key words are selected in such a manner that they cover a wide variety of industry sectors, as well as users' daily consumption needs. A modeling technique is then deployed to estimate M/M and Q/Q query growth. The most recent data show that relevant queries grew by 17.4% Q/Q in 1Q07, continuing to demonstrate robust usage growth on Baidu platforms, despite the weak seasonality due to a late Chinese Lunar New Year. Thus, flat Q/Q revenue guidance already provides a cushion for potential dips in click-through rate and bid price. Firm thinks the company meeting the Street's expectation of 2Q sequential sales growth at mid to high 20s is not impossible, as they believe there will be continuous volume and pricing growth. Firm reiterates their Positive rating on BIDU.
Firm expects search query growth in 2Q07 to be around 20% Q/Q. They arrive at the conclusion by assuming average queries in April through June to equal March. Since the Chinese Internet market is driven by both user growth (~20% CAGR 2007-2010) and usage growth, they believe their assumption of no M/M growth in Q2 is conservative. If combined growth of click-through rate and average bid price could increase 8% Q/Q, the consensus expectation of 28% Q/Q revenue growth would not be impossible for Baidu, in their view.
Notablecalls: Baidu Query Tracking has yet to prove its accuracy, but the call should generate mild interest in BIDU shares. There have been concerns about BIDU's 2Q and despite not being extremely convincing, Susquehanna somewhat alleviates these concerns.
Firm expects search query growth in 2Q07 to be around 20% Q/Q. They arrive at the conclusion by assuming average queries in April through June to equal March. Since the Chinese Internet market is driven by both user growth (~20% CAGR 2007-2010) and usage growth, they believe their assumption of no M/M growth in Q2 is conservative. If combined growth of click-through rate and average bid price could increase 8% Q/Q, the consensus expectation of 28% Q/Q revenue growth would not be impossible for Baidu, in their view.
Notablecalls: Baidu Query Tracking has yet to prove its accuracy, but the call should generate mild interest in BIDU shares. There have been concerns about BIDU's 2Q and despite not being extremely convincing, Susquehanna somewhat alleviates these concerns.
Calls of Note Part 3
Piper Jaffray raises SanDisk (NASDAQ:SNDK) estimates after their monthly handset channel checks indicate continued strong demand for music-enabled and data-oriented phones.
Firm was particularly encouraged by strong demand for the Nokia 5300 offering a bundled 1GB microSD card, significantly more memory than most handsets currently available. As consumers store greater quantities of digital music, video, maps and other content on their devices, firm expects densities of bundled NAND memory cards and embedded NAND to significantly grow in coming years.
They were also encouraged by solid interest in mobile TV phones at Verizon stores in locations offering mobile TV service. Although these handsets do not yet offer storage capabilities, recent conversations at 3GSM suggest several vendors are considering enabling storage capabilities for mobile TV content. While Piper does not expect mobile TV to significantly drive demand for NAND flash until 2008, they believe this application could require densities significantly beyond SanDisk's average retail capacity of 1.2GB exiting 2006.
Also, firm's Verizon checks indicated growing consumer interest in VZ Navigator, Verizon's location-based service portfolio. They believe growing demand for this feature should drive increased demand for NAND memory required to store location maps. Further, Verizon's growing traction could spur other carriers to offer similar services. Consequently, they expect location-based services to further stimulate NAND memory adoption beginning in 2H07.
While NAND flash pricing has improved 20-30% in recent weeks, firm continues to model 60% year-over-year price declines in 2007 given volatility around recent price fluctuations. However, given indicators of future demand emerging from their checks, firm is raising their 2007 estimates from $1.02/$3.7B to $1.04/$3.8B, and raising their 2008 estimates from $2.46/$5.1B to $2.53/$5.2B.
Notablecalls: Nothing really new and estimate raises are also too small to generate interest.
Firm was particularly encouraged by strong demand for the Nokia 5300 offering a bundled 1GB microSD card, significantly more memory than most handsets currently available. As consumers store greater quantities of digital music, video, maps and other content on their devices, firm expects densities of bundled NAND memory cards and embedded NAND to significantly grow in coming years.
They were also encouraged by solid interest in mobile TV phones at Verizon stores in locations offering mobile TV service. Although these handsets do not yet offer storage capabilities, recent conversations at 3GSM suggest several vendors are considering enabling storage capabilities for mobile TV content. While Piper does not expect mobile TV to significantly drive demand for NAND flash until 2008, they believe this application could require densities significantly beyond SanDisk's average retail capacity of 1.2GB exiting 2006.
Also, firm's Verizon checks indicated growing consumer interest in VZ Navigator, Verizon's location-based service portfolio. They believe growing demand for this feature should drive increased demand for NAND memory required to store location maps. Further, Verizon's growing traction could spur other carriers to offer similar services. Consequently, they expect location-based services to further stimulate NAND memory adoption beginning in 2H07.
While NAND flash pricing has improved 20-30% in recent weeks, firm continues to model 60% year-over-year price declines in 2007 given volatility around recent price fluctuations. However, given indicators of future demand emerging from their checks, firm is raising their 2007 estimates from $1.02/$3.7B to $1.04/$3.8B, and raising their 2008 estimates from $2.46/$5.1B to $2.53/$5.2B.
Notablecalls: Nothing really new and estimate raises are also too small to generate interest.
Calls of Note Part 2
Cowen says that Critical Therapeutics' (NASDAQ:CRTX) recent co-promotion agreement with Dey Labs improves visibility on the Zileuton CR sales ramp, given the established presence of Dey's 200-rep respiratory specialist sales force. The FDA's 10-month review deadline for Zileuton CR is May 31st: we project an approvable letter followed by final approval and launch later this year. Firm projects Zileuton franchise sales of $125MM in 2011, based on 2-3% share of the U.S. moderate/severe asthma market. Critical Therapeutics also gains co-promotion rights to a Dey COPD product which is currently pending approval. And they believe the HMGB1 antibody program (with MedImmune) has intriguing potential as a broad inflammatory mediator. With approximately $1.20 in net cash per share, firm believes CRTX shares are attractively valued.
Notablecalls: Fundamentally there's really nothing in this call to make me buy the stock. However, recent days have been kind for small biotech stocks, so such call may catch attention of speculative traders.
Notablecalls: Fundamentally there's really nothing in this call to make me buy the stock. However, recent days have been kind for small biotech stocks, so such call may catch attention of speculative traders.
Calls of Note Part 1
Piper Jaffray out with an interesting call on Trimeris (NASDAQ:TRMS), saying that they have learned that French investigators will be initiating a trial this month to study switching of Fuzeon patients to MRK's new integrase inhibitor, Isentress (previously MK-0518). The trial will enroll approximately 170 patients with undetectable HIV levels treated with Fuzeon who will be randomized to either maintain their Fuzeon regimen or switch to Isentress. The primary endpoint will be powered to demonstrate non- inferiority between the two arms on the proportion of virologic failures at week 24. Firm believes that the study may have preliminary data in 2008.
In addition to the risk of declining new patient starts on Fuzeon, this study underscores the potential for direct switching of existing Fuzeon patients to new oral drugs. Firm believes that the side effects and inconvenience of Fuzeon therapy could open the door for switching to create further pressure on future Fuzeon sales. These new oral options could enter the market in 2H07 (PFE's maraviroc and MRK's Isentress).
Firm discusses BMY's Zerit and PFE's Viracept as case studies, both lost significant market share. If Fuzeon suffered a similar rate of market share decline (and they believe it could be worse), the company's current profitability may be unsustainable by 2009-2010. As a result, they are lowering their price target from $7 (16x 2010, disc 30% for two periods) to $5 (12x 2010, disc 40% for two periods) to reflect the low end of the current range of biotech multiples and heightened risk to our profitability assumptions.
Notablecalls: I believe there is additional downside to the stock over the next few days.
In addition to the risk of declining new patient starts on Fuzeon, this study underscores the potential for direct switching of existing Fuzeon patients to new oral drugs. Firm believes that the side effects and inconvenience of Fuzeon therapy could open the door for switching to create further pressure on future Fuzeon sales. These new oral options could enter the market in 2H07 (PFE's maraviroc and MRK's Isentress).
Firm discusses BMY's Zerit and PFE's Viracept as case studies, both lost significant market share. If Fuzeon suffered a similar rate of market share decline (and they believe it could be worse), the company's current profitability may be unsustainable by 2009-2010. As a result, they are lowering their price target from $7 (16x 2010, disc 30% for two periods) to $5 (12x 2010, disc 40% for two periods) to reflect the low end of the current range of biotech multiples and heightened risk to our profitability assumptions.
Notablecalls: I believe there is additional downside to the stock over the next few days.
Paperstand
The WSJ’s ”Heard on the Street” column discusses Warren Buffett’s railroad ride. Railroad operators have benefited in recent years from a boom in overseas demand for commodities, US hunger for foreign goods and restrained competition from their big rival, trucking. And thanks to earlier waves of consolidation that left only a handful of public US railroad co’s, their earnings and their stocks have attracted investor attention. So, the billionaire investor's bet on Burlington Northern (BNI) is the latest sign that the resurgence in railway stocks has some strength over the long haul. Mr. Buffett's Berkshire Hathaway (BRKA) has accumulated a total of 39m shares. Ken Hoexter, of Merrill Lynch, says that despite the near-term earnings risks, he remains bullish on the group. "Long term, the secular story of pricing and improved returns will drive improved share performance," says Mr. Hoexter, who has a Buy rating on Burlington' stock.
The NY Times reports that one of Canada’s largest pension funds is in early talks with other investors to form a consortium to mount a $45bn takeover bid for the parent co of Bell Canada in what would be the largest buyout in history. The Ontario Teachers’ Pension Plan, which is the largest shareholder of BCE Inc. (BCE), the telephone co’s parent, has reached out in recent weeks to Caisse de Dépôt et Placement du Québec and the Canada Pension Plan Investment Board about pursuing a takeover.
DigiTimes reports that monitor vendors are feeling the pressure from rising panel prices, with mkt watchers predicting that monitor prices may go up as early as May. Monitor vendors have admitted that rising panel prices, which have gone up $2-5 since the beginning of April, are heaping pressure on them. Mkt observers pointed out that although margins for monitors are low, its prices are so sensitive an issue that vendors are conservative about raising them. But the observers predict that if panel prices continue rising, monitor prices will go up in early May. Monitor panel prices have been going up due to decreased supply for the 17-inch segment, and strong demand for 19-inch and 19-inch widescreen segments.
The NY Times reports that one of Canada’s largest pension funds is in early talks with other investors to form a consortium to mount a $45bn takeover bid for the parent co of Bell Canada in what would be the largest buyout in history. The Ontario Teachers’ Pension Plan, which is the largest shareholder of BCE Inc. (BCE), the telephone co’s parent, has reached out in recent weeks to Caisse de Dépôt et Placement du Québec and the Canada Pension Plan Investment Board about pursuing a takeover.
DigiTimes reports that monitor vendors are feeling the pressure from rising panel prices, with mkt watchers predicting that monitor prices may go up as early as May. Monitor vendors have admitted that rising panel prices, which have gone up $2-5 since the beginning of April, are heaping pressure on them. Mkt observers pointed out that although margins for monitors are low, its prices are so sensitive an issue that vendors are conservative about raising them. But the observers predict that if panel prices continue rising, monitor prices will go up in early May. Monitor panel prices have been going up due to decreased supply for the 17-inch segment, and strong demand for 19-inch and 19-inch widescreen segments.
Monday, April 09, 2007
Calls of Note Part 4
- Goldman Sachs notes Sun Micro (NASDAQ:SUNW) shares are down 9% since their recent peak on March 20 versus the S&P 500 which is up 0.6%. The fear is that Sun missed the quarter and will therefore head into its fiscal year-end quarter on weakness. Firm disagrees. While March quarters in the US were unusually backend-loaded for their enterprise hardware names, they think Sun's came together both on the direct and indirect sides of the business, putting Sun in a position to achieve well-above the company's 4% operating margin target exiting the fiscal year.
Investor sentiment has been noticeably skittish on Sun. Investors are nervous about the quarter, projecting that further into questions about Sun's ability to sustain margin improvements. GSCO's checks suggest that Sun had a strong finish to the March quarter, strong enough to at least hit the low end of the company's target range. Checks also point to strong and building business activity for fiscal 4Q, including improvements in high-end box sales which should help margins. After making it through the difficult March quarter mostly unscathed and heading into its fiscal year end, Sun shares should recapture their recent slide and begin to move toward firm's $7.50 12-month tgt.
Notablecalls: The stock is about about 5-6 cents in pre mkt trading but I would not be surpised to see some more buy interest over the week or so.
Investor sentiment has been noticeably skittish on Sun. Investors are nervous about the quarter, projecting that further into questions about Sun's ability to sustain margin improvements. GSCO's checks suggest that Sun had a strong finish to the March quarter, strong enough to at least hit the low end of the company's target range. Checks also point to strong and building business activity for fiscal 4Q, including improvements in high-end box sales which should help margins. After making it through the difficult March quarter mostly unscathed and heading into its fiscal year end, Sun shares should recapture their recent slide and begin to move toward firm's $7.50 12-month tgt.
Notablecalls: The stock is about about 5-6 cents in pre mkt trading but I would not be surpised to see some more buy interest over the week or so.
Calls of Note Part 3
- Bear Stearns is raising their Wynn (NASDAQ:WYNN) LV EBITDA projection to $92.1m from prior $84.5m, based on their checks of strong high-end volumes throughout the 1Q. Firm is also raising their Wynn Macau EBITDA projections, which they base on a continued ramp up of that property (due to growing market share, strong table and slot volumes, overall market wide gaming revenue growth in the 1Q07). Firm is raising their all-in 1Q07 EBITDA projection +$10mm to $144m. 1Q07 EPS goes to $0.61 from $0.52, which is $0.08 above Consensus.
They continue to believe WYNN is a solid play on two 1H07 themes in the gaming sector: 1) strong high-end trends on the Las Vegas Strip and 2) growing market shares gains (Wynn specifc) and increasing EBITDA/cash flows in the growing Macau gaming market. On a risk-adjusted basis, they prefer WYNN over LVS in the near-term.
Reaffirm Outperform rating and YE07 PT of $124
Notablecalls: WYNN's a mover and as ests are raised above consensus we may see the stock move over the $100 level today.
Calls of Note Part 2
- Stifel notes that since January, Amgen (NASDAQ:AMGN) has been bombarded with news of safety hazards, regulatory concerns, reimbursement problems, and aborted trials, dropping shares to a highly attractive price from a valuation standpoint. While the firm would be buyers of shares at this price they would remain cautious as investors, since, in their opinion, Amgen still faces a number of events that will insure the price of shares will remain volatile through the rest of 2007.
The firm adjusted their model to reflect trends in IMS script data through 3/23/ 07 and have downwardly adjusted 1Q07 revenue estimates for most drugs and most significantly for the epoetin franchise. While the decline in January and February was similar in 2006 and 2007, in March 2007 the decline in prescriptions continued unlike in 2006. This fall off coincides with the FDA black box warning for ESAs such as Aranesp and Epogen, and follows the USP DI delisting of Aranesp for AOC. While Amgen reiterated guidance for 2007 on March 1, Stifel believes that they will be forced to downwardly adjust guidance during the first quarter conference call to reflect the fall off of epoetin prescriptions and potential reimbursement issues.
They would use Amgen as a trading engine, buying on weakness or overreaction and selling on strength, but would not be long term holders until safety, regulatory, and reimbursement uncertainties have been resolved. Tgt is lowered to $65 from $91. Maintains Buy.
Notablecalls: Let's see how the stock takes the news today. There will be some sellers following the guidedown comments, so I'm interested to see when & where the buyers are willing to step in. They better step in 1 pt lower or we may see AMGN going lower...much lower. Stiffy's right about AMGN being a trading engine. If indeed we get warning from AMGN, you can surely buy the gap down for a decent bounce.
Calls of Note Part 1
- Goldman Sachs think the recent rebound in Cox Radio (NYSE:CXR) shares is unsubstantiated and see 16% downside to firm's $12.50 price target based on their belief the premium in the stock owing to a potential buy-in remains overstated. CXR's relative premium is still ~1X multiple point, with no change in Cox's acquisition strategy, no visibly sustainable improvement in radio growth in 2007, sub-par relative fundamentals, slowed buybacks and no credible signs the parent Cox Enterprises is set to buy in the 34% float.
Low-single digit revenue trends apparent in 1Q07 are unlikely to offset faster expense growth and, the firm, along with Cox Radio management, remains cautious on whether that level of revenue growth is sustainable through 2007. Given a muted revenue outlook, a targeted mid-single digit rise in expenses and limited further share repurchases set against the relative premium valuation and their view that a privatization remains unlikely in the near-term, they maintain Sell rating.
Notablecalls: GSCO added CXR to their America's Conviction Sell List on November 2006 and the stock has been kind to the shorts ever since. Thursday's spike was due to an upgrade by CSFB that quickly morphed into a short squeeze. There may be some buy or cover interest in CXR left, but I suspect that not before long the stock will start heading south again. See archives for more color.
Low-single digit revenue trends apparent in 1Q07 are unlikely to offset faster expense growth and, the firm, along with Cox Radio management, remains cautious on whether that level of revenue growth is sustainable through 2007. Given a muted revenue outlook, a targeted mid-single digit rise in expenses and limited further share repurchases set against the relative premium valuation and their view that a privatization remains unlikely in the near-term, they maintain Sell rating.
Notablecalls: GSCO added CXR to their America's Conviction Sell List on November 2006 and the stock has been kind to the shorts ever since. Thursday's spike was due to an upgrade by CSFB that quickly morphed into a short squeeze. There may be some buy or cover interest in CXR left, but I suspect that not before long the stock will start heading south again. See archives for more color.
Paperstand
The WSJ reports that a probe by the DoJ into past money transfers at ABN Amro (ABN) looms as a hurdle to signing a deal to sell the Dutch bank to Barclays (BCS). ABN is working toward trying to reach a settlement with the DoJ but is facing time pressure: Barclays wants greater reassurance that the matter can be resolved before signing a deal to buy ABN for an estd $80bn within the next 2 weeks. Barclays doesn't want to inherit the risk of a criminal probe.
According to the WSJ, Yahoo (YHOO), Sandisk (SNDK) and Zing Systems have teamed up to launch an MP3 player that can download music wirelessly, in the latest attempt to take on Apple's iPod. A new wireless MP3 player called the Sansa Connect hit store shelves on Fri. The $250 device, crafted to work closely with Yahoo's Internet music and other online services, has a novel twist: It's designed to download music from the Internet wirelessly when the user isn't necessarily near a PC and wants to get fresh batches of songs.
“Heard on the Street” column out saying that investors who want to parlay Citigroup’s (C) long-awaited restructuring into profits might be better off on the sidelines this week when the co announces thousands of job cuts and other spending crackdowns. That is b/c the plan, likely to be announced Wed by Chmn and CEO Charles Prince, won't shed much light on the bank's fortunes as it grapples with a slew of tough issues weighing on financial institutions around the country. In a report issued Thu, Lehman Brothers analyst Jason Goldberg pegged Citigroup's rev per employee at $270K compared with $362K at its banking peers. To match its peers on that metric, Citigroup would have to cut 80K jobs, estd Mr. Goldberg. "While we don't expect it to go that far, we do believe cuts could run deeper than expectations," he wrote.
According to the WSJ, Yahoo (YHOO), Sandisk (SNDK) and Zing Systems have teamed up to launch an MP3 player that can download music wirelessly, in the latest attempt to take on Apple's iPod. A new wireless MP3 player called the Sansa Connect hit store shelves on Fri. The $250 device, crafted to work closely with Yahoo's Internet music and other online services, has a novel twist: It's designed to download music from the Internet wirelessly when the user isn't necessarily near a PC and wants to get fresh batches of songs.
“Heard on the Street” column out saying that investors who want to parlay Citigroup’s (C) long-awaited restructuring into profits might be better off on the sidelines this week when the co announces thousands of job cuts and other spending crackdowns. That is b/c the plan, likely to be announced Wed by Chmn and CEO Charles Prince, won't shed much light on the bank's fortunes as it grapples with a slew of tough issues weighing on financial institutions around the country. In a report issued Thu, Lehman Brothers analyst Jason Goldberg pegged Citigroup's rev per employee at $270K compared with $362K at its banking peers. To match its peers on that metric, Citigroup would have to cut 80K jobs, estd Mr. Goldberg. "While we don't expect it to go that far, we do believe cuts could run deeper than expectations," he wrote.
Saturday, April 07, 2007
Barron's Summary (SCUR, ALLT)
According to the Barron’s , Allianz's ADS (AZ) and its German shares have surged in the past two years but could still gain at least 20% more if the company continues to deliver improved financial performance.
At 56, Gannett (GCI) sells for a depressed 12x estd '07 earnings. The shares could rise to 65 if the co deploys its cash wisely, perhaps by lifting its $1.24 payout to $3.50. Credit Suisse analyst Debra Schwartz, who upgraded Gannett to Outperform from Neutral, eith $65 tgt, wrote in a note that a "significant potential catalyst" for the co's stock price would be the use of its "free cash." Although the co doesn't have an activist shareholder base, she said mgmt is "under pressure to improve returns."
Thanks to a growing share of a strong market, Interface (IFSIA) could enjoy sustainable 25% sales gains. The stock could jump by as much as 35%.
“Sizing Uo Small Caps” column out on Secure Computing (SCUR), saying that the co is the biggest pure play in the rapidly growing enterprise network-security segment. There are scads of tiny rivals that lack scale and there are larger, better known names, but they've traditionally served the consumer security mkts. And more recently there are major networking and storage outfits that have begun to step up their efforts. But as they gear up, SCUR remains the No. 1 player in the enterprise fire-wall mkt and offers a suite of other well-regarded products. Wall St. has taken note. Following stellar 4Q earnings, SCUR shares surged by more than 2pts, giving them a robust P/E multiple of 21 based on ‘08 ests. Around current $8 level, some investors and analysts see a buying opportunity. Lazard software analyst Joel Fishbein, for instance, recently reiterated his Buy on the stock near 8 and maintains a price tgt of 10. He ests SCUR could earn 53c a share next year, well above the 44c consensus est.
“Technology Trader” column discusses Deep Packet Inspection, or DPI, technology. Such gear lets carriers look inside the data packets that cross their network, to determine if the traffic is e-mail, video or voice. The largest DPI vendor is Cisco. But another DPI leader is selling at a bargain price, after warning investors last week that its MarQ sales will fall short of expectations. Allot Comm. (ALLT) fell from above 9 to around 7, for a mkt value of about $145m. Allot expected sales of almost $10m in the MarQ, but admitted last Mon that they will probably fall below $8.3m. Yet Allot says that it's doing fine in its direct sales to telecom carriers. IR head Jay Kalish told that the co is a contender in many of the ongoing requisition plans, with a box Allot is developing that will run at 10 Gigabits a second. The product will be available in the 3Q. Meanwhile, Allot had more than $80m in cash on Dec 31., so the disappointed stock mkt is really valuing the co at about $70m. That's around 1.5x this year's sales for Allot. Cisco may get its big share of DPI installations, but there's plenty of non-Cisco infrastructure out there. Allot will surely get share, too.
According to the “Follow Up”, it isn't check-out time yet, as Pet-Smart (PETM) plans lots of hotel openings to cash in on the pet-services boom. "There's another 20%" upside, says Ken Stuzin, of Brown Investment Advisory. He adds that the stock, which ran into some volatility on recent news of tainted pet food, could reach 40 in 12 mo’s. Stuzin agrees with the consensus est that PetSmart will earn $1.66 a share in its year ended Jan’08, but he sees $1.97 in the following year, a dime above the consensus. Even if the economy slows, Stuzin says, more Americans, regardless of income, will treat their pets as ppl and "look at other places to cut" expenses.
Vadim Zlotnikov, of Sanford C. Bernstein, calls the LBO bets part of a "bubble of stability", widespread trades, principally by hedge funds, based on assumptions that mkts will remain calm and generous. He's scanned the smaller-cap universe for stocks with concentrated hedge-fund ownership, low trading liquidity and a premium valuation, which could mean outsized risk should the "stability trade" expire. Some names to be wary of: CXW, BSG, EFD, POS, GVA, GMST, IT and DLM. These stocks remain hazardous to short. But those hoping to hit the private-equity lottery with any of them should recognize that faster money has gotten there first.
Thursday, April 05, 2007
Calls of Note Part 4
- Merrill Lynch is lowering their EPS projections on Pfizer (NYSE:PFE) to reflect dramatically lower Exubera projections and early entry of generic Norvasc (six months earlier than expected). The Exubera reductions hit 2008E EPS and beyond. The Norvasc reductions only hit 2007E since the firm had already forecast a >90% hit after the expected generic entry date in September 2007. MLCO revised '07E EPS from $2.23 to $2.15 and '08E from $2.38 to $2.35.
Firm has lowered 2012E US Exubera sales from $635M to $250M and ex-U.S. from $165M to
$60M. Despite a full launch to endocrinologists last fall and to primary care in January 2007 (Pfizer is switching to cardiovascular sales force this month), IMS data indicates that less than 1,500 TRxs (total prescriptions) are currently being written on a weekly basis. To compare, Januvia TRxs exceeded 20,000 on a weekly basis three months into launch.
The Associated Press reported March 22, 2007 that John Buse, President-elect of the American Diabetes Association (ADA) and participant in Exubera's trials, said that he sees it as his job to tell people to avoid Exubera: "I think Pfizer will wish they had never gotten into this. I doubt they'll regain their investment. There is no advantage to Exubera and there may be a safety risk. I see it as my job to talk people out of (using) it."
Notablecalls: No real impact on PFE from this call. However, note that Exubera is partnered with Nektar Therapeutics (NASDAQ:NKTR). MLCO slashed their 2012 Exubera sales est to $400 mln from $800 mln (NKTR revenues from $406mn to $316mn) and is in fact lowering their tgt on NKTR to $17 from $20 this AM. The stock has been on tear lately as investors have been betting that the resolution of manufacturing issues, wider availability of Exubera, launch to primary care physicians and a new sales team (PFE's top cardio team) would ignite Exubera sales. Maybe it will, but the sales potential isn't what it was previously thought. Would not be surprised to see a sharp pullback in NKTR over the next couple of days.
Firm has lowered 2012E US Exubera sales from $635M to $250M and ex-U.S. from $165M to
$60M. Despite a full launch to endocrinologists last fall and to primary care in January 2007 (Pfizer is switching to cardiovascular sales force this month), IMS data indicates that less than 1,500 TRxs (total prescriptions) are currently being written on a weekly basis. To compare, Januvia TRxs exceeded 20,000 on a weekly basis three months into launch.
The Associated Press reported March 22, 2007 that John Buse, President-elect of the American Diabetes Association (ADA) and participant in Exubera's trials, said that he sees it as his job to tell people to avoid Exubera: "I think Pfizer will wish they had never gotten into this. I doubt they'll regain their investment. There is no advantage to Exubera and there may be a safety risk. I see it as my job to talk people out of (using) it."
Notablecalls: No real impact on PFE from this call. However, note that Exubera is partnered with Nektar Therapeutics (NASDAQ:NKTR). MLCO slashed their 2012 Exubera sales est to $400 mln from $800 mln (NKTR revenues from $406mn to $316mn) and is in fact lowering their tgt on NKTR to $17 from $20 this AM. The stock has been on tear lately as investors have been betting that the resolution of manufacturing issues, wider availability of Exubera, launch to primary care physicians and a new sales team (PFE's top cardio team) would ignite Exubera sales. Maybe it will, but the sales potential isn't what it was previously thought. Would not be surprised to see a sharp pullback in NKTR over the next couple of days.
Calls of Note Part 3
- Goldman Sachs is increasing their 2007 revenue and EBITDA estimates on Yahoo! (NASDAQ:YHOO) by 2% and 3% respectively as they now forecast 23% yoy growth in branded ads and 16% yoy growth in search versus prior 19% and 13% forecasts. Firm is also raising their price target to $35 from $31.50 but maintaining Neutral rating given 10% upside versus the 20%-plus average upside of firm's Buy-rated stocks. New estimates still reflect a benefit from Panama but now the impact begins in 1Q2007 as they think Yahoo! has benefited from better-than-expected query growth and greater click-through rates that have more than offset declining prices.
Notably, even with their higher 1Q2007E revenue, the 13.8% yoy growth is still sub-par to other large-cap Internet names at 25%-55% and requires acceleration to 24% growth by 4Q2007 to achieve 18% full year growth and 16% growth from 2008-2011E.
Firm's new 12-month $35 price target assumes a 16X 2007E EBITDA multiple (1.0X forward 3-year growth) plus ~$9/share for Yahoo!'s cash, NOL, and investments in Alibaba, Yahoo! Japan, and Gmarket.
Notablecalls: Not actionable but good to know category. Note that Piper is out raising their ests on eBay (NASDAQ:EBAY) this AM. But that's hardly a surprise here.
Notably, even with their higher 1Q2007E revenue, the 13.8% yoy growth is still sub-par to other large-cap Internet names at 25%-55% and requires acceleration to 24% growth by 4Q2007 to achieve 18% full year growth and 16% growth from 2008-2011E.
Firm's new 12-month $35 price target assumes a 16X 2007E EBITDA multiple (1.0X forward 3-year growth) plus ~$9/share for Yahoo!'s cash, NOL, and investments in Alibaba, Yahoo! Japan, and Gmarket.
Notablecalls: Not actionable but good to know category. Note that Piper is out raising their ests on eBay (NASDAQ:EBAY) this AM. But that's hardly a surprise here.
Calls of Note Part 2
- Piper Jaffray is increasing their tgt on Jones Soda (NASDAQ:JSDA) to $31 from $18 saying margin expansion is driving the model as the company potentially achieves 30% ACV in FY07 and 50% in FY08 of its premium private label brand. Firm believes that the initial pipeline fill is shipping and being shelved (targeted goal of Memorial Day) as expected.
The potential 2H07 "risk" remains as a sell-through period versus the 1H07 channel fill, which may be offset by marketing initiatives. The company continues to invest in human capital, most recently hiring Mr. Peter Burns as SVP of Sales/Marketing.
Piper expects Jones Soda to also invest in its brand through product line launches or extensions, over time.
They are maintaining their FY07 EPS estimate of $0.21. They are also increasing their FY08 EPS estimate by $0.10 to $0.45 based on total revenue growth of 40.8% to $69.4 million versus $63.0 million prior (and conservatively flat gross margin). Reiterates Outperform.
Notablecalls: Oh boy, this is going to be interesting. The valuation is sky high but note there is around a 5 million share short position in the name (20% short interest). The shorts have been squeezed hard over the past couple of weeks and I suspect they will fight hard to counter the positive comments from Piper. If I were among the shorts in this name, I would surely do my best to chop this one down today, possibly toward negative territory.
The potential 2H07 "risk" remains as a sell-through period versus the 1H07 channel fill, which may be offset by marketing initiatives. The company continues to invest in human capital, most recently hiring Mr. Peter Burns as SVP of Sales/Marketing.
Piper expects Jones Soda to also invest in its brand through product line launches or extensions, over time.
They are maintaining their FY07 EPS estimate of $0.21. They are also increasing their FY08 EPS estimate by $0.10 to $0.45 based on total revenue growth of 40.8% to $69.4 million versus $63.0 million prior (and conservatively flat gross margin). Reiterates Outperform.
Notablecalls: Oh boy, this is going to be interesting. The valuation is sky high but note there is around a 5 million share short position in the name (20% short interest). The shorts have been squeezed hard over the past couple of weeks and I suspect they will fight hard to counter the positive comments from Piper. If I were among the shorts in this name, I would surely do my best to chop this one down today, possibly toward negative territory.
Calls of Note Part 1
- Piper Jaffray comments on Apple (NASDAQ:AAPL) after Best Buy announced that it will be expanding the Mac pilot program to ~200 stores by fall 2007, up from 57 stores today.
Firm believes Apple's store within a store at Best Buy will be much differen compared to the current pilot store rollout, which was a table with Apple products on it. The difference is they expect some (smaller number) of these 200 stores will have walled-off Apple stores, while others will have improved layouts. What is clear, you won't wander around Best Buy to shop for Apple. A good way to think about Apple & Best Buy is the Coach or Chanel store within a store concept at Nordstrom.
While Best Buy accounts for only a 2% increase Mac distribution, they estimate the volume of visitors through Best Buy equates to about a 10% increase in Mac distribution points.
Maintains Outperform and $124 tgt on AAPL.
Notablecalls: Not actionable but good to know category.
Firm believes Apple's store within a store at Best Buy will be much differen compared to the current pilot store rollout, which was a table with Apple products on it. The difference is they expect some (smaller number) of these 200 stores will have walled-off Apple stores, while others will have improved layouts. What is clear, you won't wander around Best Buy to shop for Apple. A good way to think about Apple & Best Buy is the Coach or Chanel store within a store concept at Nordstrom.
While Best Buy accounts for only a 2% increase Mac distribution, they estimate the volume of visitors through Best Buy equates to about a 10% increase in Mac distribution points.
Maintains Outperform and $124 tgt on AAPL.
Notablecalls: Not actionable but good to know category.
Color on quarter: Rackable Systems (NASDAQ:RACK)
Couple of firms comment on Rackable Systems (NASDAQ:RACK) after the co reaffirmed its Q1 revenue guidance but said gross margin will be way below previous outlook:
- RBC Capital notes Rackable cited intense competition within its large customer accounts as the key reason for the gross margin shortfall. Firm believes Dell is the primary culprit. 1Q07 book-to-bill ratio was well above 1.0x; ending 1Q07 backlog was at its highest level in the past four quarters; RapidScale has seen increased customer traction; and cash balance increased to $170 million at the end of 1Q07 (was $160.5 million at end of 4Q06).
Firm's forward estimates and investment rating are under review pending the comments to be provided by Rackable's management team on its preliminary earnings call on the morning of April 5, 2007 at 8 A.M. EST.
- Piper Jaffray notes that given the rapid deterioration in Rackable's gross margins, they are downwardly revising their EPS estimates for 2007 and 2008. Firm is now modeling 2007 and 2008 gross margins of 15.5% and 18.5% (down from 20.5% and 21.5%, respectively). 2007 and 2008 EPS estimates are now $0.43 and $0.85, which is a substantial cut from previous estimates of $0.90 and $1.17, respectively.
Firm believes pricing pressure will continue and reiterate Market Perform rating on RACK shares, but lower price target to $16 from $21.
- Cowen says they remain cautious on Rack's shares as it's tough going in the land of giants. Rack cut prices, which hurt gross margins by over 400 basis points. All this similar to the December quarter miss, but worse this time.
Rack has ~60-70% revenue concentration, with three customers, Amazon, Yahoo, and Microsoft. The lack of diversity makes it more difficult for Rack to fend off competition as there are less places to hide, and each of these customers is a marquee name. Firm does not see diversity increasing in the near future.
Cowen notes that even on their prior 2008 EPS of $1.00, half of this was stock options add back. If they include stock comp, even on the old ests the PE is over 30x 2008 ests, and that's before this preannouncement. Thus even with a drop in price below $16, the shares still appear expensive.
Notablecalls: It's surely tough going in the land of giants. Especially when youre a midget. RACK needs scale and in order to have that they need to win market share. The only way to win market share is to sacrifice margins. And that's what they are doing. The problem is they are competing with the likes of Dell, Sun and IBM that can buy hardware at cheaper prices due to very large quantities, not to mention have existing customer relationships. Is RACK's tech superior? Not likely at this stage.
The stock was down a point in after hours action. Aggressive accounts may find the levels reached in after hours a shorting opportunity.
- RBC Capital notes Rackable cited intense competition within its large customer accounts as the key reason for the gross margin shortfall. Firm believes Dell is the primary culprit. 1Q07 book-to-bill ratio was well above 1.0x; ending 1Q07 backlog was at its highest level in the past four quarters; RapidScale has seen increased customer traction; and cash balance increased to $170 million at the end of 1Q07 (was $160.5 million at end of 4Q06).
Firm's forward estimates and investment rating are under review pending the comments to be provided by Rackable's management team on its preliminary earnings call on the morning of April 5, 2007 at 8 A.M. EST.
- Piper Jaffray notes that given the rapid deterioration in Rackable's gross margins, they are downwardly revising their EPS estimates for 2007 and 2008. Firm is now modeling 2007 and 2008 gross margins of 15.5% and 18.5% (down from 20.5% and 21.5%, respectively). 2007 and 2008 EPS estimates are now $0.43 and $0.85, which is a substantial cut from previous estimates of $0.90 and $1.17, respectively.
Firm believes pricing pressure will continue and reiterate Market Perform rating on RACK shares, but lower price target to $16 from $21.
- Cowen says they remain cautious on Rack's shares as it's tough going in the land of giants. Rack cut prices, which hurt gross margins by over 400 basis points. All this similar to the December quarter miss, but worse this time.
Rack has ~60-70% revenue concentration, with three customers, Amazon, Yahoo, and Microsoft. The lack of diversity makes it more difficult for Rack to fend off competition as there are less places to hide, and each of these customers is a marquee name. Firm does not see diversity increasing in the near future.
Cowen notes that even on their prior 2008 EPS of $1.00, half of this was stock options add back. If they include stock comp, even on the old ests the PE is over 30x 2008 ests, and that's before this preannouncement. Thus even with a drop in price below $16, the shares still appear expensive.
Notablecalls: It's surely tough going in the land of giants. Especially when youre a midget. RACK needs scale and in order to have that they need to win market share. The only way to win market share is to sacrifice margins. And that's what they are doing. The problem is they are competing with the likes of Dell, Sun and IBM that can buy hardware at cheaper prices due to very large quantities, not to mention have existing customer relationships. Is RACK's tech superior? Not likely at this stage.
The stock was down a point in after hours action. Aggressive accounts may find the levels reached in after hours a shorting opportunity.
Paperstand (GOOG, SVVS, CBEY, BSG)
The WSJ reports that Apollo Mgmt, possibly joining the rush by buyout firms to cash in on their successful investment records, is exploring the private sale of a 10% stake in the firm for $1.5bn. The firm has retained investment bankers to study such a deal, which would allow founder Leon Black and his partners to sidestep the hassles and heightened scrutiny involved in a public stock offering. Should Apollo pursue a deal that values 10% of the firm at $1.5bn, Mr. Black could net as much as $750m.
According to the WSJ, Google (GOOG) is releasing a new feature called My Maps that lets users annotate online maps by marking locations with notes, video and photos and then share them with friends or the public. The move builds on Google's popular Maps service, which tech-savvy users have harnessed to build a wide range of customized maps displaying information such as Chicago crime statistics and listings of homes for rent or sale.
Barron’s Online highlights Savvis (SVVS), saying that it doesn’t take a savant to see that the telecom business is in a period of wild excess. Savvis, a so-called alternative telecom co deep in the red, will quintuple its spending this year over the previous year to host Websites for a fee for marquee clients such as Reuters. Excess sometimes can be mistaken for success. And sell-side analysts speculate that Verizon (VZ) and other large telcos might acquire such fast-growing outfits for a hefty premium. That kind of speculation has helped Savvis shares more than double in the past 12 mo’s.
But if you're not one to bet on buyouts, it may make more sense to look for alternative high-growth telecom firms that are also profitable. One such firm may be Cbeyond (CBEY). Cbeyond's shares have also appreciated smartly, up 72% in the last 12 mo’s, but the stock is still cheaper than Savvis', based EBITDA, despite what should be heady sales growth of 30% this year. A valuation closer to Savvis' would suggest 20% upside to Cbeyond's stock. Like Savvis, Cbeyond has a business that fits with what large telecom co’s do and that's growing fast. Cbeyond's enterprise value, including cash of $44m, is a multiple of 16x the co's expected ’07 EBITDA, compared to about 19x for Savvis' EV. Thomas Weisel Partners' James Breen thinks that 16x multiple makes the stock undervalued; he rates the shares a Buy.
Barron’s Online “Inside Scoop” section reports that some investors are losing confidence in Bisys’ (BSG) search for a buyer, but the founder of hedge fund Okumus Capital believes he can help the co, and he's put his money where his mouth is. Okumus Capital purchased a total of 504K shares for $6m in two separate transactions over the past month. The purchases boosted Okumus Capital's stake to 10.6%. Ben Silverman, of InsiderScore.com, notes that the stock did not climb significantly on news of Ahmet Okumus' large buy. The purchase was "positive, but it's mitigated just by the lack of visibility in terms of what will happen from an operational standpoint and from a strategic standpoint."
According to the WSJ, Google (GOOG) is releasing a new feature called My Maps that lets users annotate online maps by marking locations with notes, video and photos and then share them with friends or the public. The move builds on Google's popular Maps service, which tech-savvy users have harnessed to build a wide range of customized maps displaying information such as Chicago crime statistics and listings of homes for rent or sale.
Barron’s Online highlights Savvis (SVVS), saying that it doesn’t take a savant to see that the telecom business is in a period of wild excess. Savvis, a so-called alternative telecom co deep in the red, will quintuple its spending this year over the previous year to host Websites for a fee for marquee clients such as Reuters. Excess sometimes can be mistaken for success. And sell-side analysts speculate that Verizon (VZ) and other large telcos might acquire such fast-growing outfits for a hefty premium. That kind of speculation has helped Savvis shares more than double in the past 12 mo’s.
But if you're not one to bet on buyouts, it may make more sense to look for alternative high-growth telecom firms that are also profitable. One such firm may be Cbeyond (CBEY). Cbeyond's shares have also appreciated smartly, up 72% in the last 12 mo’s, but the stock is still cheaper than Savvis', based EBITDA, despite what should be heady sales growth of 30% this year. A valuation closer to Savvis' would suggest 20% upside to Cbeyond's stock. Like Savvis, Cbeyond has a business that fits with what large telecom co’s do and that's growing fast. Cbeyond's enterprise value, including cash of $44m, is a multiple of 16x the co's expected ’07 EBITDA, compared to about 19x for Savvis' EV. Thomas Weisel Partners' James Breen thinks that 16x multiple makes the stock undervalued; he rates the shares a Buy.
Barron’s Online “Inside Scoop” section reports that some investors are losing confidence in Bisys’ (BSG) search for a buyer, but the founder of hedge fund Okumus Capital believes he can help the co, and he's put his money where his mouth is. Okumus Capital purchased a total of 504K shares for $6m in two separate transactions over the past month. The purchases boosted Okumus Capital's stake to 10.6%. Ben Silverman, of InsiderScore.com, notes that the stock did not climb significantly on news of Ahmet Okumus' large buy. The purchase was "positive, but it's mitigated just by the lack of visibility in terms of what will happen from an operational standpoint and from a strategic standpoint."
Wednesday, April 04, 2007
Calls of Note Part 4
- Goldman Sachs sheds some more light on the Jackson Hewitt (NYSE:JTX) situation saying they believe that the stock's reaction to this negative news was overdone:
1) the DOJ did not sue Jackson Hewitt, only the franchisee;
2) firm reviewed the Jackson Hewitt franchisee contract, which establishes that franchisees are independent contractors, that the alleged fraudulent conduct would be in violation of this contract, that franchisees are responsible for hiring, training, and supervising their employees, and - most importantly - that the contract provides indemnification of Jackson Hewitt for conduct of the franchisee;
3) no one franchisee accounts for more than 2% of total revenues for Jackson Hewitt, and these 125 stores account for less than 2% of total stores; and (
4) the 2007 tax season is nearing its end, with the bulk of FY2007 revenues already accounted for.
GSCO believes that related business risk is low (less than 2% of revenues). It is their understanding that legal liability exists only if company employees were involved in the alleged conduct, knew about it, or benefited from it in some way. Firm's discussions with management suggest that this was not the case. Believe yesterday's weakness presents an immediate buying opportunity.
Notablecalls: I was too conservative on JTX few hrs ago, saying $27 was the level to buy. Was expecting at least some analysts to panic and downgrade the stock, providing a decent fill. No luck with that. First prints were around $28. Hope some of you had more conviction. Think the stock can hit $29.50 or even $30 early on, providing a quick scalp on the short side. After that, who knows.
1) the DOJ did not sue Jackson Hewitt, only the franchisee;
2) firm reviewed the Jackson Hewitt franchisee contract, which establishes that franchisees are independent contractors, that the alleged fraudulent conduct would be in violation of this contract, that franchisees are responsible for hiring, training, and supervising their employees, and - most importantly - that the contract provides indemnification of Jackson Hewitt for conduct of the franchisee;
3) no one franchisee accounts for more than 2% of total revenues for Jackson Hewitt, and these 125 stores account for less than 2% of total stores; and (
4) the 2007 tax season is nearing its end, with the bulk of FY2007 revenues already accounted for.
GSCO believes that related business risk is low (less than 2% of revenues). It is their understanding that legal liability exists only if company employees were involved in the alleged conduct, knew about it, or benefited from it in some way. Firm's discussions with management suggest that this was not the case. Believe yesterday's weakness presents an immediate buying opportunity.
Notablecalls: I was too conservative on JTX few hrs ago, saying $27 was the level to buy. Was expecting at least some analysts to panic and downgrade the stock, providing a decent fill. No luck with that. First prints were around $28. Hope some of you had more conviction. Think the stock can hit $29.50 or even $30 early on, providing a quick scalp on the short side. After that, who knows.
Color on news: Jackson Hewitt (NYSE:JTX)
Couple firms comment on Jackson Hewitt (NYSE:JTX) after the Justice Department and the Internal Revenue Service announced civil injunction suits against five companies that operate Jackson Hewitt franchises.
- William Blair notes it is critically important to note that the suits are aimed at this one particular Jackson Hewitt franchisee, not Jackson Hewitt corporate. It is also important to note that Jackson Hewitt's franchise agreements explicitly state that franchises are independently owned and operated and that any liability arising from faulty or fraudulent tax preparation belongs exclusively to the franchisee/preparer. Mr. Sohail's 126 Jackson Hewitt offices represent approximately 1.9% of Jackson Hewitt Tax Service's more than 6,500 locations, and, according to a news source, prepared 105,000 or 2.9% of the company's total network tax returns prepared last year. All of this suggests that the risk to the corporation-legally, operationally, and financially-is fairly well contained.
The government suit and investigation could pose additional risks to the company, however, including headline and reputation risk as well as the risk of spurring class-action lawsuits directed at Jackson Hewitt Tax Service Inc. on behalf of tax clients who may now owe the government money from fraudulent refunds. The news may provide ammo for legislators looking to increase oversight of the tax preparation industry by mandating preparer training standards, etc.
Firm cautiously maintains Outperform rating and estimates. Shares of JTX declined more than 18% on Tuesday after the story broke around 1:30 CDT. While the fear and uncertainty inherent to this situation is understandable, they believe the share price decline may prove to be an overreaction to an event that appears to center around one bad apple, not the entire barrel. At Tuesday's closing price of $26.53, JTX trades at 13.7 times fiscal 2007 EPS estimate of $1.94 and 11.7 times fiscal 2008 EPS estimate of $2.27. Shares are also trading at what the firm estimates is a nearly 10% free cash flow yield based on 2008 estimated free cash flow. This strong free cash flow generation informs the company's substantial share repurchase program. The co has buying power at the current stock price to repurchase more than 19% of the diluted shares outstanding.
- Morgan Stanley is upgrading the stock to Equal Weight from Underweight saying no franchisee at Jackson Hewitt accounts for more than 2-3% of revenues, and this particular franchisee is less than 2% of revenues, accounting for about $0.03 in EPS, based on firm's estimates, for a loss of value of about 1.5%, much less than the 18% decline in valuation that occurred following the announcement. Attractive free cash flow yields of 8-9% should support the stock between $25-$30.
Firm notes they are not upgrading to an Overweight based on their longer-term cautious view on the industry and the company, which has not changed. They believe that the increased competitive intensity will slow future growth for the company.
Notablecalls: Buy the stock here. Pay $27 if you have to. For a trade. Tight leash, though.
- William Blair notes it is critically important to note that the suits are aimed at this one particular Jackson Hewitt franchisee, not Jackson Hewitt corporate. It is also important to note that Jackson Hewitt's franchise agreements explicitly state that franchises are independently owned and operated and that any liability arising from faulty or fraudulent tax preparation belongs exclusively to the franchisee/preparer. Mr. Sohail's 126 Jackson Hewitt offices represent approximately 1.9% of Jackson Hewitt Tax Service's more than 6,500 locations, and, according to a news source, prepared 105,000 or 2.9% of the company's total network tax returns prepared last year. All of this suggests that the risk to the corporation-legally, operationally, and financially-is fairly well contained.
The government suit and investigation could pose additional risks to the company, however, including headline and reputation risk as well as the risk of spurring class-action lawsuits directed at Jackson Hewitt Tax Service Inc. on behalf of tax clients who may now owe the government money from fraudulent refunds. The news may provide ammo for legislators looking to increase oversight of the tax preparation industry by mandating preparer training standards, etc.
Firm cautiously maintains Outperform rating and estimates. Shares of JTX declined more than 18% on Tuesday after the story broke around 1:30 CDT. While the fear and uncertainty inherent to this situation is understandable, they believe the share price decline may prove to be an overreaction to an event that appears to center around one bad apple, not the entire barrel. At Tuesday's closing price of $26.53, JTX trades at 13.7 times fiscal 2007 EPS estimate of $1.94 and 11.7 times fiscal 2008 EPS estimate of $2.27. Shares are also trading at what the firm estimates is a nearly 10% free cash flow yield based on 2008 estimated free cash flow. This strong free cash flow generation informs the company's substantial share repurchase program. The co has buying power at the current stock price to repurchase more than 19% of the diluted shares outstanding.
- Morgan Stanley is upgrading the stock to Equal Weight from Underweight saying no franchisee at Jackson Hewitt accounts for more than 2-3% of revenues, and this particular franchisee is less than 2% of revenues, accounting for about $0.03 in EPS, based on firm's estimates, for a loss of value of about 1.5%, much less than the 18% decline in valuation that occurred following the announcement. Attractive free cash flow yields of 8-9% should support the stock between $25-$30.
Firm notes they are not upgrading to an Overweight based on their longer-term cautious view on the industry and the company, which has not changed. They believe that the increased competitive intensity will slow future growth for the company.
Notablecalls: Buy the stock here. Pay $27 if you have to. For a trade. Tight leash, though.
Calls of Note Part 3
- Wachovia comments on Intuitive Surgical (NASDAQ:ISRG) saying the co seems to have become increasingly focused on international markets. Firm believes this is reflected in a change in its guidance format.
After some interim analysis the firm has sized the international market opportunities for prostatectomy and hysterectomy (for cancerous conditions only) at 140,000 and 400,000 annual procedures, respectively. ISRG has increased its investment in sales and marketing infrastructure abroad and WACH believes that recent growth trends demonstrate a significant impact here. Given this, the firm now assumes a greater contribution from international sales; their model now has ISRG's international sales increasing from 16% of total revenue at the end of 2006 to 18% by the end of 2008 (previously, they assumed that international sales remained at a constant 16% of revenue).
Firm concludes that a nominal shift of 1% of patients diagnosed with prostate cancer from watchful waiting or other treatment regimens to da Vinci prostatectomy (dVP) could potentially result in $0.02 upside to previous 2008 estimates.
Maintains Outperform rating due to strong fundamentals, low domestic and international penetrations into target markets, and potential for upside to both their and street estimates. WACH has increased their 2008 EPS estimate by $0.13 to $3.58.
Notablecalls: Anyone think ISRG will soon challenge the 52-week highs?
After some interim analysis the firm has sized the international market opportunities for prostatectomy and hysterectomy (for cancerous conditions only) at 140,000 and 400,000 annual procedures, respectively. ISRG has increased its investment in sales and marketing infrastructure abroad and WACH believes that recent growth trends demonstrate a significant impact here. Given this, the firm now assumes a greater contribution from international sales; their model now has ISRG's international sales increasing from 16% of total revenue at the end of 2006 to 18% by the end of 2008 (previously, they assumed that international sales remained at a constant 16% of revenue).
Firm concludes that a nominal shift of 1% of patients diagnosed with prostate cancer from watchful waiting or other treatment regimens to da Vinci prostatectomy (dVP) could potentially result in $0.02 upside to previous 2008 estimates.
Maintains Outperform rating due to strong fundamentals, low domestic and international penetrations into target markets, and potential for upside to both their and street estimates. WACH has increased their 2008 EPS estimate by $0.13 to $3.58.
Notablecalls: Anyone think ISRG will soon challenge the 52-week highs?
Calls of Note Part 2
- Merrill Lynch comments on AMD (NYSE:AMD) after they a chance to sit down with co's top management recently to see just how deep the hole is. The market may still not appreciate just how much money AMD is likely to lose in Q1 and Q2 as it struggles to work off 90nm product inventory. They are revising their earnings estimate for 2007 down again, to a GAAP loss of $1.29, and they expect AMD to burn through about $900 million in cash by the end of June. The firm is Neutral - AMD's near-term problems are too great to support a more positive stance even at the stock's current level.
The good news is that the firm thinks the market may be underestimating the competitive impact that AMD could have this year with 65nm. The quad-core server debate is beside the point. What AMD really needs is a competitive product in the performance desktop segment. MLCO thinks that Athlon 64x2 on the new process technology should meet the need, and they also think that AMD could be able to turn free cash flow positive by Q4 of this year. They are more skeptical on AMD's prospects in mobile processors this year.
The bad news is that detailed analysis of AMD's cash situation indicates that the company likely can't get to the end of the September quarter without an equity financing in the $1 billion range. Investors need to remember that AMD's ability to offer additional debt may be constrained by the need to pay back the company's existing bridge loan.
As a stock, AMD is working through a bottoming process, and although the firm thinks it's too early to buy yet they think that AMD has more competitive potential than the street realizes. Joe Osha, the analyst covering AMD for MLCO notes they were struck by one observation that Ruiz made regarding margins. He thinks that both processor companies could end up with normalized gross margins in the 50% range. They agree, and think the trick is going to be figuring out how to make money on that level of margin as opposed to trying to return the market to its pre-2005, much higher margin structure. At least AMD understands what's happening and is making the right adjustments. If the company can get new products into the market successfully this year the stock could work later on. For now investors need to remain cautious in light of the very bad outlook we're likely to see for Q2, and the liquidity crisis that AMD has to confront after that.
Notablecalls: AMD @ $10? Sure feels like it. And you just gotta buy all the Semi Equipment makers as demand from Semi side is surely getting better as we speak, right? Overall, a very nice piece of analysis by MLCO's Joe Osha. Hits the nail on the head.
The good news is that the firm thinks the market may be underestimating the competitive impact that AMD could have this year with 65nm. The quad-core server debate is beside the point. What AMD really needs is a competitive product in the performance desktop segment. MLCO thinks that Athlon 64x2 on the new process technology should meet the need, and they also think that AMD could be able to turn free cash flow positive by Q4 of this year. They are more skeptical on AMD's prospects in mobile processors this year.
The bad news is that detailed analysis of AMD's cash situation indicates that the company likely can't get to the end of the September quarter without an equity financing in the $1 billion range. Investors need to remember that AMD's ability to offer additional debt may be constrained by the need to pay back the company's existing bridge loan.
As a stock, AMD is working through a bottoming process, and although the firm thinks it's too early to buy yet they think that AMD has more competitive potential than the street realizes. Joe Osha, the analyst covering AMD for MLCO notes they were struck by one observation that Ruiz made regarding margins. He thinks that both processor companies could end up with normalized gross margins in the 50% range. They agree, and think the trick is going to be figuring out how to make money on that level of margin as opposed to trying to return the market to its pre-2005, much higher margin structure. At least AMD understands what's happening and is making the right adjustments. If the company can get new products into the market successfully this year the stock could work later on. For now investors need to remain cautious in light of the very bad outlook we're likely to see for Q2, and the liquidity crisis that AMD has to confront after that.
Notablecalls: AMD @ $10? Sure feels like it. And you just gotta buy all the Semi Equipment makers as demand from Semi side is surely getting better as we speak, right? Overall, a very nice piece of analysis by MLCO's Joe Osha. Hits the nail on the head.
Calls of Note Part 1
- Bear Stearns comments on Sandisk (NASDAQ:SNDK) noting the recent tightening in the NAND market and resulting rebound in pricing has been partly driven by inventory replenishment and yield issues at manufacturers, which raises the concern that pricing could be flattish or under downward pressure once the inventory replenishment is completed and/or yields improve. Despite this "head-fake " risk, the firm expects any such risk to be temporary, as NAND industry fundamentals are indeed improving in 2Q07 from a supply versus demand standpoint, and they continue to believe that NAND supply-demand will be balanced in 2H07. At these levels the upside potential on the stock exceeds downside risk. Firm believes downside to the stock is $40 and upside is $55.
Though there are fears that capacity is on the verge of being converted back from DRAM to NAND, they expect capacity conversions from NAND to DRAM to continue in 2Q07. Based on their analysis, the firm does not expect conversions back to NAND to occur through 3Q07, and to occur in 4Q07 at the earliest. Global supply bit growth in 2Q is clearly going to be limited and less then demand growth. In particular, Samsung and Hynix continue to be cautious about their NAND capacity expansion and the firm expects their bit growth to be flat to slightly up in 2Q.
Although they are lowering their 1Q EPS from $0.12 to $0.08, the firm believes that 1Q is "water under the bridge". Investors should focus on SanDisk's earnings bottoming in 2Q and outlook for 2H07. 2Q EPS estimate is $0.01 (down from $0.04 previously), and they expect an improvement to $0.15 (down from $0.17 previously) and $0.44 in 3Q and 4Q, and to $2.58 in 2008.
Bear Stearns is reiterating their Outperform rating and price target of $55. While the stock could react negatively to flattish or downward movement in NAND flash pricing, which may occur in May/June given that inventory replenishment is likely to slow down at some point, they would use any pullbacks to accumulate the shares and get positioned for 2H07.
Notablecalls: Samsung and Hynix in aggregate represent 50-60% of global NAND supply. There are reasons for them to be cautious about adding capacity. After all, Samsung supplies NAND to Apple, while SNDK doesn't. As most of you know, the iPhone is seen as the main driver behind s-t NAND demand. Plus, there has been talk of supply constraints at Samsung that have added fuel to the fire. I'm not a SNDK fan and still see very little reason to own the stock here. I expect SNDK to see some s-t buy interest following the call from Bear Stearns (think there will see some similar calls over the next week or so) but eventually it's fadeable.
Though there are fears that capacity is on the verge of being converted back from DRAM to NAND, they expect capacity conversions from NAND to DRAM to continue in 2Q07. Based on their analysis, the firm does not expect conversions back to NAND to occur through 3Q07, and to occur in 4Q07 at the earliest. Global supply bit growth in 2Q is clearly going to be limited and less then demand growth. In particular, Samsung and Hynix continue to be cautious about their NAND capacity expansion and the firm expects their bit growth to be flat to slightly up in 2Q.
Although they are lowering their 1Q EPS from $0.12 to $0.08, the firm believes that 1Q is "water under the bridge". Investors should focus on SanDisk's earnings bottoming in 2Q and outlook for 2H07. 2Q EPS estimate is $0.01 (down from $0.04 previously), and they expect an improvement to $0.15 (down from $0.17 previously) and $0.44 in 3Q and 4Q, and to $2.58 in 2008.
Bear Stearns is reiterating their Outperform rating and price target of $55. While the stock could react negatively to flattish or downward movement in NAND flash pricing, which may occur in May/June given that inventory replenishment is likely to slow down at some point, they would use any pullbacks to accumulate the shares and get positioned for 2H07.
Notablecalls: Samsung and Hynix in aggregate represent 50-60% of global NAND supply. There are reasons for them to be cautious about adding capacity. After all, Samsung supplies NAND to Apple, while SNDK doesn't. As most of you know, the iPhone is seen as the main driver behind s-t NAND demand. Plus, there has been talk of supply constraints at Samsung that have added fuel to the fire. I'm not a SNDK fan and still see very little reason to own the stock here. I expect SNDK to see some s-t buy interest following the call from Bear Stearns (think there will see some similar calls over the next week or so) but eventually it's fadeable.
Paperstand (AVZ, PSUN)
Barron’s Online highlights Amvescap (AVZ), saying that the co’s already-sagging stock looks especially cheap. Co shares fell 8% last week, a week that included not only the departures of portfolio managers and other employees, the subject of a court battle, but the announcement that Robert H. Graham, the vice Chmn and co-founder of AIM, will retire. Amvescap stock is now trading at roughly 15x estd earnings for ‘07, and about 13x ‘08 ests, multiples that are well below the avg for other asset managers. "It is a buying opportunity," says Niamh Alexander, of CIBC. "I do believe they have the right asset mix for sustainable growth."
“Inside Scoop” section reports that since the start of the year, Adage Capital Partners increased its holdings in Pacific Sunwear (PSUN) to 4.2m shares, or a 6% stake, up from about 1.7m shares. Ben Silverman, of InsiderScore.com, says Atchinson and Gross (Adage was founded by Robert Atchinson and Phil Gross in ‘01.) continue to "run a lot of money" for Harvard University and other endowments. They are "very smart ppl, playing with other smart ppl's money."
“Inside Scoop” section reports that since the start of the year, Adage Capital Partners increased its holdings in Pacific Sunwear (PSUN) to 4.2m shares, or a 6% stake, up from about 1.7m shares. Ben Silverman, of InsiderScore.com, says Atchinson and Gross (Adage was founded by Robert Atchinson and Phil Gross in ‘01.) continue to "run a lot of money" for Harvard University and other endowments. They are "very smart ppl, playing with other smart ppl's money."
Tuesday, April 03, 2007
Calls of Note Part 6
- ThinkEquity's David Edwards notes that over the course of the last week, the firm visited several public and private solar companies in China. As is common in the industry, many conversations focused on silicon prices, module ASPs, and margins. Most module players in China will tell you that the silicon shortage is waning and that availability is increasing. Several producers have reported greater than 10% declines in feedstock prices - both at the wafer and silicon level - in the past six months. Additionally many Chinese producers have optimistic outlooks on the silicon supply moving forward with the bottleneck relaxing significantly by late 2007 vs. previously anticipated 2008.
Firm is cautious toward this outlook as many of these views are coming from producers that have relied solely on spot market purchases (and prices) if any supply was available at all. So, $250/kg for silicon may seem like a good price to a wafer manufacturer that was paying $300/kg last year - but that is a still a far cry from the best long-term contract prices that are well below $100/kg. In other words, they think any softening of the situation is perceived more favorably in China than it actually is for the market more broadly.
Notablecalls: Not actionable but good to know category. Not really sure what to make of this. Don't think WFR will get hit follwing these comments.
Firm is cautious toward this outlook as many of these views are coming from producers that have relied solely on spot market purchases (and prices) if any supply was available at all. So, $250/kg for silicon may seem like a good price to a wafer manufacturer that was paying $300/kg last year - but that is a still a far cry from the best long-term contract prices that are well below $100/kg. In other words, they think any softening of the situation is perceived more favorably in China than it actually is for the market more broadly.
Notablecalls: Not actionable but good to know category. Not really sure what to make of this. Don't think WFR will get hit follwing these comments.
Calls of Note Part 5
- ThinkEquity is positive on On2 Tech (AMEX:ONT) saying their channel checks over the last six weeks instill greater confidence that On2 could outperform firm's 1Q revenue estimate, which they have revised up from $2.36M to $2.45M. Specifically, takeaways are that On2's existing customer base is seeing better than expected growth in their respective businesses which should translate into higher levels of royalty-based revenue. Firm also believes average deal sizes continued to improve in 1Q. Increased confidence in 1Q trends leads them to believe On2 can achieve non-GAAP profitability this quarter, and as such, causes them to raise price target from $1.70 to $2.10.
Firm reiterates ONT as their top pick. ONT shares currently trade at 26.7x 2008 Non-GAAP diluted EPS estimate of $0.06, relative to its peer group at 24x-35x, and projected 3-year EPS growth of 35%. With a relatively fixed cost structure and growing level of highly profitable, recurring revenue, and most recent checks that indicate On2 should outperform firm's estimates and achieve profitability in 1Q, they have adjusted their forward P/E multiple on ONT from 28x to 35x.
Notablecalls: Expect to see some buy interest in ONT.
Firm reiterates ONT as their top pick. ONT shares currently trade at 26.7x 2008 Non-GAAP diluted EPS estimate of $0.06, relative to its peer group at 24x-35x, and projected 3-year EPS growth of 35%. With a relatively fixed cost structure and growing level of highly profitable, recurring revenue, and most recent checks that indicate On2 should outperform firm's estimates and achieve profitability in 1Q, they have adjusted their forward P/E multiple on ONT from 28x to 35x.
Notablecalls: Expect to see some buy interest in ONT.
Calls of Note Part 4
- Merrill Lynch notes First Horizon National (NYSE:FHN) is the most exposed to deteriorating consumer credit among the mid- and small-cap banks. It has material exposure to the highest risk loan categories. Also, low capital, low reserves and high dividend payout ratio give it little flexibility.
MLCO sees meaningful downside to FHN's shares as their three-pronged valuation methodology (sum-of-the-parts, target P/E and DCF) suggests a theoretical fair value of $31, suggesting 23% downside. Their '07 and '08 estimates are 5% and 11% below consensus respectively, and they view risks skewed to the downside.
The firm is most concerned that on balance sheet credits originated through the retail bank will deteriorate. FHN's residential real estate book is already showing signs of strain. Firm expects further deterioration, given elevated growth and exposure. They also expect deterioration in industry-wide residential construction loans, and FHN is very exposed.
There is also material EPS risk embedded in the mortgage origination unit. The recourse provision for early payment defaults (EPDs) related to sub-prime and/or Alt-A exposure is likely to increase. Moreover, recent issues in these two loan categories could drive a material slowdown in top-line growth. Maintains Sell.
Notablecalls: The stock took a pretty bad hit yesterday, following a warning from MTB. MLCO's comments do nothing to please the bulls, so more downside in store for FHN. Should the stock open down more than a pt, I would not be surprised to see a quick bounce.
MLCO sees meaningful downside to FHN's shares as their three-pronged valuation methodology (sum-of-the-parts, target P/E and DCF) suggests a theoretical fair value of $31, suggesting 23% downside. Their '07 and '08 estimates are 5% and 11% below consensus respectively, and they view risks skewed to the downside.
The firm is most concerned that on balance sheet credits originated through the retail bank will deteriorate. FHN's residential real estate book is already showing signs of strain. Firm expects further deterioration, given elevated growth and exposure. They also expect deterioration in industry-wide residential construction loans, and FHN is very exposed.
There is also material EPS risk embedded in the mortgage origination unit. The recourse provision for early payment defaults (EPDs) related to sub-prime and/or Alt-A exposure is likely to increase. Moreover, recent issues in these two loan categories could drive a material slowdown in top-line growth. Maintains Sell.
Notablecalls: The stock took a pretty bad hit yesterday, following a warning from MTB. MLCO's comments do nothing to please the bulls, so more downside in store for FHN. Should the stock open down more than a pt, I would not be surprised to see a quick bounce.
Calls of Note Part 3
- CIBC reiterates their Sector Outperformer rating & $25 target on Trident Micro (NASDAQ:TRID), in response to recent share pressure, driven by backtracking, yet still defiant shorts. The TRID rant-du- jour is HiDTV 2H08 ASPs will decline into the low teens. The irony is TRID's CY08 guidance & firm's estimates are precisely predicated on this occurrence. As such, the firm cannot understand the big fuss around ASPs.
HiDTV design activity for CY08 has commenced, & they have independently confirmed Samsung, Sharp, & Philips will be anchor high-volume adopters. Firm's Sony contact indicated they will integrate HiDTV into US sockets, yet may stick with NEC decoders in Japan & Europe, for political reasons.
At ~11x CIBC's CY08 EPS of $1.80, TRID is trading at a significant 33% discount to its peers. With restatements on their way (likely in May, following abbreviated March Q results in late April), followed by additional top-tier HiDTV design-win validations,they view TRID as a compelling value.
Notablecalls: While the situation at Sony (See archives) remains as an overhang, CIBC's comments may create a bounce n-t. My gut is telling me TRID may be a falling knife here, so look for some bottoming action before gobbling up any shares.
HiDTV design activity for CY08 has commenced, & they have independently confirmed Samsung, Sharp, & Philips will be anchor high-volume adopters. Firm's Sony contact indicated they will integrate HiDTV into US sockets, yet may stick with NEC decoders in Japan & Europe, for political reasons.
At ~11x CIBC's CY08 EPS of $1.80, TRID is trading at a significant 33% discount to its peers. With restatements on their way (likely in May, following abbreviated March Q results in late April), followed by additional top-tier HiDTV design-win validations,they view TRID as a compelling value.
Notablecalls: While the situation at Sony (See archives) remains as an overhang, CIBC's comments may create a bounce n-t. My gut is telling me TRID may be a falling knife here, so look for some bottoming action before gobbling up any shares.
Calls of Note Part 2
- Goldman Sachs advises investors to buy Google (NASDAQ:GOOG) with 30%-plus upside to their $620 price target. Firm has increased confidence in their view given new analytical framework developed from the paid lead growth details included in the 10K that supports their above-consensus 2007 yoy revenue growth of 55%. 55% top-line growth and 45% operating income growth, faster than 32% growth in invested capital, results in ~400 bps of ROIC expansion. GSCO views ROIC as the best measure of Google achieving a return on investment given it's the sum total of the effect of spending on the overall business. 1Q should begin the acceleration in FCF growth and ROIC expansion.
Firm estimates Google's ROIC will expand ~400 bps to 42.2% (versus the large-cap average of 15.1%) and free cash flow (FCF) growth will accelerate to 76% yoy in 2007 after a significant increase in investment caused ROIC to decline to 38% in 2006 from 81% in 2005 and FCF, while robust at $2.3bn, to experience a significant deceleration in growth to 3% 1Q2007E FCF growth acceleration to 74% yoy and 270 bps of ROIC expansion to 47.8% should start to alleviate investor concerns on costs, potential over-investment without a return, or share losses due to Panama, while reinforcing firm's view of that Google is creating value with its spend. Maintains Buy.
Notablecalls: I suspect there will be some nice buy interest in GOOG today.
Firm estimates Google's ROIC will expand ~400 bps to 42.2% (versus the large-cap average of 15.1%) and free cash flow (FCF) growth will accelerate to 76% yoy in 2007 after a significant increase in investment caused ROIC to decline to 38% in 2006 from 81% in 2005 and FCF, while robust at $2.3bn, to experience a significant deceleration in growth to 3% 1Q2007E FCF growth acceleration to 74% yoy and 270 bps of ROIC expansion to 47.8% should start to alleviate investor concerns on costs, potential over-investment without a return, or share losses due to Panama, while reinforcing firm's view of that Google is creating value with its spend. Maintains Buy.
Notablecalls: I suspect there will be some nice buy interest in GOOG today.
Calls of Note Part 1
- Thomas Weisel Partners comments on Apple (NASDAQ:AAPL) after completing a round of 30 channel checks with Apple specialist resellers and Apple retail stores across the United States. Firm's checks suggest s seasonally soft quarter for Mac and iPod, which is not surprising given normal seasonal demand trends. They note, however, that another 30%-plus q/q decline in Flash pricing should help margins; thus, they expect Apple to report EPS ahead of consensus.
TWP believes that, on a sequential basis, Mac units will likely decline in mid-single-digit area, but possibly be ahead of the Street assumptions on a revenue basis (they are at $5.39bn in total revenue versus Street at $5.17bn).
iPod nano still a dominant MP3 player, but checks suggest seasonal drop-off in demand compared with very strong December quarter: Again, not surprising and consistent with expectations of a 48% q/q decline in units. 4GB iPod nano remains the best-selling iPod, and Apple continues to outsell competition by 8:1 ratio.
Checks indicate limited interest in iTV thus far. Firm does not view this product as a large opportunity, as they believe there are less than 6mn PVR-type devices sold in the marketplace annually at present.
With 15-40% q/q declines on various Flash capacities, the firm believes Apple saw another sequential benefit in gross margin, and that average iPod margins are likely now above 40%, two times the levels seen in 2005. They bump their gross margin assumption to 30% (likely conservative) from 29.5%, and arrive at a $0.69 EPS estimate (excluding $0.03 option) versus prior assumption of $0.67 (Street at $0.66). TWP is also bumping up their June quarter revenue estimates due to higher Mac revenue, but remains below consensus on revenue (in-line EPS).
Firm believes the growth opportunities continue to be strong for Apple, but that those opportunities appear to be well understood by the investment community and, thus, reflected in the current stock price. Maintains Mkt Weight rating.
Notablecalls: Not actionable but good to know category. I continue to be cautious on AAPL and still think it's a short around current levels. Oh and btw, a boutique firm was out on AAPL last Friday saying that based on their intel the 4GB iPhone will be available on June 11 but the 8GB model will not arrive til mid-August.
TWP believes that, on a sequential basis, Mac units will likely decline in mid-single-digit area, but possibly be ahead of the Street assumptions on a revenue basis (they are at $5.39bn in total revenue versus Street at $5.17bn).
iPod nano still a dominant MP3 player, but checks suggest seasonal drop-off in demand compared with very strong December quarter: Again, not surprising and consistent with expectations of a 48% q/q decline in units. 4GB iPod nano remains the best-selling iPod, and Apple continues to outsell competition by 8:1 ratio.
Checks indicate limited interest in iTV thus far. Firm does not view this product as a large opportunity, as they believe there are less than 6mn PVR-type devices sold in the marketplace annually at present.
With 15-40% q/q declines on various Flash capacities, the firm believes Apple saw another sequential benefit in gross margin, and that average iPod margins are likely now above 40%, two times the levels seen in 2005. They bump their gross margin assumption to 30% (likely conservative) from 29.5%, and arrive at a $0.69 EPS estimate (excluding $0.03 option) versus prior assumption of $0.67 (Street at $0.66). TWP is also bumping up their June quarter revenue estimates due to higher Mac revenue, but remains below consensus on revenue (in-line EPS).
Firm believes the growth opportunities continue to be strong for Apple, but that those opportunities appear to be well understood by the investment community and, thus, reflected in the current stock price. Maintains Mkt Weight rating.
Notablecalls: Not actionable but good to know category. I continue to be cautious on AAPL and still think it's a short around current levels. Oh and btw, a boutique firm was out on AAPL last Friday saying that based on their intel the 4GB iPhone will be available on June 11 but the 8GB model will not arrive til mid-August.
Paperstand (GOOG, BID, UNM)
According to the WSJ, Google (GOOG) is furthering its ambitions to move beyond online advertising with a multiyear contract to sell television commercials that will appear through satellite-TV provider EchoStar (DISH). Under an arrangement to be announced today, Google will sell TV ad spots through an online auction system, with advertisers bidding the amount they are willing to pay per thousand households that view each commercial. Google will send the commercials of the winning bidders to EchoStar, which will then insert them in an unspecified number of daily blocks in the TV programming it delivers to the roughly 13m households that subscribe to its Dish service.
“Heard on the Street” column out positively on Sotheby’s (BID), saying that art-loving investors who might not be raising a bid paddle at the co’s coming spring sale are betting on the auctioneer's stock instead. "When ppl make money, they want to put it in things that will appreciate in value, and that's art," says Richard Rosen, of J&W Seligman. "This is an irreplaceable, one-of-a-kind franchise with huge barriers to entry," he adds. Sotheby's makes most of its money from fees it charges buyers and sellers, a lucrative but cyclical mkt it enjoys in a veritable duopoly with closely held rival Christie's. Sotheby's costs, such as salaries and travel budgets for its globe-trotting art specialists, are mostly fixed, so a little rev growth translates into a big boost in earnings. For example, rev in ‘06 grew 29% to $665m, while earnings jumped 70% to $107m. "In the up-part of the art-mkt cycle, those incremental dollars fall almost straight to the bottom line," says Rommel Dionisio, of Wedbush. He has a Buy rating on the stock. The co's sizable net-cash position, high growth rate, pricing power and new global strategy to boost sales provide strong fundamentals for the stock.
Barron’s Online “Inside Scoop” section reports that Relational Investors has just upped its stake in Unum Group (UNM), less than a month after Relational said it would keep an eye on the insurance brokerage's turnaround efforts. Relational reported boosting its stake in the insurance provider to 25.7m shares, or a 7.5% stake, up from the 21.3m shares, or 6.2% stake. In its initial filing, Relational said Unum's stock is undervalued b/c of the co's history of "repeated, significant, one-time reserve and settlement charges against reported earnings, poor operating results and poor forecasting." Ken Squire, of 13D Monitor, says Relational "has a reputation for being long-term value investors who actually go in and enhance shareholder value."
“Heard on the Street” column out positively on Sotheby’s (BID), saying that art-loving investors who might not be raising a bid paddle at the co’s coming spring sale are betting on the auctioneer's stock instead. "When ppl make money, they want to put it in things that will appreciate in value, and that's art," says Richard Rosen, of J&W Seligman. "This is an irreplaceable, one-of-a-kind franchise with huge barriers to entry," he adds. Sotheby's makes most of its money from fees it charges buyers and sellers, a lucrative but cyclical mkt it enjoys in a veritable duopoly with closely held rival Christie's. Sotheby's costs, such as salaries and travel budgets for its globe-trotting art specialists, are mostly fixed, so a little rev growth translates into a big boost in earnings. For example, rev in ‘06 grew 29% to $665m, while earnings jumped 70% to $107m. "In the up-part of the art-mkt cycle, those incremental dollars fall almost straight to the bottom line," says Rommel Dionisio, of Wedbush. He has a Buy rating on the stock. The co's sizable net-cash position, high growth rate, pricing power and new global strategy to boost sales provide strong fundamentals for the stock.
Barron’s Online “Inside Scoop” section reports that Relational Investors has just upped its stake in Unum Group (UNM), less than a month after Relational said it would keep an eye on the insurance brokerage's turnaround efforts. Relational reported boosting its stake in the insurance provider to 25.7m shares, or a 7.5% stake, up from the 21.3m shares, or 6.2% stake. In its initial filing, Relational said Unum's stock is undervalued b/c of the co's history of "repeated, significant, one-time reserve and settlement charges against reported earnings, poor operating results and poor forecasting." Ken Squire, of 13D Monitor, says Relational "has a reputation for being long-term value investors who actually go in and enhance shareholder value."
Monday, April 02, 2007
Calls of Note Part 6
- Goldman Sachs is adding Merrill Lynch (NYSE:MER) to the Americas Conviction Buy and Buy List. Shares are off more than 17% since hitting an all time high of $98.68 on January 18 as investor concerns about sub-prime mortgage exposure and potential contagion to adjacent credit markets have taken their toll. Over the same period, peers have lost 7% while the S&P 500 is off 1%. GSCO believes the sell off is overdone, and recommends investors build a position in Merrill Lynch to take advantage of the very strong investment banking and capital markets environments. Firm's $107 price target implies 31% upside. They raise 1Q07/2007 EPS estimates to $2.00/$8.20 from $1.84/$8.00.
Catalyst: MER reports 1Q2007 earnings in mid-April, and GSCO anticipates the firm will deliver upside to consensus estimates. Investors have over-estimated the headwinds sub-prime mortgage will have on the firm, in their view, and they believe they are not giving management enough credit for the positive momentum it has built over the last few years to improve its ROE. Both LEH and BSC have indicated sub-prime mortgage is a small contributor to their fixed income business, so MER's contribution should be equally as small. While the timing of the First Franklin deal was less than optimal, any revenues will be accretive in 2007 as the deal closed on 12/30/06.
MER trades at 2.0x book value, generally in line with its 5-year historical multiple of 1.9x and well below its recent multiple of 2.4x.
Notablecalls: Expect to see buy intrest in MER!
Catalyst: MER reports 1Q2007 earnings in mid-April, and GSCO anticipates the firm will deliver upside to consensus estimates. Investors have over-estimated the headwinds sub-prime mortgage will have on the firm, in their view, and they believe they are not giving management enough credit for the positive momentum it has built over the last few years to improve its ROE. Both LEH and BSC have indicated sub-prime mortgage is a small contributor to their fixed income business, so MER's contribution should be equally as small. While the timing of the First Franklin deal was less than optimal, any revenues will be accretive in 2007 as the deal closed on 12/30/06.
MER trades at 2.0x book value, generally in line with its 5-year historical multiple of 1.9x and well below its recent multiple of 2.4x.
Notablecalls: Expect to see buy intrest in MER!
Calls of Note Part 5
- JP Morgan says that in conjunction with MedPanel, wtheyconducted a proprietary survey of 50 high volume oncologists to gauge future trends for Amgen's (NASDAQ:AMGN) Aranesp. They view the survey as robust as it represents almost 200,000 pts. On the positive side, the data indicate that hemoglobin (Hb) targets in chemotherapy induced anemia (CIA) pts are not expected to markedly decline going forward. This has been a widespread concern on the Street. On the negative side, new patient starts and overall utilization of Aranesp in CIA may be pressured going forward.
Use of erythropoietin stimulating agents (ESAs) may decline in 12 mo with 58% of respondents expecting decreases b/t 0 and 20%+. In addition to lower ESA growth, Aranesp may lose as much as 5% of CIA share in 12 mo driven by oncologists opting out of ESA therapy.
JPM has lowered their 2007-2010 Aranesp forecasts by 10-12% and EPS by 2-4%, which in their view reflects realistic assumptions based on the survey results. 2007-2008 Aranesp estimates are now $4.12B (0% growth) and $4.49B (9% growth) respectively, from $4.60B and $5.1B prev. 2007-2008 EPS ests are now $4.25 and $4.61 respectively, down from $4.33 and $4.81 prev.
Reiterates OW. They're comfortable recommending AMGN shares at current levels as they believe that their anemia assumptions are reasonable and grounded by data (not sentiment). Firm sees more upside than downside to revised forecasts, and finds AMGN's risk/reward attractive at 13X their 2007 ests (versus 16.8X for US Big Pharma).
Notablecalls: AMGN sure looks like it wants to bounce here. I'm going to call the JPM's call as actionable. The analyst Geoffrey Meacham has gone the extra mile for investors here and his estimates are likely rock solid in terms of quantifying the ESA risk.
Use of erythropoietin stimulating agents (ESAs) may decline in 12 mo with 58% of respondents expecting decreases b/t 0 and 20%+. In addition to lower ESA growth, Aranesp may lose as much as 5% of CIA share in 12 mo driven by oncologists opting out of ESA therapy.
JPM has lowered their 2007-2010 Aranesp forecasts by 10-12% and EPS by 2-4%, which in their view reflects realistic assumptions based on the survey results. 2007-2008 Aranesp estimates are now $4.12B (0% growth) and $4.49B (9% growth) respectively, from $4.60B and $5.1B prev. 2007-2008 EPS ests are now $4.25 and $4.61 respectively, down from $4.33 and $4.81 prev.
Reiterates OW. They're comfortable recommending AMGN shares at current levels as they believe that their anemia assumptions are reasonable and grounded by data (not sentiment). Firm sees more upside than downside to revised forecasts, and finds AMGN's risk/reward attractive at 13X their 2007 ests (versus 16.8X for US Big Pharma).
Notablecalls: AMGN sure looks like it wants to bounce here. I'm going to call the JPM's call as actionable. The analyst Geoffrey Meacham has gone the extra mile for investors here and his estimates are likely rock solid in terms of quantifying the ESA risk.
Calls of Note Part 4
- FBR notes Urban Outfitters (NASDAQ:URBN) filed their 2006 10- K last Friday afternoon indicating that "Thus far during fiscal 2008 (calendar 2007), total company comparable store sales are positive."
Firm expects positive reaction to this data point as investors realize that 1Q07 could be the first consolidated positive comp quarter since 4Q05 for the company. They further point out that the company has yet to benefit materially from the spring break selling that is to occur over the next two weekends. Firm maintains belief that positive momentum will continue and that the turnaround at both divisions will strengthen throughout the year. They are raising their 1Q07 comp from flat to +1%, but it does not impact EPS estimates. FBR currently has a $35 12 month price target. They believe that shares of URBN should be valued in line with a three-year EPS growth rate of 30%. O
Firm notes that Chairman and CEO Dick Hayne sold 4.5M shares recently (approximately 9% of his position). Mr. Hayne owns over 43M shares following the liquidation and still owns over 25% of the company. They do not feel that he would liquidate in the face of pending bad news in today's litigious environment. They also noted a 120,000 share registration to sell by CFO John Kyees. Firm continues to feel that the improving fundamentals of URBN's turnaround outweigh any the negative implications of these insider transactions.
Notablecalls: FBR was out positive on URBN last week (See archives) and looks like they were right. Do check out the intraday chart on URBN from Friday, as it seems there was some buy interest in the name after the 10K was filed.
Firm expects positive reaction to this data point as investors realize that 1Q07 could be the first consolidated positive comp quarter since 4Q05 for the company. They further point out that the company has yet to benefit materially from the spring break selling that is to occur over the next two weekends. Firm maintains belief that positive momentum will continue and that the turnaround at both divisions will strengthen throughout the year. They are raising their 1Q07 comp from flat to +1%, but it does not impact EPS estimates. FBR currently has a $35 12 month price target. They believe that shares of URBN should be valued in line with a three-year EPS growth rate of 30%. O
Firm notes that Chairman and CEO Dick Hayne sold 4.5M shares recently (approximately 9% of his position). Mr. Hayne owns over 43M shares following the liquidation and still owns over 25% of the company. They do not feel that he would liquidate in the face of pending bad news in today's litigious environment. They also noted a 120,000 share registration to sell by CFO John Kyees. Firm continues to feel that the improving fundamentals of URBN's turnaround outweigh any the negative implications of these insider transactions.
Notablecalls: FBR was out positive on URBN last week (See archives) and looks like they were right. Do check out the intraday chart on URBN from Friday, as it seems there was some buy interest in the name after the 10K was filed.
Calls of Note Part 3
- Merrill Lynch notes that based on industry checks at the recent CTIA conference, they believe Research in Motion (NASDAQ:RIMM) is uniquely positioned to benefit from a multi-year acceleration in smartphone sales. RIM's new products featuring multimedia, GPS and mobile commerce capabilities that leverage RIM's secure network infrastructure will drive its next leg of growth, in firm's opinion. MLCO is raising CY07 pro-forma EPS estimate by 6% to $4.48 and CY08 EPS by 15% to $6.08. Reiterates Buy, $165 PO (~21% potential upside.)
Smartphones comprise six of top ten bestselling mobile phones on Amazon.com, including four Blackberry models. IDC projects smartphone shipments in RIM's core markets (US, Canada, W. Europe) to accelerate from 39% growth last yr to 50%+ CAGR for the next two years. If RIM can expand its core market share from 23% (current model) to 29% in CY08, they estimate earnings power of about $7, which puts theoretical upside for RIM stock at $175-210 on 25x-30x CY08 PE. RIM's compelling new portfolio, and consistent underperformance by rivals Palm, Motorola, and Nokia gives the firm confidence that RIM can gain meaningful share.
Firm looks for two positive catalysts near term: 1) RIM's FQ earnings call on 11-April; and 2) Potential launch of Verizon/Sprint Pearl and T-Mobile 83xx WiFi Blackberry on 7-May, coinciding with RIM's Capital Markets Day. MLCO recommends buying May US$140.00 call options ahead of the upcoming catalysts.
Notablecalls: Despite the fact MLCO's call contains nothing new, I expect to see some buy interest in RIMM today. Vivek, why not up your tgt on RIMM? That would give the call a lot more credibility.
Smartphones comprise six of top ten bestselling mobile phones on Amazon.com, including four Blackberry models. IDC projects smartphone shipments in RIM's core markets (US, Canada, W. Europe) to accelerate from 39% growth last yr to 50%+ CAGR for the next two years. If RIM can expand its core market share from 23% (current model) to 29% in CY08, they estimate earnings power of about $7, which puts theoretical upside for RIM stock at $175-210 on 25x-30x CY08 PE. RIM's compelling new portfolio, and consistent underperformance by rivals Palm, Motorola, and Nokia gives the firm confidence that RIM can gain meaningful share.
Firm looks for two positive catalysts near term: 1) RIM's FQ earnings call on 11-April; and 2) Potential launch of Verizon/Sprint Pearl and T-Mobile 83xx WiFi Blackberry on 7-May, coinciding with RIM's Capital Markets Day. MLCO recommends buying May US$140.00 call options ahead of the upcoming catalysts.
Notablecalls: Despite the fact MLCO's call contains nothing new, I expect to see some buy interest in RIMM today. Vivek, why not up your tgt on RIMM? That would give the call a lot more credibility.
Calls of Note Part 2
- JP Morgan notes that last week they made a bottom call on Lam Research's (NASDAQ:LRCX) shares suggesting that an upside revision to C2H07 shipment guidance would likely be a major upside catalyst for LRCX shares, most likely in the July earnings season, but it could begin to materialize in the April earnings season. Firm now thinks that a sharp and potentially sustainable recovery in Flash pricing, as a prelude to improved Flash fundamentals thus future capex growth, is likely to be a positive catalyst as well.
Lam is more leveraged to memory in general and Flash in particular given its success penetrating and holding share at the major memory vendors. Flash price weakness contributed to the recent underperformance of LRCX shares and is likely to drive stock leadership as Flash fundamentals improve.
There is no doubt in their minds that Flash will be the biggest driver of wafer fab equipment demand growth over the next five+ years and they like Lam's exposure. The firm also thinks the company's share gain and margin expansion are sustainable, but the stock seems to be discounting an implosion in both, which they see as highly unlikely.
This week, Samsung Semiconductor President Chang-Gyu Hwang stated at a Mobile Solutions forum in Taiwan that he expects a "severe shortage" of Flash devices in C2H07 as portable
applications such the iPhone, high density 3G players, and handsets with built-in memory drive demand.
Reiterates Overweight. LRCX trades at 10.5x JPM's unchanged C2007 GAAP EPS est. of $4.52 vs. universe average of 16.7x.
Notablecalls: Looks like JPM's intial call didn't generate the buy interest they expected (See Archives), so they are trying again. Think the points made (coupled with the strong wording) may generate some further buy interest in LRCX. Mr. Hwang's comments regarding a severe shortage of Flash devices will likely be circling the desks today.
Lam is more leveraged to memory in general and Flash in particular given its success penetrating and holding share at the major memory vendors. Flash price weakness contributed to the recent underperformance of LRCX shares and is likely to drive stock leadership as Flash fundamentals improve.
There is no doubt in their minds that Flash will be the biggest driver of wafer fab equipment demand growth over the next five+ years and they like Lam's exposure. The firm also thinks the company's share gain and margin expansion are sustainable, but the stock seems to be discounting an implosion in both, which they see as highly unlikely.
This week, Samsung Semiconductor President Chang-Gyu Hwang stated at a Mobile Solutions forum in Taiwan that he expects a "severe shortage" of Flash devices in C2H07 as portable
applications such the iPhone, high density 3G players, and handsets with built-in memory drive demand.
Reiterates Overweight. LRCX trades at 10.5x JPM's unchanged C2007 GAAP EPS est. of $4.52 vs. universe average of 16.7x.
Notablecalls: Looks like JPM's intial call didn't generate the buy interest they expected (See Archives), so they are trying again. Think the points made (coupled with the strong wording) may generate some further buy interest in LRCX. Mr. Hwang's comments regarding a severe shortage of Flash devices will likely be circling the desks today.
Calls of Note Part 1
Several firms comment on Semiconductor Industry Association (SIA) February data released over the weekend.
- Bear Stearns notes that from a YoY perspective the 3MMA revenue growth rate decelerated to 4.2% from 9.3% in January. Semiconductor units also decelerated with February's 3MMA YoY unit growth rate coming in at 2.9%, down from 3.8% in January. 3MMA ASPs increased 1.3% YoY, but decreased 4.3% MoM coming in at $0.483.
February revenue decreased 7.3% MoM to $17.9B, below the historical average growth rate of 5.1% MoM. Both units and ASPs were slightly weaker than expected.
February MPU revenues decreased 7% MoM, and came in well below the historical average revenue growth rate of 32%. MPU units only increased 3% MoM. Historically, units have increased an average of 20% MoM. DRAM revenue decreased 16% MoM versus its historical average decline of 1% as pricing continues to deteriorate. Units were down 2% MoM, slightly below the historical average increase of 1%.
Flash revenue increased 7% MoM versus its historical average growth of 12%, as ASPs continue to decline. Units increased 11% MoM, coming in better than the historical average increase of 10%. Analog revenues were down 5% MoM in what has historically been a flat environment. Units were down 1.6% versus the historical average increase of 7%.
The firm is tweaking lower their full year 2007 revenue growth rate from 6% to 5% YoY, based on a unit growth rate assumption of 10% YoY and an ASP decline of 5% YoY.
- JP Morgan notes revenue in all major categories decreased sequentially, with lower than seasonal declines in all categories except sensors. The microprocessor, memory, and logic categories were significantly below normal seasonality while the analog and discrete categories were slightly below normal seasonality.
Due to the lower than expected sales in February, they are lowering their 2007 forecast from 8% to 6% YoY growth.
JPM believes the excess inventory in the semiconductor industry is being worked down, as February YoY unit growth (ex discretes) was 2.9%, well below the normal YoY unit growth of 10%. As they expected, unit growth has started to decline, and they expect YoY unit growth to become negative in 1Q07, similar to previous troughs.
The firm recently upgraded their stance on the semiconductor sector to bullish due to belief the inventory correction is ending and the fall-off in unit growth gives them confidence.
- Goldman Sachs says they believe that the weakness in the February data supports their view that the 1QCY07 fundamentals have remained challenging despite recent commentary by the analog companies, with the upcoming earnings season likely to be disappointing relative to now elevated expectations.
Firm believes that Street estimates heading into Micron's (NYSE:MU) CY1Q'07 earningsreport are too high ($0.01 in EPS for CY1Q'07 versus GS LPS estimate of -$0.08), with downside likely to be driven primarily by lower than expected DRAM ASPs, which continued to deteriorate significantly since Micron's analyst meeting in early February. Although Micron's valuation is not as stretched as SPE valuations, the recent rally creates risk around the earnings report as they expect the magnitude of losses over the next several quarters to be much greater than Street expectations.
Notablecalls: I continue to reiterate my cautious stance on Semiconductors. Note that Baird is upgrading MU this AM to Outperform from Neutral. While MU's not a trading stock, we may see it being chopped down following market open.
- Bear Stearns notes that from a YoY perspective the 3MMA revenue growth rate decelerated to 4.2% from 9.3% in January. Semiconductor units also decelerated with February's 3MMA YoY unit growth rate coming in at 2.9%, down from 3.8% in January. 3MMA ASPs increased 1.3% YoY, but decreased 4.3% MoM coming in at $0.483.
February revenue decreased 7.3% MoM to $17.9B, below the historical average growth rate of 5.1% MoM. Both units and ASPs were slightly weaker than expected.
February MPU revenues decreased 7% MoM, and came in well below the historical average revenue growth rate of 32%. MPU units only increased 3% MoM. Historically, units have increased an average of 20% MoM. DRAM revenue decreased 16% MoM versus its historical average decline of 1% as pricing continues to deteriorate. Units were down 2% MoM, slightly below the historical average increase of 1%.
Flash revenue increased 7% MoM versus its historical average growth of 12%, as ASPs continue to decline. Units increased 11% MoM, coming in better than the historical average increase of 10%. Analog revenues were down 5% MoM in what has historically been a flat environment. Units were down 1.6% versus the historical average increase of 7%.
The firm is tweaking lower their full year 2007 revenue growth rate from 6% to 5% YoY, based on a unit growth rate assumption of 10% YoY and an ASP decline of 5% YoY.
- JP Morgan notes revenue in all major categories decreased sequentially, with lower than seasonal declines in all categories except sensors. The microprocessor, memory, and logic categories were significantly below normal seasonality while the analog and discrete categories were slightly below normal seasonality.
Due to the lower than expected sales in February, they are lowering their 2007 forecast from 8% to 6% YoY growth.
JPM believes the excess inventory in the semiconductor industry is being worked down, as February YoY unit growth (ex discretes) was 2.9%, well below the normal YoY unit growth of 10%. As they expected, unit growth has started to decline, and they expect YoY unit growth to become negative in 1Q07, similar to previous troughs.
The firm recently upgraded their stance on the semiconductor sector to bullish due to belief the inventory correction is ending and the fall-off in unit growth gives them confidence.
- Goldman Sachs says they believe that the weakness in the February data supports their view that the 1QCY07 fundamentals have remained challenging despite recent commentary by the analog companies, with the upcoming earnings season likely to be disappointing relative to now elevated expectations.
Firm believes that Street estimates heading into Micron's (NYSE:MU) CY1Q'07 earningsreport are too high ($0.01 in EPS for CY1Q'07 versus GS LPS estimate of -$0.08), with downside likely to be driven primarily by lower than expected DRAM ASPs, which continued to deteriorate significantly since Micron's analyst meeting in early February. Although Micron's valuation is not as stretched as SPE valuations, the recent rally creates risk around the earnings report as they expect the magnitude of losses over the next several quarters to be much greater than Street expectations.
Notablecalls: I continue to reiterate my cautious stance on Semiconductors. Note that Baird is upgrading MU this AM to Outperform from Neutral. While MU's not a trading stock, we may see it being chopped down following market open.
Paperstand (FDC LBO; GOOG vs MSFT; T for TI; AAPL)
The WSJ reports that Kohlberg Kravis Roberts is in late-stage negotiations to purchase First Data (FDC) for more than $24bn. KKR was hoping to make an official announcement over the next few days. The exact purchase price couldn't be learned yesterday, though two people described the price as a premium of at least 20% to First Data's mkt cap of about $20bn.
According to the WSJ, Google (GOOG) has emerged along with Microsoft (MSFT) as a contender to buy DoubleClick, presenting competition that stands to increase the final sale price of the online-advertising co. Microsoft has appeared less likely to win the bidding as the potential price for the co surpassed $2bn. But it is possible that Microsoft will counter.
The WSJ reports that AT&T (T) and affiliate seek Telecom Italia (TI) stake. Offers by AT&T and Mexican affiliate America Movile to take a combined 66.6% stake in the holding co that controls TI stand to accelerate consolidation among the world's largest telecom providers. The bids, which total about €2.6bn ($3.47bn), will first have to get past nationalist resistance from the Italian govt. The board of Italian tires-to-telecom group Pirelli yesterday said it had entered into exclusive talks with AT&T and America Movil to sell each co a 33.3% stake in the unlisted holding co Olimpia, which in turn owns 18% of Telecom Italia.
After months of drama in its boardroom and declining performance at its newspapers, Tribune (TRB) late yesterday appeared to be firming up a deal to sell itself to Sam Zell. Over the weekend, Tribune's special committee of the board reviewed competing offers from Mr. Zell and a joint bid from Eli Broad and Ron Burkle. Both offers propose taking the co private using an employee stock ownership plan.
AirTran (AAI) is expected to announce Monday that it is sweetening its takeover offer for Midwest Air (MEH) by about 13%, valuing the carrier at $389m. The higher cash-and-stock proposal, valued at $15 a share, is the latest attempt by AirTran to persuade Midwest to negotiate a deal that would unite two low-cost carriers.
In a major break with the music industry's longstanding antipiracy strategy, EMI Group is set to announce today that it plans to sell significant amounts of its catalog without anticopying software. The co is to make its announcement at a London news conference featuring Apple (AAPL) CEO Steve Jobs. EMI is to sell songs without the software, known as digital rights mgmt, through Apple's iTunes Store and possibly through other online outlets.
According to the WSJ, Google (GOOG) has emerged along with Microsoft (MSFT) as a contender to buy DoubleClick, presenting competition that stands to increase the final sale price of the online-advertising co. Microsoft has appeared less likely to win the bidding as the potential price for the co surpassed $2bn. But it is possible that Microsoft will counter.
The WSJ reports that AT&T (T) and affiliate seek Telecom Italia (TI) stake. Offers by AT&T and Mexican affiliate America Movile to take a combined 66.6% stake in the holding co that controls TI stand to accelerate consolidation among the world's largest telecom providers. The bids, which total about €2.6bn ($3.47bn), will first have to get past nationalist resistance from the Italian govt. The board of Italian tires-to-telecom group Pirelli yesterday said it had entered into exclusive talks with AT&T and America Movil to sell each co a 33.3% stake in the unlisted holding co Olimpia, which in turn owns 18% of Telecom Italia.
After months of drama in its boardroom and declining performance at its newspapers, Tribune (TRB) late yesterday appeared to be firming up a deal to sell itself to Sam Zell. Over the weekend, Tribune's special committee of the board reviewed competing offers from Mr. Zell and a joint bid from Eli Broad and Ron Burkle. Both offers propose taking the co private using an employee stock ownership plan.
AirTran (AAI) is expected to announce Monday that it is sweetening its takeover offer for Midwest Air (MEH) by about 13%, valuing the carrier at $389m. The higher cash-and-stock proposal, valued at $15 a share, is the latest attempt by AirTran to persuade Midwest to negotiate a deal that would unite two low-cost carriers.
In a major break with the music industry's longstanding antipiracy strategy, EMI Group is set to announce today that it plans to sell significant amounts of its catalog without anticopying software. The co is to make its announcement at a London news conference featuring Apple (AAPL) CEO Steve Jobs. EMI is to sell songs without the software, known as digital rights mgmt, through Apple's iTunes Store and possibly through other online outlets.
Sunday, April 01, 2007
Barron's Summary
Barron’s cover sroty discusses Alzheimer disease plays. Those at a bargain price include BMY, LLY, GSK, MRK, PFE, SGP and WYE. Smaller co’s mentioned with Phase 3 drug candidates include NRMX and MYGN.
Barron’s highlights negatively First Marblehead (FMD), saying that after a big run last year, the stock has begun tailing off. The worst may still be ahead, as the default rate on student loans backing some securities approaches a dangerous 9%.
Barron’s suggests that as newsprint-industry fundamentals improve, Bowater (BOW) could rally into the mid-30s from a current 23 a share, and Abitibi (ABY) could rise to 5 from 2.80. As a reminder, those two co’s announced merger on Jan 29. In a "merger of equals," Bowater shareholders will get 52% of the combined company, to be called AbitibiBowater, and Abitbi holders will receive 48%.
Walter Industries (WLT) is pushing to unlock value by selling its home-building and mortgage units. The company's assets could be worth as much as 38 a share, 52% above its current stock price.
According to “The Trader” section, Bruce Bartlett, of Lord, Abbett & Co., has been focusing on co’s that can deliver conspicuous profit growth driven by good old-fashioned sales increases, and not just nimble financial engineering and buybacks. Among tech co’s, Bartlett believes "gatekeepers," those with a product or service others need to expand, will enjoy keen demand and strong pricing power. One such example is Akamai (AKAM). Rev climbed 51% last year and is expected to rise more than 40% this year, with few competitors boasting its scope and quality of service. Analysts have roundly raised their ests to catch up to Akamai's, and Cowen & Co., for one, flags it as an "excellent large-cap play on the growth of multimedia Internet content."
MEMC Electronic Materials (WFR), which straddles a similarly choice spot in the semiconductor world. A current polysilicon shortage should at least support, if not drive up, prices of silicon wafers, and the relentless drive for increased memory capacity bodes well for wafer demand. The growing mkt for solar chips is another reason MEMC margins continue to strengthen.
Meanwhile, some consumer stocks also might better withstand any belt-tightening, since Americans holding off big-ticket splurges may still pay for smaller addictions. The video-game maker GameStop (GME) targets not just kids, of course, and a new generation of consoles has game geeks agog, and is fueling another boom. No question, all 3 stocks are trading near 52w highs, and none are cheap by conventional P/E measures. GameStop was among last week's top gainers, while MEMC was among the first quarter's. "But as we transition to a slower economy, and as profit growth starts to become scarce, stocks that can deliver above-avg growth should begin to command a greater premium," Bartlett says.
“The Trader” also highlights Omnivision (OVTI), whose shares are down 61% since last May. Profit margin has begun its slide, and while rev has held near $135m over the past 3 qrtrs, net income has tumbled from $22m to $11m. Analysts are calling for a 44% drop in EPS this year. Zealous bearish bets, about 40% of tradable shares are sold short, mean that short covering can send OmniVision shares momentarily higher. The co also has nearly $6 a share in cash. But RW Baird analyst Tristan Gerra expects the cash holding to "continue to erode as mgmt spends in an attempt to reverse course with, however, no expected effect on rapidly deteriorating fundamentals." Gerra has a price target of 8 on the stock, or 15x ‘08 earnings.
“Follow Up” section discusses favorably General Dynamics (GD), saying that the co’s CEO has given guidance of just $1.9bn in profits for '07, explaining that budgetary politics complicate rev stream forecasts. Those with a short-term orientation have every right to be nervous, but long-term investors should look beyond the Capitol Hill tug-of-war to see a solid co in an indispensable industry.
“Follow Up” also highlights Beazer (BZH), whose shares took nosedive last week. "Anyone holding the stock now is in a very speculative situation," says AG Edwards analyst Gregory E. Gieber. "Even without the probes, Beazer faces the same problem of declining sales and profits that everyone else in the industry currently faces," he adds.
Morgan Stanley strategist Henry McVey favors VLO, X, MCK and UIS. Expensive stocks include UST, DHR and PAYX.
“Technology Trader” section out positive on Broadcom (BRCM). The article is similar to March 28. Barron’s Online article. (See archives).
Barron’s highlights negatively First Marblehead (FMD), saying that after a big run last year, the stock has begun tailing off. The worst may still be ahead, as the default rate on student loans backing some securities approaches a dangerous 9%.
Barron’s suggests that as newsprint-industry fundamentals improve, Bowater (BOW) could rally into the mid-30s from a current 23 a share, and Abitibi (ABY) could rise to 5 from 2.80. As a reminder, those two co’s announced merger on Jan 29. In a "merger of equals," Bowater shareholders will get 52% of the combined company, to be called AbitibiBowater, and Abitbi holders will receive 48%.
Walter Industries (WLT) is pushing to unlock value by selling its home-building and mortgage units. The company's assets could be worth as much as 38 a share, 52% above its current stock price.
According to “The Trader” section, Bruce Bartlett, of Lord, Abbett & Co., has been focusing on co’s that can deliver conspicuous profit growth driven by good old-fashioned sales increases, and not just nimble financial engineering and buybacks. Among tech co’s, Bartlett believes "gatekeepers," those with a product or service others need to expand, will enjoy keen demand and strong pricing power. One such example is Akamai (AKAM). Rev climbed 51% last year and is expected to rise more than 40% this year, with few competitors boasting its scope and quality of service. Analysts have roundly raised their ests to catch up to Akamai's, and Cowen & Co., for one, flags it as an "excellent large-cap play on the growth of multimedia Internet content."
MEMC Electronic Materials (WFR), which straddles a similarly choice spot in the semiconductor world. A current polysilicon shortage should at least support, if not drive up, prices of silicon wafers, and the relentless drive for increased memory capacity bodes well for wafer demand. The growing mkt for solar chips is another reason MEMC margins continue to strengthen.
Meanwhile, some consumer stocks also might better withstand any belt-tightening, since Americans holding off big-ticket splurges may still pay for smaller addictions. The video-game maker GameStop (GME) targets not just kids, of course, and a new generation of consoles has game geeks agog, and is fueling another boom. No question, all 3 stocks are trading near 52w highs, and none are cheap by conventional P/E measures. GameStop was among last week's top gainers, while MEMC was among the first quarter's. "But as we transition to a slower economy, and as profit growth starts to become scarce, stocks that can deliver above-avg growth should begin to command a greater premium," Bartlett says.
“The Trader” also highlights Omnivision (OVTI), whose shares are down 61% since last May. Profit margin has begun its slide, and while rev has held near $135m over the past 3 qrtrs, net income has tumbled from $22m to $11m. Analysts are calling for a 44% drop in EPS this year. Zealous bearish bets, about 40% of tradable shares are sold short, mean that short covering can send OmniVision shares momentarily higher. The co also has nearly $6 a share in cash. But RW Baird analyst Tristan Gerra expects the cash holding to "continue to erode as mgmt spends in an attempt to reverse course with, however, no expected effect on rapidly deteriorating fundamentals." Gerra has a price target of 8 on the stock, or 15x ‘08 earnings.
“Follow Up” section discusses favorably General Dynamics (GD), saying that the co’s CEO has given guidance of just $1.9bn in profits for '07, explaining that budgetary politics complicate rev stream forecasts. Those with a short-term orientation have every right to be nervous, but long-term investors should look beyond the Capitol Hill tug-of-war to see a solid co in an indispensable industry.
“Follow Up” also highlights Beazer (BZH), whose shares took nosedive last week. "Anyone holding the stock now is in a very speculative situation," says AG Edwards analyst Gregory E. Gieber. "Even without the probes, Beazer faces the same problem of declining sales and profits that everyone else in the industry currently faces," he adds.
Morgan Stanley strategist Henry McVey favors VLO, X, MCK and UIS. Expensive stocks include UST, DHR and PAYX.
“Technology Trader” section out positive on Broadcom (BRCM). The article is similar to March 28. Barron’s Online article. (See archives).
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