Paperstand (CCU, AAI, MEH, STI, COMS, JPM)

The WSJ reprots that strong momentum was building last night for a final plan to clinch the $19.4bn sale of Clear Channel (CCU) to a duo of private-equity firms. Major shareholders Highfields Capital Mgmt and Fidelity Investments were expected to be on board with a new buyout proposal brought forward last week. This proposal would sweeten the offer for the San Antonio media-and-entertainment co by 20c a share, to $39.20. The deal also offers current shareholders a chance to own as much as 30% of the newly constituted Clear Channel, which would be majority-owned by Bain Capital and Thomas H. Lee Partners. The shareholders' support for the plan clears the way for a deal that has endured months of contention among shareholders, the co's mgmt and the private-equity firms.

According to the WSJ, AirTran (AAI) is expected to announce that holders of almost 57% of the shares of Midwest Air (MEH) have agreed to sell their stock under AirTran's $389m offer to acquire the airline. B/c the support represents a shift in favor of its longstanding effort to purchase Midwest despite opposition from the rival carrier's board and mgmt, AirTran is also expected to extend the deadline for Midwest shareholders to tender their stock. Although AirTran's latest bid for Midwest expired at midnight yesterday, a new deadline is expected to be set for Jun. 8.

“Ahead of the Tape” column out saying that a wave of cash is looking for a home in the stock mkt. With Bausch & Lomb’s announcement yesterday that it had agreed to be taken private, there are now 12 co’s in the S&P500 index set to go private this year. The total price tag for these co’s stands at $179bn, according to S&P analyst Howard Silverblatt. That's a lot of cash investors will have to redeploy. "This is a lot of money that will have to find a home," Mr. Silverblatt says. S&P500 index funds will pump the money right back into stocks in the index, as will many of the actively managed mutual funds that use the index as a benchmark. First and foremost, they'll need to buy the shares of the co’s replacing the outgoing members of the index. Of course all the cash "coming" into the stock mkt was really the stock mkt's to begin with. The reality is that, with so many co’s going private, there are fewer stocks to buy, and that's sending the ones that remain higher.

“Heard on the Street” column reports that SunTrust Bank (STI) has sold 9% of its $2.3bn stake in Coca-Cola, and has said it will decide what to do with the rest by year's end. The move is meant to appease exasperated investors who see the Coke shares as an asset that SunTrust has been squandering for decades. Still, it could be too little too late to save SunTrust from a takeover long thought to be impossible. The bank's sale of the beverage maker's shares could make SunTrust more vulnerable, b/c any buyer of SunTrust currently would have to include the mkt value of the Coke holding in the purchase price. Shedding the stock would make a takeover of SunTrust less expensive, and some analysts have long argued that the Coke stake amounted to a "poison pill" that kept SunTrust in control of its destiny. "The clients who are holding the stock are the ones that believe there's going to be a deal," says Nancy Bush, of NAB Research, who has followed SunTrust closely for two decades. "It's very sad to me. This was once upon a time a great franchise."

Barron’s Online highlights 3Com (COMS), saying that the challenges to 3Com may be more than Citadel knows how to fix. Citadel upped its stake in 3Com from 1% to 8% in April, and has sent a note to the 3Com board offering to provide "input" to turn the stock around. The co's share of networking products has shriveled over the years dramatically. For 3Com to achieve sustained sales growth and profitability will be tough in a mkt where even Cisco is finding growth elusive. Worse, after taking sole control of the China venture, 3Com will end up with far less cash, a fact that gives value investors pause. Without that pristine balance sheet, 3Com looks more like an expensive networking stock trading at 25x next year's earnings. "It's difficult to see what Citadel could possibly do better than 3Com mgmt, at a time when the co is in transition, and given that networking is always competitive even for Cisco," says Mark Mowrey, of Al Frank Asset Mgmt. Mowrey is holding on to the stock for some upside potential, but "if I weren't already in the stock, I wouldn't put new money into it at this point," says Mowrey.

“Inside Scoop” section reprots that JP Morgan (JPM) is trading around all-time-high territory, and co insiders are celebrating the co's success by selling stock at a greatly increased pace. Over the past 30 days, execs have sold $14.4m in stock, comprising the majority of the $22.4m in stock sold over the last 2 years. The biggest sellers were CIO Ina Drew, and Steven Black, the co-CEO of JPM's investment-banking unit.

Motorola (NYSE:MOT): Comments on new products, restructuring and ESL

Several firms have commented on Motorola (NYSE:MOT) after the co a well-attended "Mobile Experience" meeting in New York. Following the product announcements, the company hosted a lunch meeting with CFO Tom Meredith:

- Raymond James maintains their Strong Buy rating saying that first and foremost, Motorola will become fixated on improving its cash conversion cycle, leaning down inventories, and better managing receivables and payables. The cFO indicated the company would announce additional downsizing and restructuring (likely to be announced May 30 or 31). While no details were provided on the magnitude of such a downsizing, he indicated the initial downsizing was not nearly significant enough.

In general, management seems to have regained confidence following the humbling experience of profit and market share losses in the March quarter, a sign the business may be stabilizing.

- CIBC notes they remain comfortable with their thesis and Sector Performer rating on the company. They are warming to the story, but are still looking for evidence of a clear turn and signs of market traction with the new 3G models (like the Z8, Q9, and RAZR2, which were highlighted at the event) before turning more positive. Firm believes the turn has come yet and comments by new CFO Thomas Meredith suggest 2Q07 trends remain very tough.

- Banc of America notes they believe the new products, with similar design but better features and functionality, are a step in the right direction. They are also encouraged by the new leadership, and expect Mr. Meredith to be a change agent. Firm believes MOT is moving up market at a time when the handset industry is transitioning to more fully featured products. They believe this tend is favorable for Nokia, Sony Ericsson, Research in Motion, Palm, and QUALCOMM.

Notablecalls: Nothing really unexpected emerged from the meeting. The RAZR2 is a cool phone but hardly a game changer. Heads have started to roll at MOT and according to whispers a merger of co's Networks and Connected Home business units will be announced soon. This will create some savings but as the CFO hinted, will likely be just the beginning. Which is positive, of course. Motorla has become too bloated and unfocused and now needs to correct itself.

On another matter, SEC filings published last night showed that Eddie Lampert, the billionaire hedge fund manager known for making large bets on a few companies, including Hoffman Estates-based Sears Holdings Corp, has acquired a 925,000 share stake in Motorola. Lampert received special permission from the SEC to postpone disclosing the details of some of his holdings. That "confidential treatment" expired last night. The filings also showed he poured close to $800 million into Citigroup stock and another $30 million into Clear Channel. Eddie didn't become rich by being stupid. It looks like his cost basis for MOT is pretty close to current market price. With Ichan and Lampert on board, I would not be surprised to see other big game hunters join soon.

Anyway, I continue to stand by my bullish thesis on Motorola.

Paperstand

The WSJ’s ”Ahead of the Tape” column reports that in the past few months, private-equity firms have been sizing up European insurers. Expectations are building in the stock mkt for deals and restructuring. Whether this leads to action remains to be seen, but already Europe's insurers are doing more to keep their shareholders happy. The Dow Jones Wilshire Global Insurance Index is up 6.55% this year. "Incumbent managers have an opportunity to create a lot of value," says Michael Huttner, a JP Morgan insurance analyst in London, adding that "managers might think if they don't hurry, it will be done for them." Only US listed co mentioned: Aegon (AEG).

“Inside Track” section out saying that not all stock purchases by CEOs are created equal, and a smaller purchase can sometimes be a better indicator than a larger one. John Riccitiello, the new CEO of Electronic Arts (ERTS), and W. Edward Scheetz, president and CEO of Morgans Hotel (MHGC), each bought shares of his co's stock last week, but the strength of the signal sent by the transactions differs significantly, said Jonathan Moreland, of InsiderInsights.com. Mr. Moreland said he finds Mr. Scheetz's purchase of $291K worth of Morgans Hotel stock a more positive sign than Mr. Riccitiello's purchase of almost $1m of EA stock, partly b/c of Mr. Scheetz's more timely trading history, and partly b/c of the recent runup in Morgans Hotel stock. "I was impressed that Mr. Scheetz was putting more money into a stock after it had risen so strongly in the past months," Mr. Moreland said. "I was also impressed with his track record, much more than with the gentleman at Electronic Arts."

Barron’s Online discusses Wyeth (WYE), whose shares closed at a 5-y high last week. It's no wonder. Despite the regulatory delays, Wyeth has one of the pharma industry's strongest pipelines. 2 or 3 potential blockbusters could hit the mkt by ‘08, and profits could beat expectations. Yet the stock trades at one of the lowest multiples in Big Pharma, and its performance YTD has lagged several of its peers. Thus, it wouldn't surprise us if the stock still has room to run. "The pipeline is strong and holds a lot of potential," says Herman Saftlas, of S&P. "Key drugs are doing well, and I forecast double-digit earnings growth, perhaps 10-11% annually over the next 2 years. Yet the stock trades at a discount to Big Pharma."

“Inside Scoop” section reprots that insiders at Blue Nile (NILE) have sold nearly $20m in stock since May 1, led by Chmn and CEO Mark Vadon and President, CFO and Director Diane Irvine. "When you look at the numbers," Ben Silverman, of InsiderScore.com, says, "these guys are taking some big profits now. It's well-deserved if you look at where stock has come from." As for investors, Silverman adds, "The signal is: Proceed with caution."

Amgen (NASDAQ:AMGN): Comments on Medicare NCD

Couple of firms comment on Amgen (NASDAQ:AMGN) after Medicare proposed a national coverage decision (NCD) to restrict reimbursement of Aranesp and Procrit for cancer:

- Goldman Sachs notes that assuming the limitations are implemented, except for MDS, Aranesp sales in 2008 might be reduced by 30% which is consistent with their 2007-09 forecast of $2.4bn (-13% yoy), $2.4bn (+ 0%), & $2.5bn (+1%), resp. Epogen sales would not be affected, but another proposed NCD is likely in 2007. They have assumed Epogen will decline by 4%, 14% & 10% in 2007-09, resp.

Despite the decline in Epogen & Aranesp sales, the firm expects 8-11% yoy EPS growth in 2007-09 due to expense control and share repurchase. Amgen shares are trading at 13X 2007 EPS (incl. ESO) & PEG of 1.5 based on 3-year EPS CAGR of 9%. The PE & PEG of drug stocks are 17X & 2.3, resp. GSCO's 12-month target of $72 is based on 16X Amgen's 2008 EPS of $4.50.

- Citigroup notes the proposal was published four months ahead of schedule after last week's FDA advisory panel meeting on the drugs. The scope and timing of the proposal will likely surprise investors and put downward pressure on Amgen.

In Citi's view, these reimbursement proposals could potentially restrict >50% of the CIA market depending on the final decision. The oncology segment represents ~17% of total Amgen?s sales. Thus, they see further downside to the stock relative to their $54 target price and expect Amgen to test the $50 support level.

They are very concerned that the FDA's Cardiorenal Advisory Committee in the fall will further vote to restrict usage of Epogen in the nephrology setting representing approximately 26% of Amgen's total sales. Thus, the firm continues to expect further weakness in the stock until CMS and FDA complete their review of the product labels and reimbursement in the nephrology setting.

Notablecalls: AMGN is down over 3 bucks in early action and I would not be surprised to see the stock hit $52 today. Would pick up some stock there for a bounce, as valuation is still cheap, despite the cuts.

Arris (NASDAQ:ARRS): How will it continue to grow?

- Raymond James is out with some cautious comments on Arris (NASDAQ:ARRS) noting that late last week, Liberty Global (LBTYA) posted March quarter telephony new net-adds (majority VoIP). The company signed on 172,000 telephony subscribers, up 3% from December. This compares to firm's 225,000 estimate. They view the March quarter results as lackluster and reinforce their view the majority of cable operators (which Arris serves) have hit steady state VoIP new net-adds. While healthy from a cable operator perspective, they view this trend as somewhat concerning for Arris's growth prospects.

Two of Arris's top four customers, Liberty Global and Time Warner (TWC), have reached what appears to be peak embedded multimedia terminal adaptor (E-MTA) volumes.

As it relates to Comcast (CMCSA), RJ estimates the operator will experience modest quarter / quarter growth the next three or four quarters and peak somewhere between 650,000 - 750,000 VoIP new net-adds per quarter (up from 571,000 in March). While impressive from an operator perspective, given an E-MTA average selling price of $70-$80 (and falling over time), the firm is hard pressed to understand how Arris will continue to grow its E-MTA revenue base meaningfully.

Notablecalls: ARRS' business is about 1/3 CMTS (cable modem termination systems) and 2/3 eMTA (embedded multimedia terminal adaptor). CMCSA accounts for roughly 40% of revs.

The CMTS side carries high margins but the margins have likely peaked already and are likely to decline from here. CSCO and MOT are likely to regain share over the next couple of yrs.

It also looks like the eMTA side is no longer high growth territory. Trading 18x 08 EPS, ARRS doesn't really look like a bargain here.

Motorola (NYSE:MOT): Mid-quarter checks suggest some stabilization

- CIBC comments on Motorola (NYSE:MOT) saying their mid-quarter checks suggests MOT has managed to stabilize its handset market share in most regions, yet in Asia inventories remain high and continue to make an impact on sell-in. Given Asia's impact on MOT, they are lowering their shipments target in 2Q07 to 44.5M (-2% QoQ) from 46M.

Firm notes they have seen evidence of two trends that illustrate the progress MOT is making internally to address its issues. Adoption of a firm global pricing policy (and adhering to it). A shake up in the global distribution system, reducing arbitrage activity and forcing regional sell-through disciplines.

MOT will host an event on May 15 in which it will show a mix of already introduced models and new models, including new derivatives of the MOTOFONE and a new slick RAZR-like clamshell. CIBC expects features to still be light, and would keep expectations low. Looks for late '07 for change.

The firm is tweaking their estimates to reflect more near-term sell-in challenges. For 2Q07, they are slightly reducing revenue estimate to $9.2 billion from $9.4 billion. Pro forma EPS estimate is unchanged at $0.04. They are looking for a clear turn and new 3G models before turning more positive.

Notablecalls: Nice comments by CIBC's Ittai Kidron. Zander and his team are trying to fix the problems ailing MOT's largest division - the mobile. While the pricing and distrubution system are important, I think what investors really want to hear is that the mobile poducts development labs are working feverishly to come up with new and cool products. There has been some ga-ga over the RIZR R8 lately but looking at the thing..it looks like all the other phones out there.

The stock is starting to look good. In fact, it looks like it cleared the 50 day EMA on Friday. The last time MOT closed above this average was in October 2006. I continue to stand by my bullish thesis on MOT.

Sandisk (NASDAQ:SNDK): May have some s-t upside in it

- Citigroup is positive on Sandisk (NASDAQ:SNDK) saying QTD NAND contract pricing action augments near-term plusses (margin and expense related upside potential) and intermediate-term catalysts (pos 2H07 est revisions and multiple expansion), bolstering conviction in their call.

Tactically, they advise investors to build positions patiently thru the Q on market volatility (for now less urgency needed than in analog Co's ADI, ISIL, FCS and SMTC). NAND contract pricing was stable in 1H May and overall densities are tracking flat QTD with 4Gb+ up 10% (vs 1Q averages). While the firm expect a modest June swoon (seasonality), prospects are increasing better-than-modeled 2Q07 pricing (-5% embedded in their 3Q07 royalty calculation). Recalls Samsung/Hynix guided to +20% 2Q pricing).

Citi remains confident NAND fundamentals can move into under-supply by late-3Q. Upcoming milestones impacting sector psychology include: 1) MOT's 5/15 new product launch (embedded/removable NAND demand), 2) Bi-monthly contract pricing updates 3) Monthly US retail card/drive/MP3 sell-through date (released the last week of each Q (NPD/CIR)), and 4) Apples's late-June iPhone aunch (embedded/removable NAND demand).

Notablecalls: Well, SNDK's chart looks good. May have couple of bucks of upside in it if it gets moving. One to watch.

Paperstand

The WSJ reports that DaimlerChrysler (DCX) is expected to announce as early as today a deal to sell a controlling stake in Chrysler Group to private-equity firm Cerberus Capital Mgmt. The proposed deal would allow the auto giant to shed Chrysler's $18bn in retirement and health-care liabilities and could open the door to further restructuring of the nation's unionized auto makers. Under the proposed deal, Chrysler Chief Executive Tom LaSorda would continue to run the company.

According to the WSJ, the Army is pushing to turn a crowded multibillion-dollar competition for the next generation of troop transports into something closer to a winner-take-all event. Now that the Pentagon is planning on buying many more of the vehicles, Army officials say they would like to see one primary design. That would make the vehicle much easier to maintain. "If you have four different vehicles, that means you have to have four different logistics systems to provide parts. You have to train soldiers how to fight from four different vehicles. It becomes very expensive and complex," the senior Army official said. US Central Command say that it now needs as many as 17,700 vehicles, enough to ensure that every soldier who leaves the base in Iraq is riding in one of them. The surge in demand has forced the smaller players, such as Force Protection (FRPT), to team up with major vehicle producers to increase production. Mike Aldrich, VP of business development and govt relations, said the Force Protection-General Dynamics (GD) joint venture could produce more than 10K MRAP vehicles by the end of ‘08. "What's holding us back is a substantial order," he said. Oshkosh Truck (OSK) has also entered the fray.

“Ahead of the Tape” out saying that if the housing-mkt shakeout has an epicenter, it probably lies in Florida. For co’s with business tied closely to the state, that is a problem. Home builders are getting hit hardest in Florida. Building permits for new-home construction were 51% below their year-ago level in the 1Q. Florida still boasts one of the lowest unemployment rates in the country. But it wouldn't be surprising to see its broader economy worsen in the mo’s ahead. Big public builders have established an outsized presence in Florida. Co’s that supply builders are feeling pinched. PGT (PGTI) generated 92% of its business in Florida last year. In the 1Q, PGT's sales were down 25%. Florida Rock (FRK) reported that 1Q sales were down 33%. Banks with exposure to Florida real estate have been getting hurt, even some far away from the state. In April, Webster Financial (WBS) warned that credit quality on its Florida residential-construction loan portfolios had deteriorated. Retailers with big exposure to the state could suffer, too. MarineMax (HZO) has been lowering its sales expectations. It generates more than 40% of its sales in Florida. Haverty Furniture (HVT) has said its sales in Florida are getting hurt by the combination of the housing downturn, rising insurance rates and rising property taxes charged to out-of-state residents. Florida has little in the way of exports, and so it is unlikely to get much help from strong global economic growth, says Goldman economist Jan Hatzius. He doesn't think the housing downturn is enough to push the whole US economy into recession, but it could be a "canary in the coal mine" of trouble in regional economies.

Barron's Summary

Barron’s cover lines up Top500 co’s based on cash-flow returns on investment. This year top honors go to Goldman Sachs ( GS), Franklin Resources (BEN) ranks 2nd. The bronze went to Apple (AAPL), while Terex (TEX), took fourth place, and Paccar (PCAR) fifth.

Barron’s interviewed analyst likes NUE, RS, STLD and AKS. Another fund manager top10 holdings include PENN, AMT, MKL, KMX, POOL, NDN, PNK, BYI, ACF and GISX.

If the merger of Thomson (TOC) and Reuters (RTRSY) goes through as planned, resulting cash flows could make Thomson shares worth roughly 20% more than Friday's level.

The Dolans, controlling shareholders of Cablevision (CVC), have offered $36-and-change fore share that now tade above 35. Dissenting shareholders say the company is worth $50 to $60 a share. "We'd hang in until [the Dolans] force us out," says Christopher Marangi, of Gamco Investors.

With lower interest rates, Annaly Capital Mgmt (NLY) could earn more than $2 a share, which could propel its stock into the low-20s. Some savvy investors now think the worst is over. "The yield curve will start to steepen in the 2H07 and continue to do so in '08 as the economy begins to slow and the Fed cuts rates," says Arnie Schneider, CIO of Schneider Capital Mgmt.

The shares of Constellation Brands (STZ) are starting to recover after a sharp drop earlier this year. As the company tends to its challenges, the shares could jump more than 25% in a year. Tim Ramey, of DA Davidson, sees profits climbing 20% in F'09, to $1.75 a share. The shares, now trading at just 13.5x that est, could well hit 29 in 12-18 months, he says.

“The Trader” column discusses Virgin Media (VMED), whose shares trade at a big discount to their US counterparts. Virgin's shares have long attracted hedge funds with a keen nose for bargains. To Brad Ruderman, of Ruderman Capital Mgmt, Virgin's selloff last week illustrates the "very, very tight leash granted to mgmt" by Wall St, after predecessor NTL had loaded the co with debt to build its infrastructure. "But what was negative for the previous regime is now positive for the co," Ruderman says. "It has a state-of-the-art network already in place, and now it's up to mgmt to monetize the value of that network." He reckons shares are worth at least 35, with Virgin's cash flow and dominant network also enticing to buyout firms. Drawing parallels between UK and US cable businesses can seem as absurd as, well, comparing soccer and football. But at about 24, Virgin shares trade at just 6.4x ‘07 operating cash flow, compared with multiples of 8-9 for stateside counterparts, says Oppenheimer analyst Thomas Eagan. He calls the stock's pullback "overdone" and says "now is the time to buy."

“The Trader” also out saying that the selling in the shares of Dean Food (DF) may be overdone. The shares seem to have discounted a worst-case scenario, making valuation more compelling. Mgmt had guided ‘07 profits to $1.72 a share, the low end of its forecast range. Jim Lane, of TriPoint Asset Mgmt, also sees limited downside. If shares slide toward, say, 25, an earnings yield approaching 6.6% could make Dean a tgt for larger food co’s. If dairy margins firm up, the shares could trade up to 42.

“Technology Trader” section discusses Seagate (STX) and Western Digital (WDC), whose shares are down 16% and 11% respectively, YTD. Some analysts have even suggested that flash memory could completely replace drives in PCs, and put Western and Seagate out of business. But PC sales are doing just fine, and flash - in great part owing to its cost - is not going to replace disk drives globally for years to come. Once investors come to appreciate those facts, Western Digital shares could appreciate another 20% or more. Western is cheaper than Seagate by a wide margin, trading at a 2-y-low P/E multiple of about 9.4x the next four quarters' estd profit, below its 5-y median of 11.6x, while Seagate is near its median of 12.2x. "Western has an attractively valued stock for a co that is one of the premier players in a mkt that's set to grow at least 10% a year for several years," says Citigroup analyst Paul Mansky, referring to the expected ramp-up in disk-drive unit sales. Mansky thinks that Western Digital is "a technology laggard by design," and that some investors underestimate Western Digital's strategy of gaming the technology curve to turn in profits and steady cash flow.

Integrated Device Technology (NASDAQ:IDTI): Expect analyst day to provide a spark in the stock

CIBC notes that Integrated Device Technology (NASDAQ:IDTI) held an upbeat analyst day, highlighting an impressive record of revenue growth and margin performance and showcasing a diversified growth pipeline to drive the next 12-24 months. At today's price, firm considers IDTI undervalued and continue to recommend shares aggressively.

IDT's base business is stable, with growth being led by AMB, search engines, and gaming clocks. The next leg of growth will include PC audio, comm clocks, PCI-express, and pre-processing switches. The company previewed its newest products for PC display, digital TV, and handset I/O.

There was no update to the outlook. However, IDT indicated that it believes it would see a return to growth in the second half of CY07, driven by PC
seasonality and a renewed growth in gaming, with wireless a wild card. Margins should improve with higher utilization.

Firm says IDT tweaked its long-term targets, lowering gross margin to 55%-58% but retaining operating margin targets at 25%-30%. Firm believes IDT will soon begin moving back towards those ranges, and maintain a very positive view of growth and market share gain opportunities. IDTI remains a favorite.

Notablecalls: There are several positive comments on IDTI today after the analyst day. Looks like the mgmt was convicing enough to make the analyst community believe that the growth is returning and margins are improving. Let's see if the buy-side is as positive on the name as well. I believe they do and we are going to see upside in the stock over the next few days. Unless the ugly tape of yesterday continues, of course.

Fluor (NYSE:FLR): Overly conservative guidance provides opportunity

Citigroup is out with a powerful call on Fluor (NYSE:FLR), increasing their target price to $126 from $108. Firm says Fluor's strong performance and setting backlog in the first quarter bolster their conviction in the story. Fluor continues to exceed their expectation both in consolidated margin, aided by the government segment and new books in their Oil and Gas segment.

Firm raises their forecasted 2007 and 2008 EPS estimate to $4.20 and $5.20 from $4.00 and $4.90 on higher backlog and margin assumptions to reflect strong first quarter results.

Firm continues to believe that management guidance seems conservative given the robust growth in backlog, and expect that this will lead to upside surprises, particularly in the second half of the year.

Notablecalls: FLR has rallied after initial disappointment in 2007 guidance as the mkt is starting to understand that the guidance was overly conservative. Note that the mgmt guidance from May 7th was $3.50-3.80 and now Citi is raising their estimate to $4.20! Smart money has had an oppty to collect the shares and I'm sure they are using today's call by Citigroup to push the shares higher. I see the stock hitting $105 today easily, potentially going even higher. Early buyers will be rewarded.

Quick note on WFMI

Note that HSBC is out with a downgrade on Whole Foods (NASDAQ:WFMI) taking their rating to Underweight from Neutral. HSBC says the natural and organic grocer's gross margin trends and costs in newer stores are a concern. Tgt goes to $36 from $52.

Notablecalls: Didn't think it would happen but here it is. WFMI looks to be heading towards the $40 levels and that's where I expect it to bounce.

Nektar Therapeutics (NASDAQ:NKTR): Short squeeze alert!

- Cowen has some interesting comments on Nektar Therapeutics (NASDAQ:NKTR) saying that with the shares trading near their 52-week low on still-disappointing Exubera Rx trends and fears of a dramatic cut to Exubera revenue guidance, the bullish tone of last night's Q1 resultscall was a surprise. The widely anticipated cut to the 2007 Exubera manufacturing revenue guidance did not occur: indeed the target was raised by $26MM following a revenue recognition adjustment in Q1. And new CEO Howard Robin is following through on his promise to streamline Nektar, targeting at least $60MM of expense cuts in 2008 - a 25-30% reduction to the existing cost base. To reflect the glacial pace of the Exubera rollout and to reset expectations, the firm has sharply cut their Exubera sales projections for 2007-12. However, recent physician checks indicate an improving outlook based on strong patient satisfaction. With Exubera expectations at a low, clinician sentiment beginning to turn, and the DTC advertising catalyst coming in Q3, they believe NKTR shares can recover, and may outperform the market by 30%+ over the next 12 months.

Notablecalls: Wow! The stock is down considerably since my bearish April 5 call. Considering the positive comments from Cowen's Ian Sanderson (who of course has been a NKTR bull through is all), the 30% short interest and the upgrade from Morgan Stanley, I think NKTR will see a nice short squeeze here.

Intel (NASDAQ:INTC) is pushing out deliveries of tool orders

- Citigroup notes that due to some recent success in its stated effort to improve factory efficiencies, checks suggest Intel (NASDAQ:INTC) is pushing out deliveries of tool orders already in backlog as well as cancelling tool orders it planned to place in CQ3. Net/net, factors like liquidity + private equity continue to keep a strong bid under stocks, but equipment fundamentals quite simply continue to deteriorate due to CQ3 pushouts from Samsung, Hynix, TSMC, and now INTC.

Based on checks with two major vendors, it appears at least $500MM (~10% of INTC's C2007 capex budget of ~$5.5B) has been pushed out. Based on a current quarterly wafer fab equipment order/revs run rate in the $9B range, this amounts to ~5% of total CQ3 tool revs/shipments. These pushouts increase the likelihood that INTC will cut its C2007 capex budget over the coming months - consistent w/its goals to recognize more capital efficiencies.

Who is most exposed? Exposure to INTC in firm's coverage universe is highest at AMAT, NVLS, AEIS, and to a lesser degree KLAC and BRKS.

Dwindling stock supply and private equity remain strong tailwinds, but given deteriorating fundamentals, the firm would look for stocks to pull back near-term focusing new money only on company-specific restructuring stories (like top idea KLAC) where estimates still have a lot of dry powder.

Notablecalls: Interesting comments from Citi's Timothy Arcuri. He's right of course, but looking at the SMH chart I'm not so sure today is the day one should step in front of this train. Look for some initial weakness.

Whole Foods (NASDAQ:WFMI): Bounce candidate

Whole Foods (NASDAQ:WFMI) reported its Q207 results last night. The quarter was a disappointment on most metrics:

- Morgan Stanley notes comps, total sales, margins and EPS all came in below firm's forecast. As they believe the margin drag from the new store ramp-up could persist, they are reducing their 2007 and 2008 estimates by $0.15.

MSCO believes margin drag from the new store ramp-up was one of the primary factors behind the margin weakness in the quarter (store contribution margin down 90bps, operating margin down 121 bp). Store-level depreciation expense, which is included in direct store expenses, continues to increase as a record number of stores are added to the portfolio. Whole Foods added 6 stores this quarter vs. 3 stores a year-ago. New stores also carry higher direct store expenses versus existing stores, and accordingly, the re-acceleration of unit growth is playing a role in dragging down margins. In the past, the double digit comps may have helped mask some of the new store margin drag.

While the Whole Foods base has been showing disappointing results, they still see significant turnaround potential in the pending Wild Oats acquisition and believe this will help WFMI shares stage a recovery in the year ahead. With no news on the merger (FTC review drags on), falling earnings estimates will likely have WFMI shares down sharply in today's trading. Maintains Overweight but lowers tgt to $61 from $66.

Notablecalls: Well, I think this didn't come as a surprise to the regular readers. While the stock will open down considerably today, there are some positives:

- The comp for the 5 weeks ending with May 6th was 7.5%, suggesting a potential bounce in same store sales.

- Management indicated that it was aware that certain markets require different store sizing strategies, and stated that they were not looking to put the newer, larger footprint stores in all new markets.

WFMI's still expanding at a relatively fast pace and that's certainly one of the things hurting margin performance (the other being competition). That's something the management can control.

Also, it looks like the OATS acquisition is starting to be viewed as a catalyst for the stock. While I still view it as a forced move, one has to respect the trading dynamics.

All in all, I think WFMI's a bounce candidate below the $42 level. There was a fair amount of negativity going into the EPS release and most of the bears got proven right. Yet, the intial comp performance for the 5 weeks ending with May 6th points to a bounce of some sort. That will help the stock today.

Ideally, I'd like to see some analyst coming out with a swinging downgrade, but I don't think it will happen today. We're are more likely to get supporting comments as the stock has gotten hit badly enough already.

Paperstand (ABX, NEM, DAR, NSM)

The WSJ’s ”Ahead of the Tape” discusses gold stocks. After a year of poor performance by the sector, Barrick Gold (ABX) posted solid quarterly earnings last week. Newmont Mining (NEM) last month posted disappointing earnings after a jump in energy and other costs. Citigroup analyst John Hill thinks that while higher expenses have hurt gold miners, the real problem comes from a disconnect between forces driving the price of gold and gold-mining stocks. Rising demand for jewelry in India and China has increased demand for gold. That explains why prices for gold have risen during a global bull mkt in stocks the past few years. Gold miners, however, have languished b/c the classic investors in their shares, the bearish kind, have been on the sidelines as stocks churn higher, Mr. Hill says. Buyers of gold "have been on fire, but the natural buyers of gold stocks" haven't been, he said. Recent rumblings in the economy, soft 1Q expansion, slack hiring in April and tepid business spending, have raised concerns about a slowdown, but stocks haven't blinked. So far, the recent rise in gold-miner stocks is a blip in the bigger picture. But if concerns about the economy keep driving them higher, the rest of the stock mkt may be in for a rude awakening.

Barron’s Online highlights Darling Intl. (DAR), whose stinky business of processing slaughterhouse animal waste and restaurant grease is turning sweet. Anticipation that Darling may start offering animal fat as a component for biodiesel fuel has turned the stock with 19th century roots into a 21st century alternative-energy play. In what is known as "rendering," Darling collects leftover animal components and cooking oil from restaurants to produce various grades of protein, fat, and animal hide. These ingredients are sold to co’s that make pet food and livestock feed, soap, and leather goods, among other items. The co is emerging from a cyclical downturn marked by low product prices and high energy costs. Product prices have climbed higher in recent mo’s. Darling's grease-trap business is capturing new clients, and foreign demand for US cattle is recovering from the ‘03. Last year's acquisition of a leading competitor is generating cost synergies. Michael Cook, CEO and CIO of SouthernSun Asset Mgmt, says the biofuel debate "has made the stock more interesting in recent days, but our view is that this is a substantially longer-term play in both the co's (traditional businesses) and the biofuel space."

“Inside Scoop” section reports that Relational Investors, a private investment firm, has just sunk $107m into shares of National Semi (NSM). RI bought 3.95m shares between May 1 and May 8. The purchases pushed Relational's stake in National Semi to 38m shares, or 12.4%. The investment firm's latest purchase of NSM stock "suggests that [Relational thinks] there is additional value in this co that can be wrung out and that there are ways for the co to find that value," says Ben Silverman, of InsiderScore.com. He adds that the size of the buy is a very strong signal, particularly for long-term focused investors.

Sharper Image (NASDAQ:SHRP): Turnaround in sight?

- Soleil's Hudson Square Research comments on Sharper Image (NASDAQ:SHRP) after they had the opportunity to join several members of co's management at the New York launch party for Trump Steaks, a new exclusive product agreement for Sharper Image.

Firm's conversations led them to believe that recent management changes, along with out-of-the-box thinking, are beginning to paint a rosier long-term picture for the company than the near-term suggests. However, persisting sales weakness and consequential pressures on the balance sheet lead the firm to remain cautious for the time being.

One of firm's key concerns with Sharper Image over the past 18 months has been the company's lack of exciting new product offerings, especially in the face of declining sales in both its Ionic Breeze line and massage chairs. While recent announcements aren't likely to be primary revenue drivers, in firm's view, they do believe that they possess the necessary cachet to reinvigorate the product buzz historically associated with Sharper Image's offerings.

The opinion from the employees the firm spoke with was unanimous. The company seems to have a better sense of hierarchy, reporting channels, and accountability since the management and Board changes have taken place, which they view as a positive.

They expect near term sales performance to remain weak despite the company appearing to edge closer to a potential inflection point in its turnaround process. They expect weak April comps on Thursday and reiterate Hold rating.

Notablecalls: The comp performance at SHRP has been just awful. Steven Lightman was appointed as chief executive and president on March 26, causing the stock to gain some ground. The rally was short-lived as SHRP reported -29% comp number for March and a delayed the release of its 10K.

I don't think the comp number to be reported tomorrow will be any better. L-T who knows, maybe Lightman can turn this ship around. Some of Soleil's comments look to point that way.

Marsh & McLennan (NYSE:MMC): LBO candidate?

- Deutsche Bank has some interesting comments on Marsh & McLennan (NYSE:MMC) following Q1 results reported yesterday saying they have believed for a while that the co would be attractive to a financial buyer. In the past few months, two brokers, USI and Hub, were acquired through a leveraged buy out (LBO). In the past, Willis Group was taken over by KKR in a very successful transaction. So there are plenty of precedents for LBOs in the insurance brokerage space and today it again seems to be an area of interest to the private equity community.

The company owns the premier and largest franchises in its chosen segments, with Marsh and Guy Carpenter in insurance and reinsurance brokerage, Mercer Consulting in employee benefits, and Kroll in Risk Consulting. Each of these businesses are strong cash flow generators and do not require much capital to operate. In addition, they can be run separately - giving tremendous flexibility in terms of asset sales.

Senior management would do well in a takeout. The top five senior officers would receive a total of $74 million for involuntary termination or termination for good reason upon change in control, in cash and unvested stock awards.

If the private equity firm invested $8 billion in Marsh, the returns per year at 15% are $1.2 billion. Private equity investors usually target returns of 20% or above but for large multi-billion dollar transactions, they are willing to accept a lower hurdle rate ranging from 15% to 17%. That would imply a $40 stock price. Maintains a Buy rating on MMC.

Notablecalls: Interesting comments by DB's Alain Karaoglan. Yet, people close to the co have repeatedly said there is no deal in works. Also, the chart does not indicate the stock is ready to bolt upward from here. It looks more like the buyers from 3 weeks back are closing their positions as talk of the imminent LBO is fading.

I would not be surprised to see a fade in MMC stock today if it gaps up more than say $0.50 on open.

Paperstand (AT, GE, CMG)

The WSJ reprots that at least 3 groups of private-equity buyers have formed to pursue a potential purchase of Alltel (AT). The groups of suitors each have begun a series of meetings with Alltel's management, which has indicated to investors that it is pursuing strategic alternatives. The groupings include Blackstone Group and Providence Equity Partners; TPG Capital and the private-equity arm of Goldman Sachs; and Carlyle Group and Kohlberg Kravis Roberts.

“Heard on the Street” column out saying increasingly restive General Electric (GE) shareholders, frustrated with 6 years of meager returns, are pressuring Chmn Jeffrey Immelt to break up the co. But some shareholders and analysts argue that GE's sprawling businesses are better off together than apart. GE's big umbrella, these investors say, can balance differing product and economic cycles, while helping all its businesses financially. And that would boost the stock price over the longer term. Merrill Lynch analyst John Inch, who last year advocated spinning off or selling the consumer-finance and NBC Universal entertainment units, appears to have had second thoughts. In a note, Mr. Inch suggested that the technology-savvy Mr. Immelt could strengthen GE by bolstering its media-and-entertainment division with an Internet-focused acquisition. The "keep GE together" crowd appears to have a strong ally in Mr. Immelt, who has resisted past calls to sell NBC Universal. Mr. Immelt has repeatedly expressed his frustrations with GE's stock price, which is down 7% since he took over in Sep’01. "It's a no-brainer they should be thinking about it," says Jim Bitter, of Wilmington Trust Investment Mgmt. Mr. Bitter doesn't expect Mr. Immelt to take immediate action, but he says investors "will move away from the stock" if there are no changes at GE.

Barron’s Online “Inside Scoop” section reports that investopr interest in Chipotle Mexican Grill (CMG) turned hot last week following the co's 1Q earnings, but insider sentiment was decidedly more mild as 2 execs sold nearly $6.3m in shares. President, COO and Director Montgomery Moran sold 10K class A shares on Fri for a total value of almost $784K. Chmn and CEO Steve Ells also sold significant amounts of shares last week, including 56K class B shares for more than $3.9m. While the sales were part of an automated sales plan, or a 10b5-1 plan, last week's transaction marked a significant upswing from Ells' prior planned sales, which had come in lots smaller than 6K shares. Meanwhile, Ells exercised 20K options for class A shares and sold the stock for $1.6m. The insider selling and high valuation should cause shareholders some concern, says Jonathan Moreland, director of research at InsiderInsights.com.

DigiTimes reports that Taiwan Semi(TSM) is expected to ramp up its production of Intel's (INTC) 802.11n Wi-Fi chips at 0.13-micron in the 3Q. TSMC is already producing the Intel chips in small volume, as Intel's 802.11n Wi-Fi modules are expected to hit the mkt this month. The collaboration for the Wi-Fi marks a step towards closer collaboration between TSM and Intel. Meanwhile, TSM has seen increased orders at the 90nm process. Altera (ALTR) has announced that its low-cost Arria GX family of transceiver-based FPGAs will be manufactured at TSM's 90nm process. Texas Instruments (TI) reportedly is expected to increase its output of LoCosto handset single chips at the 90nm node from TSM in the 2Q. TI has also been said to be splitting its 45nm business between TSM, United Micro (UMC) and a yet-to-be-determined foundry. TSM's board of directors yesterday approved capital appropriation of $205m for expanding 45nm process capacity at the foundry's Fab 12.

Motorola (NYSE:MOT): No board seat for Carl Icahn

- CIBC comments on Motorola (NYSE:MOT) after news reports and comments from Mr. Icahn and Motorola suggest he fell short of his goal to win a board seat.

While the close vote suggests a large number of investor are unhappy with the current state of the company and pace of restructuring, it gives CEO Ed Zander room to work. But time will be short and Mr. Zander will now clearly be under the board's gun to show improvement.

The vote outcome is likely to negatively impact the shares in the near term as some investors expected Mr. Icahn to push for more aggressive near-term steps. The firm also looks for the company to be less aggressive on buyback activity in the near term, which could reduce support for the shares.

Firm's estimates and SP rating are unchanged. Regardless of the make up of Motorola's board, management has a significant amount of work to do. They would wait for more evidence of a turnaround that may not come until late in 2007 before revisiting our rating. Maintains neutral opinion.

Notablecalls: I'm hard pressed to see any real downside in MOT stock following the news. Icahn blamed his loss on three or four large mutual funds he did not identify that threw their support behind Ed Zander and the board. Zander better show some results in H207 or he will lose the backing of these large holders.

Reuters reports: Icahn, 71, has taken roughly a 3 percent stake in Motorola since he revealed plans in late January to seek a board seat. After Monday's meeting, during which he said his bid had likely failed, Icahn said he had no plans to sell his shares.
"It's a very, very good investment," he told reporters outside the Art Institute of Chicago. "It's just a question of do they have good enough management to carry it home.
"The next three, four months are going to tell the story and I really hope Ed (Zander) is correct in what he's saying and that things will go well," he added.

Icahn initially had said he wanted Motorola to conduct a large share buyback, but after a bleaker-than-expected 2007 outlook he changed his position, saying fixing the company's
operational problems took precedence.

Research in Motion (NASDAQ:RIMM): Comments following analyst day

Couple of firms comment on Research on Motion (NASDAQ:RIMM) after Day 1 of its Wireless Enterprise Symposium (WES) in Orlando its analyst day:

- Goldman Sachs is telling investors to buy the stock saying they believe sales growth will unlock operating leverage in 2H FY2007. In the coming quarters we should see R&D and SG&A as a percent of sales drop, offsetting gross margin decline.

Firm also believes the new BlackBerry Curve, or the 8300, will be a very strong product and will ultimately prove stronger than the recent 8800 launch. This PALM killer should see success in both the enterprise and prosumer markets.

GSCO sees 33% upside to their $185 12 month price target, based on 30x oFY2009 (Feb-09) EPS x ESO of $6.10. They believe 30%+ earnings growth and strong cash flow justifies the multiple.

- Deutsche Bank notes the company announced several new software modifications and add-ons, but offered no real news.

While the firm thinks the co may have more product annoucements late this year, for the time being the company is heavily promoting the additional software features now available over its servers. While this includes some compelling applications (e.g. PBX over BlackBerry) they think this does little to alter the core RIM investment case
RIM disclosed some detail on the growth trends they are enjoying outside North America. While these sales are still low as a percent of total revenue, the trends are accelerating. The Pearl, in particular, has served as an important catalyst.

Reiterates their outlook that near-term product cycles can drive earnings, but these remain fuly reflected in the stock price. Maintains Hold and $125 tgt.

Notablecalls: I think GSCO's comments trump DB here. The chart looks good and I would not be surprised to see RIMM challenge 52-week highs soon.

Going for the consumer market sounds good but the hidden message here is the management may be worried about the future growth of the business side. On the other hand, RIMM has been fairly US centric and going beyond US will likely ensure growth will be strong for another couple of yrs. Not sure about the margins there, though. Also, based on checks done by JMP's Samuel Wilson, cell phone store sales staff have still not figured out how to pitch RIM's full QWERTY offerings, such as the 8800 and 8700 devices, to the consumer segment. Wilson points out that if a consumer suggests that email is not his or her primary application, sales people are quick to push users towards Windows Mobile-based devices such as the Samsung BlackJack and Windows-based Palm Treos.

Paperstand (AA, X, GGP, ARUN)

The WSJ’s ”Heard on the Street” column out saying that investors have been betting that the deal-making in commodities isn't through. The rapid consolidation of co’s in aluminum, steel, mining and other commodities also illustrates the need for heft as co’s increasingly compete globally, something that investors predict could spur still more deals. Among those that could at some point receive takeover offers: Lonmin, US Steel (X), First Quantum and even Alcoa (AA). Rather than a sign of the top for commodity prices, some investors say the deal-making could help put a lid on supply and put even more pressure on a host of commodity prices, helping the profits of a number of these co’s. "I think this is going to continue," says John Ing, CEO of Maison Placements. "This has really snowballed to where no co is immune."

Barron’s Online “Inside Scoop” section reprots CFO of General Growth Properties (GGP), Bernard Freibaum, purchased $27m in shares of the co. The transaction increases his total stake to 7.16m shares, or approximately 2.9% of the co's outstanding shares. RBC analyst Rich Moore says, "It shows that mgmt has confidence. Any time you spend $27m on something you think there's value there."

DigiTimes reports that Aruba Networks (ARUN) expects its share in the global enterprise mobility solution mkt to nearly double to 20% in ‘08 from the current 10-12%, co CEO Dominic Orr said in Taipei recently. A maturing mkt for wireless network solutions from the business sector, together with Aruba's focus on establishment of wireless networks for large-scale enterprises will help drive up Aruba's mkt share, Orr indicated. Although some co’s have already launched business-use 802.11n-compliant devices, the mkt is not expected to see significant demand for 802.11n products from the business sector until ‘09, Orr stated.

ID Systems (NASDAQ:IDSY) - steps in the right direction

Morgan Keegan comments ID Systems (NASDAQ:IDSY) after they came away from Investor Day with increased confidence in the direction the company is headed. Significant attention and resources will be devoted to increasing the sales force and relationships with 3rd party distributors. Firm expects the company to realize many of these benefits from actions taken in 2007 in the 2H:08.

Pete Fausel, ID Systems' new head of Sales / Marketing, plans to implement a 5 point growth strategy.

1. Expand the customer base.
2. Improve customer benefit attainment (Increase the speed in which a customer realizes the benefits of ID Systems' products and this will lead to more deployments in a shorter period of time). The company plans to build an entire group around this concept starting with Roger Tenney, the ex Ford engineer that spear headed the Wireless Asset Tracking System roll-out at Ford.
3. Leverage Channel Partnerships. Firm sees there will be a number of new partnerships and distributors announced this year. Expectations are that, eventually, 50% of the company's revenue will flow from this channel. To date, the company has been nearly 100% reliant on direct sales.
4. Identify and Attack Vertical Markets. The big three appear to be Automotive, Government, and Aviation. The company plans to have its sales force become more specialized, changing from geographic coverage to industrycoverage.
5. Expand in Europe. Europe offers larger opportunities for the company's products than the U.S. Currently, the company has one salesperson in Europe and no revenue to date. There will be growth in the sales and support network within Europe in 2007. In addition, there is a need to partner to both sell and install equipment in Europe.

Notablecalls: Given the chart looks like the mkt liked what IDSY was saying on the Investor Day. IDSY has been much like many other similar companies with little visibility into the earnings that tend to fluctuate quarterly. These steps seem to be in the right direction, allowing better visibility and diversified revenue base. We may see some follow-up interest in the shares today, but wouldn't count on it.

Zoltek (NASDAQ:ZOLT) - a play on wind energy

RBC Capital is commenting Zoltek (NASDAQL:ZOLT) after the company reported F2Q07 results Friday morning.

Firm believes pending announcements could drive estimates higher, increase FY09 earnings leverage visibility, and narrow the current multiple discount to growth from investor concerns over execution. Given improved Q207 execution and increased comfort with company's unique position as the largest, and lowest-cost, incumbent producer for industrial-grade carbon fiber, which they expect to be supply contrained through at least 2010, firm sees shares
as attractive. They see Zoltek's market opportunity as similiar to silicon providers to the solar industry two years ago.

Firm anticipates a substantial contract extension with Vestas at ~2x+ the current 3-yr $80-100M. They also believe company will reveal textile-plant conversion plans for precursor at a plant in Mexico. Lastly, they expect follow-on contract orders from other new and existing wind turbine customers in 2007 and oil services companies in 2008.

Notablecalls: Zoltek is definately a unique stock in two ways: 1) it is a dominant player in fast-growing sector, providing carbon fiber for the wind

energy sector. The company is in quite the same position as MEMC Electronic (NYSE:WFR) is to the solar sector. 2) Unlike MEMC Zoltek is the only US-quoted pure-play of the wind energy sector.

Given all the gaga over the solar energy, one might wonder why wind energy has gone relatively unnoticed. Lack of high-profile quoted wind energy companies has probably been the reason, but that is rather unjustified. After all, it has proven to be profitable source of alternative energy. Look for wind energy to continue growing and Zoltek to be one of the beneficiaries l-t. S-t, it's tough to make a call here following big gap up on Friday. Ideally I would like to see a pull-back to low $30s - that's probably where the analyst community would come out with aggressive recommendations. Not sure if we get that kind of opportunity, though.

Barron's Summary

Barron’s cover discusses stem cell stocks. Article suggests that hope and hype in the sector will intensify this year as money pours in from states and private donors, as the political climate becomes more supportive and as small biotech co’s, many of them long on promise yet short on profit, seek to capitalize on this wave of optimism. Investors would be well advised to pay close attention, particularly to co’s whose products support the research effort, but to proceed carefully - and with patience - as the science develops. Already, some co’s are lining up clinical trials this year to test how stem cells will affect patients suffering from cancer, heart disease and spinal-cord injury. But the scope extends beyond life-threatening ailments; Cytori Therapeutics (CYTX), for example, is testing 19 patients in Japan to see how stem cells extracted from fat can reconstruct breast tissue after mastectomies. "We don't even know what the potential scope or limits are," says Arnold Kriegstein, of Institute for Regenerative Medicine. "But we're at a transformative moment, and stem cells could change what we know of medicine. Other stem cell co’s mentioned include OSIR, GERN, STEM, KOOL, VIAC and ASTM.

Fund manager picks include RGC, CNK, CKEC, JRC and MNI. Another fund manager top holdings include BRKA, CNQ, DISH, MHK, SHLD, LUK, IDT and BRKB.

McDermott (MDR) could rally at least into the mid-60s in the next 18 months, from 59. The stock trades for 15.5 times '08 estimated earnings, below the sector's average P/E of 20.

The shares of WellPoint (WLP) look cheap, selling at just 12.7 times estimated 2008 earnings. With business prospects strong, the shares could top $100, up 23% from now.

The shares of Delta Air Lines (DAL), which started trading Thursday at about $21, are apt to face turbulence in early weeks as creditors cash out. But they're headed for a cruising altitude closer to $27.

Barron’s has learned that over the past few weeks CEO of iMergent (IIG), Donald L. Danks, has told select individual and institutional investors that the co's F3Q earnings will be over 50% higher than the est of 39-41c a share set by the one analyst who follows the co. Some ppl apparently have gotten the good word already. On a tape recording of a conversation heard by Barron's, a voice that sounds like Danks' is heard telling an investor about the earnings, adding that "net dollar contracts written," which is the way the co reports its rev, will be around $50m. The recording was made by a person who says he took part in the conversation, who identifies the other speaker as Danks and who contends that others have told him they have had similar discussions with the iMergent CEO. Such conversations would appear to violate Regulation FD of the SEC, which mandates that a co can't disclose material information about its operations selectively, but instead must make "fair disclosure" to all potentially interested parties simultaneously. Asked about this Fri afternoon, Danks adamantly denied having spoken with any outsiders about the qrtrly earnings. "I would never give that information to anyone who would use it to trade the stock."

Barron’s discusses Intl. Fight League (IFLI.OB), saying that the co’s stock has plunged after an IPO last year. Given the co's lack of profits and big challenges, the stock is unlikely to rise anytime soon from its recent level of about $3.

“The Trader” section discusses favorably Interactive Brokers (IBKR), whose founder and CEO Thomas Peterffy tested public appetite for his co and was greeted with clamor. The deal valued the firm at $12bn, 3x that of the Nasdaq (NDAQ). About $1bn of the proceeds will go to Peterffy. And he swelled his bank balance without relinquishing his stranglehold on the firm he founded 25y ago, which he controls with 91.3% of voting rights post-IPO. Net rev grew 65% in ‘05 and 35% last year, and the co keeps costs low with savvy use of automation. No surprise, then, to see shares accorded a plump valuation. At 31, IBG shares trade at 4.4x tangible BV, or 26x ‘06 earnings of $1.21 per-share. That presupposes derivatives volume will keep growing at a galloping pace of more than 20% a year, and that Peterffy will continue to stay two nimble steps ahead of the crowd.

“International Trader” discusses BSkyB (BSY), whose stock is up 25% since the beginning of the year. The co is facing multiple legal and regulatory challenges to its latest strategic moves. BSkyB might yet have to sell its stake in cable's ITV at a loss and see the terrestrial broadcaster fall into the hands of rival Virgin Media. And the success of ITV and Setanta Sports in outbidding the BBC and BSkyB for rights to show the FA Cup is an ominous sign of growing competition. BSkyB says its gross direct-to-home customer additions were the highest in a F3Q in 6 years. At 340K, the total exceeded even bullish forecasts. Churn did worsen, but BSkyB points to the phasing-out of discounts that cost it some business, short-term, and left net new customer additions at a more modest 51K. But those new customers seem to be buying higher-priced products, with ARPU coming in above 400 pounds for the first time. All this promises extra earnings growth, perhaps not fully reflected in the admittedly robust 21x forward earnings multiple that BSkyB's stock has been trading at. That said, BSkyB now faces much higher expectations of its operating performance, suggesting that any slippage will be judged harshly by investors.

“Plugged In” column discusses upcoming Motorola (MOT) AGM, saying that Carl Icahn will be in the house. He's pushing for at least one seat on the board in return for his 3% stake in the co. The column also reports that there’s a rumor that Ericsson (ERIC) has made an unsolicited offer to acquire Motorola at 23 a share. Snyder says that at least two major shareholders say Icahn has been spreading that word.

Jones Sode (NASDAQ:JSDA): Bounce play

ThinkEquity has some interesting comments on Jones Soda (NASDAQ:JSDA) after the co issued lower than expected Q1 results last night:

- James Maher, the analyst covering JSDA for Think is taking his rating up to Accumulate from Source of Funds noting the co announced 1Q07 results that disappointed on the top line, but suggested better things to come during FY07 as the canned soda rollout continues and high fructose corn syrup inventory is depleted. Gross margin rates improved less during the quarter than the firm had estimated as sales of concentrate ramped more slowly. They believe sales will be stronger in coming quarters and have revised their FY07 estimates accordingly.

Jones Pure Cane Soda in cans is now on track to be on the shelves by Memorial Day at the long list of retail locations the company announced last March. Wal-Mart and Target are among the retailers that already have begun stocking and selling Jones Pure Cane Soda. Firm believes sales growth will be much more robust in Q2 and Q3 as retailers using just-in-time inventory systems begin to re-order.

With new products and substantially larger retail distribution (with more to come), they believe Jones Soda has the opportunity to gain share of very large markets and earn rising returns on its investment. Maintains $26 tgt.

Notablecalls: Must say I was stunned to see the numbers when they hit. Yet, comments by the management on the call made sense. They didn't want to stock the shelves with the fructose products when they are about be pushing the pure-cane lines. It made the Q1 top-line look horrible but the management says they are running things from a 12-month basis rather than a 3-month basis.

The stock ended around $21 in after hours action. I think that if you can pick up some stock around these levels, you'll get a bounce. $0.75 leash.

Scientific Games (NASDAQ:SGMS): Short squeeze coming?

Mostly positive comments on Scientific Games (NASDAQ:SGMS) after the co reported its Q1 results last night:

- Bear Stearns notes that in short, they think the quarter was good enough in investors eyes, with some reason for pause (printed product revenue deceleration & margin softness). They believe the high short interest (~15-17% of float including the Perelman shares) and the in line result may promote a short squeeze tomorrow. Ultimately, they think the shares will react more to management's commentary on today's call than the 1Q07 result, as they await updates regarding the various growth initiatives (China - Welfare Lottery, Global Draw, Germany, Mexico instant ticket).

- JP Morgan think the stock should react positively: Recently, negative sentiment has
dominated due to skepticism about China and NT EPS. 1Q results prove these concerns wrong. SGMS reminds them of WMS 12 months ago, when after disappointing investors for several qtrs even small positives caused out-performance in the shares. However, SGMS' recent entry into China and accretive acquisition of OGT are potentially very significant. Reiterates Overweight.

Notablecalls: It sure looks like the Italy JV made the qtr. Is the $12 mln run rate sustainable? I suspect that will be one of the main questions on the call. Also, the chart looks good.

Whole Foods (NASDAQ:WFMI): BAC comments on comps and margins

- Banc of America comments on Whole Foods (NASDAQ:WFMI) saying that while they see a number of positive catalysts over the next 12 months for WFMI including slightly better organic comps, a comp lift and accretion from the OATS purchase and a better new store pipeline, they still have concerns regarding margins. Expenses associated with opening and operating the new large format stores have dramatically increased, helping to erode the company's operating margins over the last two quarters. At the same time, increased competition and escalating labor costs are also pressuring operating margins, none of which is likely to abate near-term.

Channel checks, including a round of store visits, leaves the firm believing that 2Q comps could run in the mid 7% range. In fact, they believe there could be as much as 100 bps of upside to their 2Q07 comp estimate of 7.0%, which would place comps at the high end of company guidance of 6.0-8.0%.

Margin deterioration should continue in 2Q, and there is some risk that it may be worse than the firm is forecasting.

Channel checks continue to point to volume and shrink issues at some new stores, however. Last quarter, the drag from new square footage was particularly acute at over $60 per sq. ft. Maintains Neutral and $45 tgt.

Notablecalls: Mixed emotions about WFMI here. I still think the co's in trouble and margins will need to come down. Competition from Kroger, Publix, and Safeway that are building their natural/organic position is not going to go away. It becoming apparent that the OATS acquisiton was a defensive one. BAC notes senior management stressed to them the importance of not letting the Wild Oats brand get into a competitor's hands, such as those of a stronger supermarket looking for a natural/organic label to add to its portfolio. So, it looks like they were forced to buy OATS. I think that over time, WFMI will need to lower their prices and that will cut into margins.

S-t, however I'm somewhat encouraged by BAC's checks showing stonger than expected comp performance. Will it be enough to create some s-t buy interest? I'm not really sure as the comments on margins pretty much destory the positivity.

Paperstand (MSFT and YHOO in talks)

The NY Post reports that stung by the loss of Internet ad firm DoubleClick to Google (GOOG) last month, Microsoft (MSFT) has intensified its pursuit of a deal with Yahoo! (YHOO), asking the co to re-enter formal negotiations. While Microsoft and Yahoo! have held informal deal talks over the years, sources say the latest approach signals an urgency on Microsoft's part that has up until now been lacking. The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances. Wall St. sources put a roughly $50bn price tag on Yahoo!. "They're getting tired of being left at the altar," said one banking source who has recently had talks with Microsoft. "They now seem more willing to extend themselves via a transaction to get into the game."

The WSJ’s ”Heard on the Street” column out saying that Brilliance China Automotive (CBA) is looking like a smart way to play China's love affair with cars. In a packed field of more than 32 Chinese auto makers, the co has increased its share of the Chinese car mkt to 2.4% at the end of 1Q07. Brilliance is out to grab additional mkt share by cutting prices, importing parts and employing the cachet of Italian design. Although it posted a net loss last year of 398m yuan ($51.65m), the shortfall was 39% narrower than the 650m yuan loss of the year before. Brilliance reaped $1.3bn in rev in ‘06, a 92% increase, on an increase in unit sales of its minibuses and, in particular, its Zhonghua sedans. Car sales in China are booming, as the growing consumer class takes to the road, creating the world's 2nd-largest vehicle market after the US. China's sedan mkt grew 30% to 5.18m units last year. For decades, the local mkt was completely dominated by the big-name foreign makers. Now, China's domestic car manufacturers are cutting costs and mounting a serious challenge. Brilliance has good prospects in that scrimmage. Citigroup rates its stock a Strong Buy, with a 12mo price tgt of $38 per ADS.

Barron’s Online highlights IndyMac (IMB), whose shares have lost about a third of their value this year as investors fret about lower-income America's problems with paying back home loans. But this is one lender that doesn't deserve the subprime stain. The worst of the IndyMac's credit problems stemming from the subprime bust already seem to be baked into shares of a co that has a limited exposure to these risky loans in the first place. Trading at 1.2x book value, vs mortgage lender peers which trade at 1.6x, there doesn't seem to be much room for the stock to fall as the co's hybrid thrift and mortgage banking model gives it flexibility to maneuver through tough environments. And the stock's 6.5% dividend yield offers some margin of safety. Insiders are certainly buying into this story. As the stock skidded to its lowest level in nearly 4 years in March, IndyMac execs and directors stepped up to make their largest purchases of shares in co history. This activity triggered initial Victory Capital Mgmt portfolio manager Arvind Sachdeva to purchase shares at around $30 for the firm's "contrarian-minded" value fund: "We were already analyzing [IndyMac] but that got our attention."

“Inside Scoop” section reports that Netflix (NFLX) founder and recently appointed Microsfot (MSFT) director Reed Hastings has wasted no time in building up his holdings of the software giant with a $3m stock purchase. Hastings, who is also the CEO, Chmn and President of Netflix, bought 100K Microsoft shares for $30 each on May 1, his first purchase of the stock. Jonathan Moreland, of InsiderInsights.com, says Hastings' purchase sends out a strong upbeat signal b/c it went so far above and beyond Microsoft's stock ownership requirement and b/c insider buys are rare at the co, while selling is overwhelmingly the norm.

MEMC (NYSE:WFR): JP Morgan adding WFR to Focus List

JP Morgan is placing Overweight Rated MEMC (NYSE:WFR) on the JPMorgan U.S. Analyst Focus List with a May 08 price target of $75. Although C2Q07 guidance was modestly below street expectations, our C07 ests were unchanged and they believe the post C1Q07 earnings sell-off (down sharply) was grossly overdone and the stock is oversold. Firm believes this is a golden opportunity for investors who are late to the story to take a position heading into the next cyclical upturn.

Given the strong performance of WFR since mid-C06, they believe many investors on the sidelines have lamented missing out on one of the best performers in the SemiCap space. JPM thinks this is the last-best opportunity to get into the stock prior to the seasonal rush of momentum investors starting in C3Q07. They continue to believe that peak QoQ wafer demand growth will be in C3Q07 in preparation for the strong semi demand pull in front of the holiday season.

In C2Q07 they believe both Shin-Etsu and SUMCO signed contracts with the largest YoY polysilicon price increases since prices started rising.

Reiterates OW with a Target Price of $75, which is 23x C07 EPS estimate of $3.25 vs. 20.4x consumables group avg.

Notablecalls: WFR started its bounce already Tuesday morning, so JPM's a tad late with their call. Yet, the $75 tgt and Focus List addition will generate some strong buy interest today and over the next week. I would not be surprised to see WFR hit $60 today, if the overall tape remains firm. On the other hand, if it opens at around $60, I'd be looking for a fade.

Las Vegas Sands (NYSE:LVS): Missing the whisper number on Macau

Several firms comment on Las Vegas Sands (NYSE:LVS) after the co announced somewhat weaker than expected Q1 results last night:

- JP Morgan notes the Street is likely to react negatively to LVS' $5m EBITDA shortfall in Macau in 1Q, and the shares are probably range bound until early Sept when the market will get a sense of initial demand at Venetian Macao. Shares could break-out of the $83-$90 range btwn now and then due to monthly visitation and revenue growth in Macau deviating from the (+)30%-35% range. LVS' 1Q results in Macau do not alter the LT value that they recognize in the stock.

Bears will rightly point to LVS' 29.2% EBITDA margin, down from 32% in 4Q:06. LVS' reason behind $12m of temp. higher expenses will be greeted with some skepticism. While the $6m increase in employee costs will likely decline when Venetian opens, the labor mkt is tight and an increase in labor costs should be expected going forward.

The Venetian and Palazzo openings have been delayed but only by weeks in Macau and probably a few months in LV. Firm recalls the premature openings of both Venetian and WYNN in LV, both of which left negative tastes in investors' mouths.

JPM continues to recommend LVS, particularly during periods of rising investor skepticism, which may occur after last night's earnings. They expect LVS' EBITDAR will increase to $3.7B in 2010 from $824M last year. Reasonable multiple ranges on this cash flow produce a broad range of future values in 2010 from $150-$170 which supports firm's Overweight rating.

- Bear Stearns notes they expect the shares to trade down today (especially given shares + move yesterday) on the Sands Macao results and likely downward 2007 revisions to Street estimates. While Sands Macao results were softer than expected, they think the longer-term growth profile is, for the most part, unchanged. Firm continues to rate LVS Peer Perform and would likely be more opportunistic buyers at lower levels.

- Morgan Stanley says they are lowering their price target to $87 from $88 to reflect the delays to the Cotai openings. Firm believes the stock could trade off on the softer Macau number and the Cotai delays.

Notablecalls: The problem here is the Macau where EBITDA came in at $102 million vs. the 115 mln whisper number. This is also the first EBITDA decline Macau has seen since opening. It looks like Galaxy and WYNN have been more competitive luring in the mass market volumes. Competition usually means lower margins. And that's exactly what we got.

Trading at a high valuation (30x CY08), I think there is very little room for error here. The stock traded down to $83 but bounced back to $86 soon after, ending at around $85 in after hours action. I suspect there may be some additional downside in LVS over the next week or so. The stock may attempt to bounce early on.

Paperstand (GM, MORN, AMGN, LCC)

The WSJ’s ”Heard on the Street” column out on General Motors (GM), saying that investors looking to buy shares now should beware of looming challenges. The co last year raised a pile of cash to avoid a liquidity crisis and has improved its cost structure and put new models on the mkt. Although GM recently lost its No. 1 rank by global sales to Toyota, it is expanding overseas in hot mkts such as China. Still, GM's well-being depends on the ability to cut labor costs, mostly health benefits. If GM can get concessions from the UAW, its shares and bonds could post significant gains. If the two sides engage in a prolonged fight, it could slow the co's bid to stop burning cash, set back its turnaround plan and wipe out the recent advances in its stock and bonds. The upshot is that even the most bullish analysts think GM's shares and bonds could face pressure. "With GM, the scary thing is they're not even close to the finish line here. They're not generating cash," says Rod Lache, an analyst at Deutsche Bank who has a Buy rating on GM's stock in the hopes the auto maker will get significant health-care givebacks during the union negotiations. "It's too early to say the worst is over for GM," says Shelly Lombard, of Gimme Credit, who believes the co is about a 1/3 of the way through its turnaround. She says GM's bonds could see more upside if the co gets the union concessions it needs and its vehicles sell well, but adds the securities aren't exactly cheap. "In the best-case scenario the bonds could go to par by ‘09, but it's still a volatile situation now," she says.

“Ahead of the Tape” highlights Morningstar (MORN), whose shares have doubled since going public 2 years ago. This qtr, analysts expect a 24% increase in EPS and strong rev growth. The co is firing on all cylinders, with sales in its critical individual, adviser and institutional segments growing at strong double-digit rates last year. It's also been on an acquisitions binge, picking up the funds-data business of S&P's this year and Ibbotson Associates last year, among others. Independent research has also become a hot commodity since Wall St. firms were forced to clean up their own research after the tech bubble burst. But as its shares climb higher, Morningstar's own oft-repeated advice to investors might be applicable: Don't chase performance. The firm trades at 47x last year's earnings, more than highfliers like Google and Apple. Since listing, its share price has outperformed Google, and measured up to Apple. The air is pretty thin up there.

Barron’s Online out on Amgen (AMGN), saying that recent problems may have been overblown. And with multiples bouncing off 5y lows and profits still outgrowing the broader mkt, Amgen looks cheap, especially if promising new drugs hit the mkt in coming years. "The mkt has overreacted [to safety concerns] and created a pocket of inefficiency," says Cliff Hoover, of Dreman Value Mgmt. "If investors step back, they see a co of size with good existing drugs and a pipeline." Hoover says that the co "can grow earnings 10-15% annually over the next 3 years." At "13 or 14x potential earnings in ‘08, [Amgen] is not being rewarded for its future potential," says Robert Kang, of HighMark.

“Inside Scoop” reports that PAR Capital Mgmt, who played a significant role in bringing US Airways (LCC) out of bankruptcy nearly 2 years ago, yesterday decided it was time to let the airline fly on its own. PAR disclosed Wed morning that it had sold 6.75m shares of US Airways to UBS the previous day. The transaction slashed PAR's stake in the airline to 0.29% from 7.9%. InsiderScore.com's Ben Silverman calls the sale a negative for US Airways shareholders and says it could create an overhang for the stock.

Navteq (NYSE:NVT): Headwinds looming on the horizon?

While most firms are positive on Navteq (NYSE:NVT) after the co issued stronger than expected Q1 results, we have one large firm issuing negative comments:

- Deutsche Bank thinks the Street will be excited by the comfortable beat in this quarter and the positive momentum in the business given the strong results from 2H06. However they caution against such optimism especially since the core in-dash segment (60% of revenues) is delivering just single digit unit growth (8% in 1Q-07) and some of the foundations of the 1Q-07 results (e.g. capturing December PND royalty revenues and $2.7mn delayed internet revenues in 1Q-07, delaying op-ex spending into 2Q and the loss of TomTom), are suggesting more challenging quarters ahead. The performance in the seasonally weaker 2Q & 3Q periods might underperform already high expectations (est. 72% & 66% Y/Y growth in PND units in 2Q & 3Q).

DB think the sudden loss of the Tom Tom contract just a few months into the deal was the result of significant price competition from Tele Atlas. They estimate these units at ~1.0 - 1.5mn units in FY07 or ~$25mn in revenues for Navteq. Importantly it indicates that we are still in a very price competitive market despite its duopolistic nature and that firm's estimated ASP decline of ~9% Y/Y in 2007 (ex-FX) may be conservative.

Total 1Q-07 in-dash auto units increased by just 8% Y/Y, equal to its slowest rate of growth posted in 3Q-06 and far less than previous quarter's performance of high teens to 20%+ growth rates.

Reits Sell with a new $30 tgt that values Navteq at 24x firm's new FY07E EPS of $1.26 which represents a 50%+ premium to their expectations of 15-20% avg. earnings growth over the next 2-3 years. This is a slight premium to its close comparable Getty Images (GYI: trades at 19x 07E EPS), justified given Navteq's slightly faster growth rates.

Notablecalls: Well, it looks like some of the revenue upside was spill-over from Q4. Some investors and analysts will adjust their models to account for the stronger growth in Q1 and we may end up with a situation where Q2-Q3 estimates become too high for the co to meet or beat. Also, the growth in the core in-dash auto business is decelerating considerably. The loss of the Tom Tom business will not hurt much, but does indicate pricing pressures.

Even Bear Stearns' Peter Barry, the biggest NVT bull on the Street noted this morning that headwinds may loom on the horizon. He does however maintain his Outperform rating on the stock hoping that by 2008, the company will begin to have material revenue from cell phone service providers, and from dynamic content. That may of course, be already reflected in the valuation, with the stock trading 2x its growth rate.

I suspect there's a fair chance that the initial positive reaction in NVT stock may be fadeable today. The stock has had trouble overcoming the $38 level in the past and I think that's your leash. Note that the last prints in after hrs were around $37.50.

Hansen Natural (NASDAQ:HANS): Goldman offers another piece of the puzzle

- Goldman Sachs comments on Hansen Natural (NASDAQ:HANS) ahead of Q1 results scheduled for May 7. Firm notes they expect sales of $175mn (+46%) and EPS of $0.30 (+44%), ahead of consensus of $168mn and $0.29, respectively. This said, they think the potential for meaningful positive surprise is capped as aluminum and sweetener costs have gone up without any pricing, comps are tough, and Red Bull's 12-ounce and better competition from Pepsi have made modest dents in share growth momentum.

With 1Q EPS likely to be merely in-line, they see a downward trading bias. The stock fell -26%, -14% and -6% after the past 3 quarterly reports, which were all in-line or a penny ahead.

However, they see many reasons to own the stock into 2H2007 and believe visibility into some upside drivers could emerge during the tele-conference: 1) Hansen might talk more proactively about increasing prices (following Red Bull), 2) Hansen has new product news for the first time in 18-24 months, 3) a European distribution deal could be reached.

GSCO views valuation as attractive at 19-20X 2008 EPS, but are mindful for a potentially lower entry-point around the quarterly results. Maintains Neutral and $46 tgt.

Notablecalls: Note that Stifel's Mark Astrachan was out a bit cautious on HANS just 2 days ago. According to Mark, trade sources indicate that unit selling and promotion expenses for Monster and other Hansen products is up in the 1Q. He downplayed the impact of these costs to the investment thesis saying it does not mean the cost of doing business is increasing for HANS.

GSCO offers another piece of the puzzle saying Red Bull's 12-ounce and better competition from Pepsi have made modest dents in share growth momentum. Is this why HANS is stepping up their promotional activity? If this is true, cost of doing business may very well be increasing for HANS.

The stock is down just over a buck from Stifel's call but given GSCO's comments, I think there may be some more downside in store for HANS.

Syntax Brillian (NASDAQ:BRLC): Will the shorts be feeling a load of pain soon?

- CIBC has some interesting comments on Syntax Brillian (NASDAQ:BRLC) saying they are reiterating their Sector Outperformer on BRLC following poor CC results, blamed on soft
large-sized DTV sales. Firm believes the shortfall is due to poor Tier-1 pricing & lack of value SKUs, which is precisely why CC's new TV chief has expanded its 2Q-4Q Olevia SKU orders from 2 (27,32) to 6 (larger sizes).

Firm's Circuit City checks indicate large-sized DTV inventories & SKU diversity were poorly managed, and were the reason for CC's recent TV management change. Tier-1 TV inventories have been lingering for 50+ days, while well-priced Olevias (27, 32) have been turning over in under a week.

CIBC believes Target & Kmart are ramping Olevia quite well, & are only limited by BRLC's ability to finance receivables (especially in China). With C1Q AR's currently converting into cash, and an Asian factoring deal on its way, they expect favorable CY07 guidance, when BRLC reports before mid May.

At 8x conservative CY07 EPS estimate of $0.90, they believe BRLC is a compelling value. With a 46%-of-float short position, 9.6 days to cover, rapidly-expanding Tier-1 retail penetration, and a watershed factoring deal on its way, they believe the shorts will soon be feeling a load of pain.

Notablecalls: Interesting comments by CIBC's Daniel M. Gelbtuch. BRCL may be one to watch over the next couple of days.

Circuit City (NYSE:CC): Comments on warning

Several firms are commenting on Circuit City (NYSE:CC) after the CE player slashed its FQ108 guidance and withdraw its previously issued guidance for FY08. We have at least one firm taking their rating down with several firms issuing cautious comments on competitor Best Buy (NYSE:BBY).

- Bear Stearns CC experienced below plan sales in April primarily related to a fall off in unit demand for large flat panel and projection TVs. CC admitted that BBY is taking share, as the firm expected it would in 1H. However, CC would not attribute the slowdown to the replacement of 3,400 employees. But, the falloff is far too coincidental. While they expected top line volatility, they did not foresee such a steep decline; lowering 1Q comp to (8%) from (4%).

Nonetheless, the firm believes that there is a broader consumer trend at work (maybe 60% macro, 40% co-specific).Indeed, CC's announcement fits with similar sentiment from TGT, WMT, and ODP. They are in the process of looking at their BBY comp. Firm expects consumer stocks to face continued headwinds in the near term.

Bear believes that CC has more positive catalysts than negative, particularly at $16, where it was indicated after hours. These include: 1) the announcement of a new CFO; 2) the details of the next wave of restructuring; and 3) the potential sale of InterTAN. Finally, they believe that CC remains a viable target for private equity and believe that the board will feel increased pressure to explore its alternatives.

At $16, CC will be trading at 5.9x on an EV/EBITDA basis; it will have a 0.16x EV/sales ratio, a 7.5% FCF yield, and cash will represent an estimated 25% of its mkt cap. While the firm would not be surprised to see some downgrades, they find it difficult to do so after considering these factors. Maintains Outperform.

Notablecalls: CC looks to be caught between the rock and a hard place. On one hand there's the weakening macro situation, on other hand there's strong competition from BBY, liquidations of CompUSA and Tweeter and the apparent internal turmoil (labor changes). Let's review these:

- Macro probably accounts for 40-50% of the shortfall. That's something already echoed by TGT, ODP over the past couple of weeks.

- Competition from BBY is certainly not news. There had been some analyst chatter of CC losing significant share in the critical large screen TV category. In fact, weakness in large screen flat panels was cited as one of the main reasons for the shortfall by the management.

- CompUSA and Tweeter liquidations? Known already.

- The internal turmoil. CC is in the proccess of replacing 3000 of its highest paid associates. This is bound to have an impact on the general customer service levels, thus providing BBY to capture some additional market share.

So, most of the problems were already known. With the stock down 50% from its peak in 2006 and cash representing 25-30% of its market cap, one could argue most of the problems are already priced in. Note that the last time CC made drastic changes to store labor compensation in February 2003, the stock wasn't far from its bottom.

I suspect the stock will open around $15.50 today and will take another quick $0.50 haircut. That's when it becomes buyable for a bounce.

The situation in BBY is also an interesting one. The stock is likely to get hit today (as down $0.50 in after hours action) as fears of general CE retail slowdown spread. Note that it was only April 4 when CC guided for FY08. 26 days later they warn. This indicates that most of the problems are company/competition specific as trends in demand do not change that quickly. This may mean BBY actually took business from CC.

Note that BBY is expected to file its 10-K during the week of May 6. They are likely to update their guidance and if they reiterate the guidance given on April 4, there will likely be a nice short squeeze. Citigroup's Retailing team called BBY after CC's announcement and was informed by BBY that BBY had not seen material changes from their expectation, and they will not revise their guidance.

All in all, I expect BBY to get hit today but would be bidding it around $45 for a bounce.

Paperstand

According to the WSJ, a human-rights group released a critical report on Wal-Mart (WMT), alleging the retailer used security cameras to spy on union sympathizers and planted supervisors alongside pro-union workers to monitor activities, among other actions that violated federal labor laws. The 210-page report by Human Rights Watch is the most comprehensive analysis to date of the co's actions during union organizing drives. It examines dozens of drives at a US Wal-Mart store between 2000 and 2005 and cites 15 decisions by the National Labor Relations Board that found Wal-Mart violated labor laws during those drives.

The WSJ reports that activist investor Carl Icahn is intensifying his campaign to get a Motorola (MOT) board seat, calling the co "troubled" and likening reported comments by CEO Ed Zander to "something straight out of Alice in Wonderland." The criticism, which marks the first personal remarks toward Mr. Zander since Mr. Icahn began buying shares in the co, is part of a letter in which Mr. Icahn directly addresses Motorola shareholders. Shareholders will vote on the seat eyed by Mr. Icahn at the co's annual shareholders meeting Mon. Mr. Icahn's letter to shareholders also says that the co "has been shaken by leadership setbacks." In it, he adds that it has suffered "a critical failure in oversight and leadership that must be addressed." "Motorola has stumbled, and stumbled badly," Mr. Icahn writes. Mr. Icahn's letter to shareholders also includes a reference to a recent WSJ article in which Mr. Zander more than once stated "I love my job. I hate my customers."

“Heard on the Street” column discusses Delta Air Lines, which emerged from bankruptcy yesterday. But don't expect the airline's new shares to take off when Delta begins trading again Thu. While Delta recently dismissed concerns by rival carriers that consumer demand has begun flagging, investors remain skeptical of many airline stocks at a time when the forecast for the US economy is cloudy. Delta's new shares, meanwhile, already are trading on a "when-issued" basis at levels suggesting that the valuation placed on the carrier by its financial advisers may be higher than what would-be buyers of its stock are immediately willing to pay. When Delta filed its final reorganization plan with a NY bankruptcy court in Dec, advisers suggested the airline, upon exiting from Ch11, would be valued at between $9.4-12bn. That represents between $23.50-30 for each of the 400m shares to be issued. Even the lower end of that range would give Delta the 2nd-highest mkt value in the US airline industry, after Southwest, and a P/E ratio 2nd to none, based on the airline's net income forecast of $456m for ‘07. Last week, CFO Edward H. Bastian said that mgmt is comfortable with the prospects for Delta's share price and recognized that a mkt cap of $10bn or more "would be fully valued." An initial surge in the share price, Mr. Bastian added, would be an "unnatural build." Some creditors who would have been issued the co's new shares instead opted to sell before they ever received them. Last month, for instance, more than 90% of the airline's pilots completed the sale of about $1.16bn in claims against the airline to investors more willing to wait for long-term growth of the stock. And other creditors are expected to follow suit. "There's going to be some pretty big sell pressure on the stock b/c there will be lots of [creditors] looking for liquidity after being locked in for so long," said Bill Mann, of Motley Fool. "New investors are going to be cautious in the short term."

Barron’s Online “Inside Scoop” section reprots that Chmn and CEO Charles R. Schwab sold 800K shares of Charles Schwab (SCHW) for nearly $16m this past Fri. "Chuck Schwab has a long standing practice in place of periodically selling some of his shares as part of an overall estate mgmt and personal financial-mgmt plan," says co spokesman Glen Mathison. "He is still a significant owner of the co." In fact, Mr. Schwab continues to hold over 214m shares, about 17% of the firm's outstanding stock, even after sales of 16.76M shares (totaling $268m) over the last 18 mo’s.