Thursday, August 31, 2006

Calls of Note Part 4

- Ryan Beck & Co comments on Analogic Corp (NASDAQ:ALOG) saying that since the ban on carrying liquids aboard aircraft was put into effect, the Transportation Security Administration (TSA) has observed a 20% increase in the number of checked bags on flights originating in the United States. Separately, the test of the ALOG's COBRA scanner for carry-on bags has been extended.

Opportunities for ALOG are increasing, in ´firm's view, as some bottlenecks have been noted at domestic airports due to the increased volume of checked bags. They think this puts pressure on TSA to accelerate the already planned upgrade of systems currently installed as well as to acquire additional systems to improve the ability to detect explosives and increase screening speed. Furthermore, new technology like ALOG's COBRA could enable rapid screening of carry-on bags and certification could result in TSA purchases of the device earlier than they anticipate in our financial forecasts.

ALOG shares (which reflect $18.50+ of cash per share) are currently valued at an EV/F07E EBITDA multiple of about 8.5x.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 3

- Banc of America note their significantly revised estimates for Career Education Corporation (NASDAQ:CECO) are built on the company's revised reporting of its five college divisions. Each of those divisions is in a fluid state right now as can be seen in the significant changes in growth and profitability. Thus, firm's outlook for each of these fluid segments is based on myriad assumptions regarding several equally fluid operating metrics -- starts, population, student earning rate and profitability. As a consequence, they have limited confidence in their below Consensus estimates. Of course, they have greater doubt that the Consensus outlook will be achieved as it embeds a more optimistic outlook for some combination of the college divisions.

The analyst notes that if forced to distill firm's outlook into one sound byte, it would be - operating stability (population and profitability) is achieved within the next twelve months with no signs of material growth thereafter. That somewhat sanguine outlook may be sufficient to entice patient, value-oriented investors to invest in CECO. Yet, they reiterate rating of Neutral as not only is operating uncertainty significant, but regulatory clouds should continue to loom large for at least twelve more months. Maintains $21 tgt.

Notablecalls: BofA has been bearish on the education names for quite a while and must say they have been right. I'm not sure the call is actionable but it will put a cap on any bounce CECO is trying to put together here.

Calls of Note Part 2

- Stifel Nicolaus & Co visited with the senior management of Foster Wheeler (NASDAQ:FWLT) August 29 at their Clinton, New Jersey base of operations.

According to the firm, CEO Ray Milchovich, age 56, and CFO John LaDuc, age 63, are fighters, having worked for firms that experienced a combination of labor, competitive or cyclical troubles. Firm sought an understanding of how they would steer a business in a period of prosperity.

CEO Ray Milchovich, was the CEO of a Wisconsin steelmaker at age 29, and then CEO of Kaiser Aluminum, both of which ran into a combination of labor, competitive or cyclical troubles. As a result, the firm thinks he understands how to manage a business through adversity, and believes he has done a great job of turning FWLT around the past few years.

CFO John LaDuc, age 63, who was also at Kaiser before FWLT, seems a tough, devil-in-the-details type of financial chief, focused on cash flow, which is a change from FWLT's prior financial management.

Cash in excess of debt at 2Q06 was $138 million and the net asbestos liability was $79 million, down from $196 million in 2005. For almost 75 years, FWLT has seen its EBIT ROIC rise 50+% above WACC every 35 years, and the last such cycle began in the early 1970s.

Guidance is absent, but management expressed confidence about the backlog and margin. 2Q06 backlog and long-term historical burn rates suggest 3Q06- 2Q07 theoretical revenues of $4.15 billion (83% burn), up 63% y/y, versus firm's estimate of $3.45 billion, up 36% y/y, which may prove low.

All else being equal, if E&C segment margins stay at 15.5% through 2007, firm's 2006 EPS estimate would be $2.44 instead of $1.90, and 2007 would be $4.14 instead of $2.95. They're leaving estimates unchanged, because margins are high versus history, though not unusually so for strong commodity price eras.

Eestimates FWLT could have an EBIT ROIC of 20% to 40% for the 2006 to 2008 period, consistent with other high-quality E&C firms. At the low end of the industry P/E of 20x-25x 2007E, the firm derives a target price in one year of $63, unchanged from prior views, and rates FWLT Buy.

Notablecalls: This note may create some buying interest in FWLT in the coming days.

Calls of Note Part 1

- I suspect the call of the day comes from Morgan Stanley saying their scenario analysis indicates a favorable risk-reward profile for Momenta Pharma (NASDAQ:MNTA) going into the remanded Teva/Amphastar vs. Sanofi-Aventis case (scheduled for October 10th; decides whether Lovenox patents are upheld). If the court upholds the previous decision of inequitable conduct (decisions could come within weeks), there is potential for significant upside as a meaningful hurdle towards M-enoxaparin approval is overcome. In contrast, the firm believes the downside is limited due to widely held street expectations of a full trial, which pushes the timelines for a final legal decision back by 12-18 months.

In this scenario analysis, the firm looked at the two outcomes of the remand decision.

Scenario 1) Bear Case: Judge Pfaelzer rules in favor of Sanofi-Aventis, leading to a full trial. In this scenario, the calculated Lovenox value is approximately equal to the implied Lovenox value. In firm's opinion, this is the scenario that is currently priced into the stock.

2) Bull Case: Judge Pfaelzer finds inequitable conduct and rules in favor of Teva/Amphastar. This scenario could result in 50% upside.

They note that the there is a potential that the street may move closer to assigning a 50/50 probability to the potential outcome as we get closer to the October date. If this occurs, the stock could see up to 25% upside before the trial starts.

Notablecalls: Actionable call! This one will move already in the pre mkt. I suggest you buy as much stock as you can. See no problem paying upto $0.50-0.60 above the close.


The WSJ's "Heard on the Street" column discusses IAC/InterActive (IACI), saying that over the past decade, CEO Barry Diller has done some 100 deals valued at $20bn to create IAC, a hodgepodge of Web co's. But as shares of other Internet co's have soared, Wall St. has had a weak stomach for IAC. Now some investors feel that IAC is finally getting it right as it refocuses on Internet searches and other businesses that depend on Web-ad sales. Until recently, IAC's Internet businesses relied mostly on transactions, particularly those in the travel business. Last summer, IAC spun off its travel arm, Expedia, and at about the same time spent $1.7bn to acquire Ask Jeeves. IAC has made Ask the centerpiece of its Internet strategy. Mr. Diller readily admits that he is changing his Internet strategy as he goes along. "God knows we have plenty of money with which to screw up," he says, referring to IAC's $1.1bn in available cash. If Mr. Diller's bet is successful, IAC's shares would be an attractive buy. They have been bouncing around in the $24-30 range for about 2 years. The mkt cap is now $9.5bn. The P/E ratio is 16.7x projected '07 earnings, excluding option expenses. Google's (GOOG) ratio is 30.7 and Yahoo's (YHOO) is 35.8.

Barron's Online highlights Cooper Companies (COO), whose stock is down 42% since hitting a record high in Mar'05, the stock has sharply lagged the S&P 500 index amid falling profits, lost mkt share and dimming financial forecasts. Cooper has faced challenges absorbing the contact-lens maker Ocular Sciences, which Cooper purchased last year for $1.2bn. And Cooper has been slow to launch a new type of extended-wear contact lens rapidly cornering the mkt. Yet with P/E multiples bouncing off 3-year lows and new types of contact lenses expected to resuscitate falling profits next year, Cooper offers value investors an eye-catching opportunity. "The stock is at an inflection point," says J.C. Davies, manager of Rochdale Darwin Portfolio. "Expectations are low and so are multiples. But there is a lot of potential for upside opportunities with the launch of these new contact lenses." Or as Lawrence Keusch, an analyst at Goldman Sachs, puts it, "This is a good value turnaround story."

According to the "Inside Scoop" section, Warburg Pincus may have heard a little voice in its head telling the private-equity firm to buy more shares of Nuance Comm. (NUAN). Never mind the facts that shares of theco are far off their highs, that Warburg is already the co's largest shareholder, and that Nuance insiders are selling. However, this month was the first time Warburg ventured into the open mkt to buy Nuance shares. The bulk of Warburg's holdings were acquired through a series of private-financing transactions. Noting Warburg's reputation in the private-equity world, Jonathan Moreland, director of research at, says: "I think it is a bullish sign that Warburg was not quick to cash out their gains" earlier this year. "These guys are obviously long-term owners and now when the stock is down, far from panicking they are loading up again," adds Moreland, though he would question why Nuance execs have not followed suit.

Wednesday, August 30, 2006


Barron's Online discusses Eaton Vance (EV), saying that the co's execs can stand on mountaintops to brag about the performance of their mutual funds. But investors have kept the stock in the valley below. Over the past year, Eaton Vance stock only inched up 4%, while a Thomson Financial index of asset managers gained 16% in the same period. Yet the co has an expanding palette of funds, separately managed accounts, and institutional relationships. It also has an enviable debt-free balance sheet for possible acquisitions. In its Q3 ended in July, a period when the S&P's 500 index sank nearly 3%, Eaton Vance increased its assets under mgmt by 14% to $120bn. The industry boosted assets by roughly 10% in the same period compared to a year ago. That's why Eaton Vance could surprise investors with earnings growth and stock price appreciation in the coming months, even if the stock mkt cools. With shares trading at a slight discount to competitor Nuveen Investments, and a possible dividend hike this fall, the shares look attractive. "If [Eaton Vance] can continue to generate 10% organic growth [in assets], the stock will continue to be revalued up, and earnings will continue to surprise despite mkt action," says Ryan Caldwell, of Waddell & Reed.

"Inside Scoop" section reports that 3 longtime Medtronic (MDT) directors purchased shares of the medical-devices maker, which has been giving investors heart palpitations amid concern over the health of the defibrillator mkt. 5 days ago, Jack Schuler, Michael Bonsignore and William Brody collectively spent $1.34m to buy 29K shares in the first open-mkt purchases by Medtronic insiders in over 2 years. With the stock hammered, Ben Silverman, director of research at, says "the directors' buying is a nice show of confidence." "It's a good long-term signal," he adds. "When you look at buying like this with 2 years of guidance, these [directors] feel very comfortable with the guidance and position as to where the co is going."

The NY Times reprots that Altria (MO) board will meet today to discuss Kraft Foods (KFT) spinoff. Wall St. analysts who follow Altria say they expect the co, which has been planning an overhaul since '04, to take its time in making a final decision on the timing of what would be one of the largest tax-free corporate spinoffs. "This board is highly conservative and they will exercise caution in every way you can imagine," said Christine Farkas, of Merill Lunch. One possible concern for Altria’s board is the risk that tobacco plaintiffs’ lawyers may try to get an injunction blocking a spinoff of Kraft, arguing that a disposition of the food company’s assets would represent a "fraudulent conveyance." Altria is expected to spin off its 88% stake in Kraft by giving its shareholders 1.46bn Kraft shares; stockholders would receive 0.70 share of Kraft for each share of Altria that they own.

The NY Post reprots that another large investor in Bally Total Fitness (BFT) has been granted access to the co's confidential financial information, fueling further speculation that the nation's largest health club chain could get a last-minute cash infusion before it tumbles into bankruptcy. Liberation Investment Group, which owns 11.2% of Bally, said it had executed a confidentiality agreement with the ailing health club and was interested in arranging "an extraordinary corporate transaction" such as an acquisition, sale of the co, reorganization or recapitalization. Pardus Capital Mgmt, Bally's largest shareholder with a 14.8% stake, last week entered into a similar confidentiality agreement with the co.

Tuesday, August 29, 2006

Comment: Aventine Renewable Energy (NYSE:AVR)

I mentioned Aventine Renewable Energy (NYSE:AVR) on August 25 in connection with Friedman, Billings, Ramsey's positive note (link). I suspected the shares may have some additional downside in them and unfortunately for the shareholders AVR took another 2 pt hit the following day. The shares rebounded nicely and are showing some signs of bottoming.

Soleil Securities Group's Ian Horowitz downgraded his rating on AVR to Hold from Buy on August 28 saying that although they have raised their EPS estimates for AVR significantly since their recent quarter and subsequent discussions with management, they are lowering their tgt to $25 from $45.

Fim notes that management has a stated visible path toward expansion and has the locations and EPC firms as well as the technology provider to allow expansion from the current 140mmgy of owned capacity to 606.5mmgy, and are looking to build out the company's capacity to 1bgy and increase marketing to 1bgy by 2010 (for a total of 2bgy owned and represented capacity). Although these are visible production possibilities, the company does not have the balance sheet to follow through on this expansion plan beyond the pre-funded 56.5mmgy dry mill at Pekin. Management has yet to determine the appropriate avenue for funding their expansion goals

As of this morning (Monday, August 28) over 21mln shares that were purchased in a pre-IPO round in December at $12, are available for sale, providing selling shareholders with an approximate 100% return based on Friday's closing price. Firm notes we could see extended selling pressure on the name as these shareholders look to book profits. is taking a look at AVR today:

AVR Aventine Renewable Energy -- Taking a Look

Ethanol stocks have been weak lately on lower oil prices so we thought we'd take a look at the sector to see if there were any names at attractive valuations. Aventine Renewable Energy is a recent IPO that has been struggling since its debut. There was a lot of buzz about this ethanol producer just two months ago. It priced on Jun 29 at at $43, at the high end of the expected $40-43 range. It opened for trading at $41.75 that day and has been in a steep decline ever since. The co is aggressively building up its capacity. It currently has capacity for 150 mln gallons, and its marketing alliance partners have capacity of 520 mln gallons, for a total current capacity of 670 mln gallons. The co is constructing a 56.5 mln gallon dry mill at its Pekin, IL facility and the co has announced additional projects with capacities totaling 550 mln gallons. AVR is profitable and looks attractive on a valuation basis. The co is expected to earn $2.04 this yr and and $2.44 next yr for attractive p/e's of 12.1x and 10.1x. Also, 1H06 revenue rose 95% yr/yr to $756.4 mln... It's worth noting that in Soleil's downgrade of the stock yesterday that over 21 mln shares that were purchased in a pre-IPO round in Dec in the low teens are now available for sale. As such, there could be some near term weakness, but the stock has shown some resiliency the past couple of days. It's a name to keep on the radar if crude oil prices remain high. Mkt cap $1.0 bln, avg vol 475k.

Notablecalls: One to keep on the radar! Notice the co is indeed profitable!


NC will be on vacation on Wednesday and will resume posting somewhat later than usual Thursday morning.

Calls of Note Part 5

- Goldman Sachs is adding Reliance Steel (NYSE:RS) to the Americas Investment Buy List in the context of firm's Attractive coverage view. They believe that the recent 40% decline in the share price as of early May has created an excellent buying opportunity in this best in class service center. Firm estimates an upside potential of around 60% compared to 12-month target price estimate of $48 (raised from $44). They believe the market does not fully appreciate Reliance Steel's earnings potential post the Jorgensen acquisition. In addition, they are also raising estimates to account for the recent acquisition of Yarde Metals and a richer product mix. Expects further upside due to its diversified product mix, wide geographic footprint, and strong demand from its three key end markets: non-residential construction, aerospace, and energy.

Firm believe the stock has been hurt by the seasonal slow down and volatility in the overall market, particularly in the steel sector. However, as the company delivers potentially strong results over the next couple of quarters, they expect the stock to react positively. Prices for most of Reliance products remain strong, and demand from its key markets remain exceptionally healthy.

Notablecalls: This one will move on the call. Would not chase but this one could do a full point.

Calls of Note Part 4

- Piper Jaffray is out with an interesting note saying they believe online backup will be the next major trend in consumer PC security. They believe the focus on the McAfee (NYSE:MFE) and Symantec (NASDAQ:SYMC) stories will shift to online backup in 2007. Data backup is a growing concern for consumers. Only ~4% of PC users currently use backup on regularly basis.

Sensitivity to model: SYMC - Online backup could increase Symantec's 2007 revenue by 5%, and increase EPS 7%. In FY08, the impact could be +12% on revenue and +14% on EPS.

Firm believes data backup is a growing concern for consumers. In August, Apple Computer estimated that only 25% of consumers have backed up their computers at least one time, and 4% of consumers back up on a scheduled basis. Bottom line is backup has become increasingly
important over the last five years as consumers have been stockpiling photos and digital music onto their home computers. To put this trend in perspective, digital camera sales have grown 28% over the past five years (source: PMA & IDC), and portable music players have grown 110% over the same period (source: NPD).

Believes AOL will be first to market. Today AOL offers backup to CD/DVD or external drive. Expect an online offering from its partnership with FarStone Technology late in 2006. Symantec will be second to market. Symantec plans to release Norton 360 security suite sometime between late in 2006 and the end of March '07. Given the firm has not seen the Norton 360 beta, which was to be released by the end of the summer, they expect Norton 360 will be available in March of '07. Believes McAfee will be third to market. Today, McAfee offers backup to CD/DVD or external drive.

Anticipated Pricing. While the above companies have not announced the amount of storage and pricing, the average pricing for 10GB from current players (AT&T,, and is an outrageous $179 per year. Firm believes 10GB is minimal amount of storage to generate meaningful consumer interest. When the security companies go live with online backup, they expect the pricing will be similar to pricing, perhaps $50-$100 per year.

Notablecalls: Interesting note. One for the investor types.

Calls of Note Part 3

- ThinkEquity comments on (NASDAQ:AMZN) after the co announced a board authorization to retire up to $500 million of common stock in the next 24 months, "through open market transactions, privately negotiated transactions or transactions structured through an investment banking institution or a combination of the foregoing." "The company may do so if it believes its shares are undervalued," Amazon's release said. What would constitute "undervalued" is unclear, but firm's analysis suggest that the retirement of $400 million of stock by year end 2007 would have no effect on the value of the shares.

Since the shares currently sell at about 40x this year's EPS of $0.74 (assuming taxes at "normal" rates, rather than the 12%-13% that the company will report under GAAP), and 28x next year's $0.96, the effect on EPS should be almost nothing. That is, for each dollar of shares repurchased, the company would incur/save about $0.03 of after-tax interest expense. Thus, for the current year (at an annual rate), retiring shares would reduce EPS by more in higher interest expense than the reduced shares would raise it. For next year, for which the firm estimates "normally taxed" EPS of $0.96, the effect on EPS would be a rounding error.

In the belief that the growth in the company's "investments" in Technology and Content will slow materially in coming quarters and that those "investments" will begin to produce a return in 2007, they continue to rate the shares ACCUMULATE; 12-month price target remains $33.

Notablecalls: So the $500 mln buyback is just makeup on a bulldog. Big surprise. Not actionable but good to know category.

Calls of Note Part 2

- Frederick Ziegel from Soleil's Mackinac Research initiates coverage of iPass (NASDAQ:IPAS) with a Buy rating and an $8 target price derived from firm's DCF analysis. The target price also correlates to a 23 multiple applied to firm's 2008 EPS estimate of $0.34 per share, which they believe is ultimately achievable given the uniqueness of the iPass Mobile Office service offering. According to Ziegel, the next 2-3 quarters mark a pivotal period for IPAS as they try to offset declining dial-up Internet access revenues with broadband/ security software/services revenues, eliminate $5 million per quarter of cash operating expenses, shift from usage-based to flat rate pricing which has some interesting (positive) revenue implications, drive more revenues through channel partners and interact with activist shareholders who currently own 14% of the stock. If they execute successfully, they believe iPass can return to mid- teens revenue growth and low-teens operating margins in 2008. Someone is going to unlock the value.

Notablecalls: IPAS has an interesting niche offering and from time to time I have been positive on the co. The stock has gotten hit badly over the last 3-4 months and I believe that at current levels it's worth taking a look at.

Calls of Note Part 1

- Bear Stearns comments on Apple Computer (NASDAQ:AAPL) saying we are approaching AAPL's expected product launch season. Firm sees 3 key issues regarding new devices: 1) extending AAPL's technological lead, 2) refreshing/upgrading existing users, and 3) expanding the market (i.e., new users). The real key is continuing the "oh wow" factor that has lead to iPod leadership, i.e., they expect to be surprised/impressed. While the main risk always remains on over-anticipation from investors, continued innovation from Apple should warrant a higher multiple and the firm still views AAPL as a compelling 2H06 play.

Firm sees potential for advances on a number of fronts, but the key for Apple remains continued innovation (new features, capabilities), as they would view mere iPod capacity bumps as disappointing. Firm's expectations for new products include: new iPod shuffles with potential enhancements such as smaller form factor, multiple colors, and a text-based screen, possibly wireless; new iPod nanos with more capacity (4GB/8GB of NAND flash memory), enhanced durability (i.e., more scratch-resistant), multiple colors, and even potential for wireless capabilities; multiple new products that are video-centric, including devices that are handheld-sized (e.g., refresh of 5th-generation iPod), tablet-sized (e.g., a "true " widescreen video iPod), as well as wall-sized for home entertainment (e.g., incorporating iPod technology into an HDTV device to provide a "big iPod " in the living room); video content (in conjunction with new devices), such as an iTunes movie rental service along with deals with major content providers/studios; new Intel-based Mac computers, including new Mac mini with greater media center functionality (e.g., DVR, wireless streaming of video, native iPod dock), new iMac, and a MacBook Pro update with Intel's Core 2 Duo processor (Merom).

Though Apple hasn't sent "teaser " invitations yet for any special event, which it typically sends out a week in advance of the events, the firm expects initial announcements in early September, with more to follow in October, and potentially through Macworld on January 8, 2007.

There are no changes to their EPS ests of $2.16 for FY06, $2.70 for FY07, and $3.15 for FY08. Views the valuation as attractive in front of product catalysts and consumer seasonality. Firm's CY06 target of $88 reflects a P/E of 28x on CY07 oper EPS and adding net cash/sh of ~$12.

Notablecalls: For you Apple fans out there. NOT actionable but good to know category.


According to the WSJ's "Heard on the Street", despite the appearance of turmoil, it may be time to think about buying shares of L-3 Comm. (LLL). Despite the recent corporate shocks, the co looks set to expand faster than its defense counterparts, giving bulls reason to bet that the stock has plenty of room to rise. Always quirky b/c of its eclectic portfolio of defense and homeland-security products and its frenetic acquisition strategy, L-3 has become a highly speculative play. Frank Lanza, the co's Chmn and CEO, died in June 6. The day his death was announced, L-3's stock jumped nearly 5%, on conjecture that the co would become an acquisition tgt. The conventional wisdom was that, deprived of the founder's vision, L-3 would have to be sold intact or parceled off. Mgmt sought to quell such rumors, saying L-3 has enough critical mass and growth potential to go it alone. No sale appears to be in the offing, but that hasn't damped some investors' enthusiasm. "The stock is significantly undervalued right now," says Matthew Halbower, of Deephaven Capital Mgmt, hedge-fund firm with about $3bn in assets that is a significant institutional investor in L-3. "One thing that has kept the stock languishing is the lack of a full-time leader and the perceived lack of strategic direction. We expect that to get resolved in Sep." George Shapiro of Citigroup sees the stock at $93.

Barron's Online reprots that since the beginning od August, the head of Ameristar Casinos (ASCA) has laid down $2.9m for shares of the casino operator. Craig H. Neilsen, CEO and Chmn of Ameristar, purchased 150K shares in three separate purchases. Neilsen's purchase was also his first purchase of Ameristar stock on the open mkt since the co went public in '93. This level of insider ownership, particularly by a CEO, "is always a good thing," says Ben Silverman, director of research at "You can almost look at it as a historically family-owned business."

Monday, August 28, 2006

Calls of Note Part 4

Couple of firms have interesting comments on Semis (especially the PC side of things) this AM:

- Friedman, Billings, Ramsey notes that datapoints from their Taiwan Semiconductor Bus Tour are best characterized as mixed, but PC data among the most bullish. Broadly speaking, they still think estimates are at some risk for the group as a whole, and prefer to see estimates come down before buying for 2007. Firm thinks the late July rally was based on hopes of improvement, which based on checks last week, and recent commentary by ADI, NSM, and MRVL, doesn't appear to be materializing. That said, they do expect to be buyers of the group later in the year, once more bad news is out of the way.

PC segment data indicates more optimism following a tough 1H. Bad news in the PC sector may be nearing an end. Firm believes 3Q motherboards are now up 15% - 19% QOQ versus earlier 20% -25% expectations, due to a slow start to the quarter. Business is however expected to improve in September, with initial motherboard forecasts appearing to reflect better than seasonal conditions for 4Q. Notebook units are expected to be up 20% QOQ in 3Q, with inventory burn now complete. Net, these initial datapoints appear to point to stabilizing conditions within the PC sector. As a result, the firm has upgraded ratings on INTC and NVDA, and raised estimates on AMD.

Notablecalls: Not actionable but good to know category.

- Banc of America notes that their latest checks within the PC supply chain suggest that business trends for Intel (NASDAQ:INTC) are tracking to expectations (+8% Q/Q rev growth at the mid-pt). And while still early, given the back-end loaded nature of the Sept. qtr, checks imply that the seasonal build is tracking to expectations, and that Intel's new products are ramping up to plan, with demand in many instances coming in stronger than expected.

Despite recent concerns regarding availability of Intel's latest chipset (Broadwater), checks indicate no evidence of any production issues/shortages. Although demand for Broadwater has been tracking stronger than expected, checks indicate that Intel has been able to ship 2+ million units of Broadwater since introduction in mid-June, which we believe is consistent to slightly ahead of the targeted ramp up of its new Core 2 Duo processors (incl. Conroe). As evidence of the strong demand for Conroe, the firm believes some customers have been willing to look to 'marry' Intel's older chipset (Lakeport) with Conroe in order to meet upside demand.

Checks in retail suggest that Intel will likely start a more prominent ad campaign sometime in Sept, and is likely to spend ~$100m for Core 2 Duo branding and over $100m in co-op marketing to support OEM-driven branding. This should alleviate concerns regarding lack of awareness for Intel's new brand.

Notablecalls: Think that the BofA note may cause some buy interest in the whole PC-related sector. Depending on how high the FBR upgrade on INTC will gap the shares today, I'd possibly be a buyer. Probably not a daytrade.

Calls of Note Part 3

- ThinkEquity is positive on aQuant (NASDAQ:AQNT) after meeting with co's new CFO, Wayne Wisenhart. Firm expects the investment community to undergo a period of adjustment while Mr. Wisenhart, who began four months ago, gets up to speed on the industry and investors get used to his style. While new to the media/advertising industry and AQNT, Mr. Wisenhart has over 30 years of experience in telecommunications, where he provided financial and operational leadership to a number of successful growth companies, including regional wireless carrier Western Wireless. Western Wireless' stock price appreciated approximately eightfold during his tenure as the company's CFO, from January 2003 to September 2005, and the company met or exceeded guidance for eight out of nine reporting quarters. Furthermore, Mr. Wisenhart was part of the management team that sold Western Wireless to ALLTEL for approximately $6 billion.

Firm continues to believe that AQNT will be one of the long-term "winners" in the Internet advertising sector and that shares should trade at a premium versus peers, given the strength of its business and its high growth rate. AQNT shares are currently trading at 16x EV/2006E EBITDA vs. 43% 2006E EBITDA growth or 13x EV/2007E EBITDA vs. 23% EBITDA growth. 12- month price target of $36 is based on 21x EV/2007E EBITDA.

Notablecalls: While I think AQNT is a mover the note belongs to not actionable but good to know category.

- JMP Securities is reiterating Market Outperform rating on PortalPlayer (NASDAQ:PLAY), raising their target price from $12 to $15. Firm is raising their FY07 revenue and GAAP EPS estimates from $189.5 million and $0.36 to $212.8 million and $0.55, assuming an incremental $23 million in revenues and $0.19 in earnings from PLAY's accelerating growth in the non-Apple media player business from SanDisk, Philips, and also potentially MSFT's upcoming Zune media player.

Firm retail channel checks reveal that SanDisk's PortalPlayer-based MP3 player is picking up market share through aggressive pricing for its feature-packed media players. For example, the upcoming SanDisk 8Gbyte media player will retail for $250; identical in price to Apple's lower density 4Gbyte iPod. According to NPD consumer market research data, SanDisk market share in MP3 players increased from 3% in 2Q05 to almost 10% in 2Q06. Industry channel checks also reveal that retailers are preparing for MSFT's upcoming Zune media player, which likely will be powered by PLAY's media player chip, given the close existing MSFT-PLAY relationship and PLAY's design win in Vista Notebook media processors. They note that every 1 million units increase in PLAY's media player chips will likely contribute $0.05 to $0.08 in incremental EPS for PLAY in 2007.

Notablecalls: What can I say. Notes like this one make me all fuzzy and warm inside. PLAY may have 10% upside in it over the next couple of weeks. Around 50c of it may come today.

Calls of Note Part 2

- ThinkEquity comments on BioCryst Pharmaceuticals (NASDAQ:BCRX) saying that among the abstracts for the upcoming ICAAC meeting, workers from UT-Galveston are planning to present poster V-2041a, entitled, "Injectable Peramivir Promotes Survival in Mice and Ferrets Injected with Highly Pathogenic Avian Influenza A/Vietnam/1203/04 (H5N1)". The Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC), biotech's premier conference for anti-infective drugs, will be taking place September 27-30 in San Francisco.

Firm notes that while no abstract data is available on the ICAAC Web site, they believe the
positive nature of these in vivo results is clear from the presentation title. They note that the historic failure of Peramivir in Phase III trials has led many investors to believe that the molecule is not a potent antiviral agent, a notion which this data clearly rejects. Furthermore, this data fulfills half of the requirements for approval under the auspices of Bioshield II, allowing government stockpiling and use by the public in a pandemic scenario.

Reiterates BUY rating; firm values BCRX shares by applying an industry-average sales multiple of 6 and a 30% discount rate to 2012 Fodosine revenue estimate of $393M, and add $10 per share in Peramivir value to reach a one-year price target of $21 per share.

Notablecalls: May see a quick pop in BCRX.

- Goldman Sachs notes that following up on their downgrade note from Thursday (8/24) where they added Par Pharma (NYSE:PRX) to the America's Investment Sell List, firm's channel contacts have confirmed AstraZeneca to have Troprol XL product (25mg only) in Par's warehouse (consistent with investor speculation), implying Par as the likely choice of authorized generic (AG) should a generic launch take place (Sandoz currently has approval on the 25mg representing 24% of sales). Overall, the Toprol XL opportunity may support some near-term upside to estimates (pending better visibility into launch timing) but the firm believes this is likely, at least in part, already reflected in the recent run in shares (up 32% since July 7).

No change to outlook on shares or 12-month price target of $17.50 (based on implied P/E and EV/EBITDA multiples of 13.6X and 7.7X), and implies some modest downside potential over the next year.

Notablecalls: Not sure what to do with this one. I would risk 25c to see if this one has some further legs.


The WSJ reports that eBay (EBAY) has signed a deal allowing Google (GOOG) to exclusively display text advertisements on eBay's auction Web sites outside the US. Under the deal, which will be announced today, eBay and Google will begin testing the advertising arrangements in early '07. The accord also calls for the co's to cooperate in developing "click to call" initiatives, which allow consumers to call merchants and advertisers directly using connections displayed in the ads. The co's said they reached a multiyear agreement and will share ad rev on certain components of the deal.

According to the Barron's Online, institutional players are buyng shares of Take-Two (TTWO). Italian bank Unicredito Italiano reported it had built a 5.06% stake in Take-Two with 3.65m shares. On Aug. 14, Icahn Mgmt disclosed it had acquired 800K Take-Two shares during the quarter ending June 30. The firm is led by billionaire financier Carl Icahn who is known for his activism in pressuring mgmt to unlock shareholder value. No insider has sold shares since Sep'05 or purchased shares since Feb'02.

Over the weekend one analyst in Fox News highlighted Under Armour (UARM), saying it will go up 25% by Super Bowl.

Notablecalls: Usually analysts in Fox News highlight large cap stocks. UARM has mkt cap of $1.66bn and it's a mover. Stock has fallen almost 20% recently and has formed a bottom. It may move up a few points in upcoming week or two.

Calls of Note Part 1

- The Merrill Lynch Focus 1 Committee has added Freescale (NYSE:FSL) to its list. That's
consistent with firm's Buy rating, which is based on the following factors: 1) share gains in multiple end markets, 2) expectations for margin improvement, 3) strong cash flow generation and 4) attractive valuation.

Firm notes Freescale was not that profitable or well positioned when it spun out. There were concerns surrounding the company's ability to maintain its position as Motorola's key handset IC supplier. Other concerns centered around Freescale's ability to generate margin improvement, especially in the broadly diversified transportation division. The result was valuation that has yet to catch up with comparable firms.

As it's turned out, Freescale's management has done a much better job of tightening down the company's focus and improving profitability than anyone expected. Margins have exceeded the company's initial targets set at the time of the spinout, and the company has shown itself capable of not only holding onto market share in its key segments, but gaining in some cases.

Firm's $35.50 target price would put FSL on 18x their 2007 estimate, which they believe is reasonable given the potential for margin expansion. The price objective is also supported by the fair value suggested by firm's returns model.

Notablecalls: I would not be surprised to see some buy interest in FSL today. Merrill has a large following and they do move stocks. Also, the note, while containing no new information, makes a good point.

Sunday, August 27, 2006

Barron's Summary

Barron's cover discusses housing mkt, saying that the broad selloff in housing shares may have created bargains among builders, home-improvement retailers and others. many home builders now trade around book value, and some, like MDC Holdings (MDC), Hovnanian Enterprises (HOV) and WCI Communities (WCI), languish at a discount to book value. Book value generally has acted as a floor for the stocks, and have given investors a buying opportunity. Countrywide Financial (CFC) has come under pressure lately. Countrywide looks tempting b/c it now trades for just 7x projected '06 profits of $4.40 and for 1.4x BV, giving it the lowest valuation among major financial stocks. The co has long been mentioned as a takeover tgt. In a letter to fund shareholders last month, Legg Mason's Bill Miller admitted he was "wrong" and early on the group, but said he's sticking with such stocks as Centex (CTX) and Pulte (PHM) "b/c we think the bottom is near or within squinting distance." Stephen Kim, of Citigroup, notes that many investors view the home-building stocks as "dead money" b/c the housing mkt may not stabilize for another year or 2. He favors Lennar (LEN), KB Homes (KBH) and Toll (TOL), but notes that investors tend not to differentiate much in both bull and bear mkts. According to the article, Levitt (LEV) is an intriguing, low-profile Florida builder whose shares now trade for around 11, just 63% of its BV of $17.50 a share. "This co takes orange groves and turns them into small towns," says Alan Fournier, of Pennant Capital. Other stocks mentioned include: BDK, MAS, SHW, LOW, HD, MHK, WHR, ETH, FBN and H.

Fund manager likes HOT, HLT and BEE.

Barron's suggests that investors sitting on profits in surging broker stocks might want to lighten up b/c the bullish operating cycle for these Wall St. firms has about run its course. Article mentions Bear Sterns (BSC), Goldman Sachs (GS), Lehman Brothers (LEH), Morgan Stanley (MS), Merrill Lynch (MER) Citigroup (C) and JP Morgan (JPM).

Dell's (DELL) plans for boosting customer service are a clear step in the right direction. But it still faces daunting challenges, both in the US and overseas.

Barron's discusses Anadigics (ANAD), whose stock is down some 40% this year amid a general slump in telecom. Article suggests that the shares could more than double as the co's financial performance continues to improve.

An activist investor, James Mitarotonda's Barington Companies Equity Group, will keep the pressure on Warnaco (WRNC) to perform. It needs it. The shares jumped recently and should go further as James Mitarotonda dives in.

"The Trader" column discusses CBS (CBS), which shares are up 14% since the co announced hirin Katie Couric as news anchor. According to the article, the more solid reason to give CBS shares a look is that it represents one of the most undervalued cash-flow streams from radio, TV stations and billboard advertising available. And, even better, mgmt is doing what it can to realize some of that value and share it with stockholders. CBS trades for less than 9x its EV to cash flow. Comparable co's to each individual CBS segment routinely fetch substantially higher multiples. CBS, in fact, has been divesting radio stations, and recently sold 15 of them in 4 mkts for 14x trailing EBITDA. CSFB analyst William Drewry says he expects CBS will continue to sell radio stations, perhaps another 25. He figures the co will return the cash to shareholders via a buyback. There is "an arbitrage opportunity inherent in CBS shares," writes Drewry, given the gap between its own multiple and the valuations the co is realizing from asset sales. Of course, CBS isn't about to liquidate the co and tap all this implied value. But the disparity is evidence that there's a floor to the stock's valuation and ample room for multiple expansion over time. Adding it together, a value for CBS in the low- to mid-30s doesn't seem all that challenging. With its 2.3% dividend yield, the possible return gets that much more interesting.

"Follow Up" section discusses SonoSite (SONO) saying that sometimes investors are too quick to walk out on a co after it misses Wall Street's expectations. Take SonoSite, the leading producer of hand-carried ultrasound medical-imaging equipment. Its shares have plunged more than 20% following a narrow miss on the Street's JunQ ests. It doesn't take a high-tech diagnostic tool to find a buying opportunity in these shares. SonoSite's devices remain compelling, they're cheaper and just as powerful as some ultrasound machines the size of dishwashers, and the co is bolstering its distribution efforts. Jan D. Wald, who follows SonoSite for AG Edwards, figures the stock can jump by more than 45% in the next 12 months, to 44.

"Plugged In" column discusses Comcast (CMCSA) and its involvement in airwave auction. It's a Fridays Barron's Online article. Read here.

Friday, August 25, 2006

Calls of Note Part 4

- Roth Capital notes that yesterday, Hyperion (NASDAQ:HYSL) filed a noteworthy 8-K disclosing that its Board established variable compensation for executive officers based on license- revenue performance targets. Certain members of senior management, including all of its named executive officers, will receive cash awards of ranging from $230k-$990k and fully-vested restricted stock awards ranging from 3,500-15,000 shares of Hyperion common stock on June 30, 2008 "provided the Company achieves certain license revenue objectives."

Firm notes that although they would have preferred that the Board combine these license- revenue objectives with specific operating-margin targets, they are struck by the very explicit Board directive that the executive team supercharge the company's heretofore lackluster license-revenue growth. Apparently the Board wants the entire management team focused on license-revenue growth. The last noteworthy performance target was set by the Board in 2002 and targeted a 12% operating margin and a $35/share stock; at the time, these
seemed like barely attainable "reach" goals, but that the team was surprisingly quick to achieve them. Yep, compensation matters!

They maintain Buy rating and price target of $38, reflecting a P/E of 20x FY2008E and 13x FCF, which is slightly above the peer group.

Notablecalls: Not actionable but interesting to know category. For you investors out there.

Calls of Note Part 3

- Friedman, Billings, Ramsey notes they believe much of the industry's recent underperformance relates to concerns regarding long-term oversupply. In order to help investors better assess this issue, the firm expanded their proprietary plant-by-plant model to reflect the vast number of capacity addition proposals currently out in the market. However, they believe that the demand side of the equation remains vastly underappreciated by most investors and expect the U.S. government to significantly increase the Renewable Fuels Standard in 2007, which should be a positive catalyst for the stocks. Firm reiterates Overweight rating on the sector with Outperform-rated Aventine Renewable Energy (NYSE:AVR) and VeraSun (NYSE:VSE) their top recommendations.

Given the strong political backing for ethanol, driven by energy security concerns, agricultural interests, and environmentalists, they expect Congress to increase the Renewable Fuels Standard in 2007, lending long-term support to ethanol prices and, they expect, materially improving investor sentiment. Excess supply above mandated volumes should result in lower ethanol prices, which would result in incremental discretionary demand. Firm's 2008+ price forecasts assume oversupply in the market and that ethanol trades at only about $0.35/gallon above wholesale gasoline.

Firm notes that over the past two weeks, AVR has lost roughly 20% of its value, they believe largely due to concerns regarding the August 28th lock-up expiration on 20.8 million private placement shares. The stock is currently the cheapest in the group and, in firm's view, should trade up following the lock-up's expiration.

Notablecalls: Fascinating! But utterly useless as well. At least today. This thing may lose an additional 10% in mkt cap just like that. To catch a bounce in this one, look for a strong volume day with some block trades (200-500K shares) crossing the tape. This means the insiders most eager to sell have sold their shares to inst buyers (usually strong hands).

Calls of Note Part 2

- We have a couple of firms commenting on Celgene (NASDAQ:CELG):

* Baird notes their Q206 hematologist survey shows solid Revlimid patient share gains, and they believe expectations for 2006 are quite doable. However, with big expectations for increased penetration in 2007, they worry that early increases in safety signals may temper uptake next year. Firm continues to model 2007 Revlimid revenue well below consensus and remain cautious on CELG shares.

Firm notes that since Revlimid's greater adoption by physicians, they have seen more reports of adverse events. In firm's survey, 70% (up from 50%) of hematologists have seen AEs in their Revlimid patients. Again, the proportion of physicians reporting these events is rather unsurprising, given the clinical trial data, but what stands out from the survey data are possibly significant AEs, including sepsis, thrombosis, neuropathy and myelosuppression.

With 2007 consensus expectations (~$840M) presupposing a sizeable up-tick in patient share, they continue to monitor safety experience, and model just $624M in Revlimid revenue next year. At its current premium valuation, CELG appears priced to meet or exceed consensus
expectations. Reiterates Neutral rating.

* Citigroup notes they have conducted an analysis of Revlimid's potential gross margins and conclude that due to premium pricing, high potency, lower royalty obligations, and lower COGS than Thalomid, Revlimid's GMs could approach ~97% at full commercial manufacturing scale vs. Thalomid's estimated 84%. At full scale, they anticipate that Revlimid's COGS could be 1-3% w/additional 1% royalty obligations to a third party for intellectual property rights. Whereas Revlimid posted 92% GM in Q2, each 100bp improvement could contribute $0.01, $0.02 and $0.03 to non GAAP EPS in '07-'09, respectively. This would boost firm's target price by ~$1 based on '08 financial estimates.

Celgene remains Citi's best large-cap idea and they encourage investors to use the recent 18% profit-taking pullback as an entry point. Maintains Buy and $58 tgt.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 1

- Piper Jaffray comments on Tractor Supply (NASDAQ:TSCO) saying they believe 3Q sales trends remain sluggish, lowering FY06 revenue estimate. Checks point to continued softness in outdoor power equipment, big-ticket items. Firm remains confident in their 3Q EPS of $0.48, however, they are modestly lowering their same- store sales forecast to 2.5%. They believe that gross margin trends remain healthy as the company continues to benefit from a favorable product mix shift and increased private label and direct sourced product. For the full year, they are forecasting total sales near the low end of the company's guidance range to reflect a challenging consumer spending environment for big-ticket items.

In recent circulars and store visits, the firm noticed an increased emphasis on smaller- ticket and higher-margin categories like apparel and pet/equine, which they believe will provide sales stability in a slower consumer spending environment. The company has expanded its apparel set in 165 stores and it appears to be receiving a greater emphasis even in stores that have not been reset.

Firm maintains Outperform rating saying they are modeling an acceleration in comp- store sales growth and margin expansion in FY07 as the company comes up against easier comparisons and the product mix continues to shift toward higher-margin categories.

Tgt goes to $58 from $63.

Notablecalls: Look, you have a retailer that's trading 18-19x 06 EPS and 15-16x 07 EPS and then you have a firm saying things are starting to slow down. It's a bad combo for the bulls. The stock has gotten hit lately and is trading near 52 wk lows. Today, it will see some pressure. Then it will bounce bc there are some that will be covering into this weakness. But overall, there is very little upside to this stock. Short any bounces.


According to the WSJ's "Ahead of the Tape" column, the housing mkt is deteriorating, but many private-equity firms and hedge funds still see real estate as a game worth playing. For some proprietary-trading desks at investment banks and hedge funds, one of the better guides to that game is a report from Citigroup's Citigroup Global Markets that came out within the past few weeks highlighting stocks that have substantial real-estate value relative to the total value of their enterprise. Many of the co's on the list are restaurant chains, including Bob Evans Farms (BOBE), Denny's (DENN) and Lone Star Steakhouse & Saloon (STAR). Also high on the list, produced by Citi senior analyst Jonathan Litt, are health-care co's including Tenet healthcare (THC), Capital Senior Living (CSU) and Genesis HealthCare (GHCI). Mr. Litt has a good track record. Of the 103 co's he singled out in a similar list last year, 14 were acquired or part of mergers. Those acquired co's generated an avg return of 30.2% between the time he pointed them out and the time they were taken over. Among them was one of the biggest takeover tgts ever, HCA (HCA). The overall list outperformed the S&P 500, he says. More deals from the latest list have been popping up. The last week of July, Buffets agreed to buy Ryan's Restaurant Group (RYAN), one of Mr. Litt's top picks, for $876m, a 49.3% premium to the closing price the previous day. "We bought shares the day after we saw the [latest] report," says a senior trader at the bank of a Citi competitor.

According to the Barron's Online, a multibillion dollar auction of US airwaves is under way in Washington, and the big surprise is the aggressive bidding by the nation's cable co's, led by a consortium controlled by Comcast (CMCSA), the biggest. Total bids are now a staggering $13bn. Comcast's bids, which topped $2bn this week, are the clearest sign yet that the cable giant may plan to own and operate its own wireless network, perhaps someday offering a bundle of video, Internet and phone services that work at home and on the road, via advanced cellphones. That may be bad news for dominant cellphone providers, such as the Verizon Wireless, having to fight a new challenger in mkts that have already seen aggressive price competition. But the good news for Comcast is that investors have enough confidence in CEO Brian Roberts to believe any network buildout will be done at a pace that won't drastically erode Comcast's cash flow anytime soon. "If done wisely and in a rational manner, this could be an important new area of growth for them," says Warren Koontz, manager of the Loomis Sayles Large Cap Value Fund, which owns Comcast shares.

"Inside Scoop" section highlights Extra Space Storage (EXR), whose CEO Kenneth Woolley has shelled out $5.6m to buy 340K shares of the co. After his recent buying spree, Woolley beneficially owns about 1.8m shares of Extra Space, or 3.4% of the co's 51.8m outstanding shares.

Thursday, August 24, 2006


The WSJ's "Heard on the Street" column discusses Corning (GLW), saying that the co may offer window of opportunity. Corning shares plummeted this summer as the mkt slowed for LCDs used in flat-panel televisions and laptops. The Corning stock lost $13bn in mkt value since April, ceding most of the gains made earlier this year amid optimism about rising demand for ever-larger flat-panel televisions. Now some long-term stock pickers are finding this a judicious buying opportunity, believing in the strength of Corning's core LCD business as well as new products aimed at making diesel vehicles run more cleanly and speeding the discovery of new drugs. "At the current stock price, we think of them as call options because we are buying on the display and telecom businesses, which we think are in good shape for at least the next 6-12 months," said Christopher Baggini, manager of the $500m Gartmore US Growth Leaders Fund and the $500m Gartmore Growth Fund. "We think the stock could hit $30 if those call options work for us." Mr. Baggini believes the display business has gone from a hypergrowth phase, which bucks seasonal trends, to high growth. "Seasonality becomes your friend as you move into the 2H06, with back-to-school and Christmas purchases, which is good for TV, laptop and flat-panel purchases," he said.

The WSJ's "Tracking the Numbers" column discusses Alcatel (ALA) and Lucent (LU) pending merger, saying that sometimes even cheap is too dear. Investors seem to be feeling that way about Alcatel's pending acquisition of Lucent, a deal that when it was unveiled offered no premium to Lucent shareholders. The rub: Lucent may not provide value to Alcatel commensurate with what Alcatel is paying for it. Lucent shareholders stand to get about 39% of the shares of the new combined co. But an analysis suggests Lucent may contribute significantly less than 39% of the new co's operating income and sales. The two telecom-equipment makers say they're focusing on strategic and long-term considerations rather than issues like the amount of rev each side brings to the combination. But financial-performance disparities raise the possibility that some Alcatel shareholders might think the co is overpaying. Both co's shareholders will vote on the deal Sept. 7. For a fresh perspective on the merger's value, one can combine the two co's earnings for the past 12 months, strip out one-time items, convert Alcatel's results from euros to dollars based on the exchange rate at the end of the period and compare each co's results to the whole. Doing so shows that in the last year, Lucent has contributed $8.7bn, or just shy of 33%, of the co's combined $26.4bn in rev. For operating income, the percentage was just under 35%; for net income, it was also about 35%. Those percentages drop sharply if the calculations account for the fact that Lucent's earnings benefit from money contributed by its employee pension plan, whose returns say nothing about Lucent's ability to run its core operations. Of Lucent's $910 million in operating income over the past year, $507 million came not from its operations, but from the income generated by its retiree plans. Strip out those earnings, and only 19% of the companies' combined operating income comes from Lucent.

According to the WSJ, Qualcomm (QCOM) and Intel (INTC) are clashing on a crucial new battleground: wireless access to the Internet. Both co's are racing to develop new technologies to better permit consumers to connect wirelessly to the Web, whether by cellphone, laptop, handheld gadget, or potentially even devices such as MP3 players and video cameras. This month, Intel scored a first big victory when SprintNextel (S) said it would spend up to $3bn to build a new network based on the technology that Intel is backing. The battle puts on a collision course two chip giants that had little to do with each other for two decades. The prize for Intel: a new chance to build bigger mkts for its microprocessors, not just in laptops but in new pocket-sized gadgets and consumer-electronics devices. The widening of Internet access gives Intel an opportunity to try to wrest from Qualcomm the position of wireless standard-setter. Whoever prevails in the face-off, consumers will end up with yet more options to connect to the Web. Today, they mostly rely on wired high-speed Internet connections from cable and phone co's. While the technologies Intel and Qualcomm are pushing are still untested on a large scale, they promise to give ppl new ways to get online at work, in the backyard, in a park, almost anywhere, and eventually with a whole array of new devices.

According to the Barron's Online, activist shareholder Pirate Capital has been successfully rattling the cage at PW Eagle (PWEI). The hedge fund plans to follow up by buying even more of the plastic-pipe maker's high-flying shares. Pirate Capital has already spent $59m to garner a stake of 2.52m shares, or 21.2%, as PW Eagle's largest shareholder.

Barron's Online out saying that with the US economy less healthy than a year ago, Big Pharma looks like a good prescription for investors. Up 7.3% so far this year, the AMEX Pharma Index has outpaced the S&P's 500 index, something that hasn't happened since '02. Sure, skeptics have reason to be doubtful of the sector, which is just a shadow of its former self. Merck (MRK) faces thousands of lawsuits over Vioxx. More patent expirations are on the way. And Bristol-Myers (BMY) last month hit a roadblock trying to keep a cheaper-priced generic version of Plavix off the mkt, and faces a DoJ investigation. Still, there's good reason for optimism. Pipelines have bulked up. The new Medicare prescription-drug plan helped boost sales. And last month, Merck, Abbot (ABT), Pfizer (PFE) and others beat earnings expectations and hiked financial outlooks. Another important point: Drug makers remain immune to rising gas prices and slower consumer spending. Valuations and dividend yields, meanwhile, look enticing. "A lot of things have come together to generate pretty good returns for these stocks and it should continue," says Derek Taner, of AIM Global Health Care Fund. "Those returns might not prove to be dramatic. But investors will see the sector outperform."

Wednesday, August 23, 2006

Calls of Note Part 4

- JP Morgan notes that yesterday, the Semiconductor International Capacity Statistics (SICAS) organization published 2Q06 worldwide integrated circuit wafer fab capacity and utilization. Total industry utilization increased 1% QoQ from 90% in 1Q06 to 91% in 2Q06, above firm's expectation of 87%.

Utilization rates are a primary driver of gross margins and they believe overall utilization rates peaked at 92% in 4Q05 due to seasonal increases in demand and a modest inventory build. The 92% peak utilization rate is roughly in line with the average peak utilization rate of 93% during the previous four upturns.

Firm believes the higher than expected 2Q06 utilization was due to an inventory build. They believe utilization rates should decline during 2H06 due to inventory burn, which should result in downward pressure on gross margins and downside to consensus estimates.

They are reiterating their neutral stance on the semiconductor sector as it appears several leading indicators such as utilization rates, year over year growth rates, EPS estimates and pricing have peaked. Firm's top picks remain Overweight rated Microchip and Marvell.

Notablecalls: Color me bearish for 2007.

Calls of Note Part 3

- Friedman, Billings, Ramsey has some positive things to say about Formfactor (NASDAQ:FORM) as their recent checks in Taiwan suggest that FORM is at least a year ahead of competition, and thus not seeing any pricing pressure. Not only has Phicom (CY05 revenues of ~$50M) lost a significant market share at Hynix, some of which won by FORM, they believe that it has recently lost a significant market share at Elpida, helping FORM to further solidify its market share there. Elpida is currently FORM's #1 customer, accounting for 20%-25% of overall revenues. However, the firm believes that Micronics Japan Co. (MJC), a Japanese competitor with CY05 revenues of ~$40M, has recently been able to gain some traction at PowerChip (~15%-20% customer at FORM) for DDR2, though they believe that MJC's advance probe card is frequency limited, a factor that actually limited its penetration into Samsung (for DDR2) earlier this year.

Firm remains comfortable with their current estimates, though do not rule out upside, and encourage investors to accumulate on any pull back as FORM remains one of the best differentiated mid cap names in coverage universe.

Notablecalls: Not actionable but good to know category.

Calls of Note Part 2

- Merrill Lynch comments on Cubist Pharma (NASDAQ:CBST) after Theravance (NASDAQ:THRX) announced th´at phase III telavancin studies in skin infections achieved the primary endpoint of non-inferiority vs. vancomycin, but did not show superiority in patients with resistant (MRSA) infections.

Firm notes the Telavancin data were in-line with their expectations but not strong enough to
support the bear case on Cubist that telavancin will replace Cubicin (CBST's drug) use in skin infections or compete directly with Cubicin in its large niche of bacteremia and endocarditis. They expect Cubist stock to rally now that the overhang of telavancin data is removed. Reiterates BUY.

They believe that a second 1x/day antibiotic will help expand the market for Cubicin, with both Cubist and Theravance/Astellas sales forces will be detailing physicians about the benefits of 1x/day IV antibiotics. Ultimately, they expect telavancin approval and commercial launch will help both drugs capture market share from vancomycin, benefiting Cubist in the long-term. Head-to-head comp less likely; bact/endo market safe.

Notablecalls: Think the news removes a significant overhang and I would not be surprised to see CBST trade up as much as 10% on the news.

Calls of Note Part 1

- Piper Jaffray notes that after two consecutive months of shrinkage in the non-residential
construction pipeline, the ABI (Architectural Billings Index) for the month of July moved back to positive territory, indicating pipeline growth. The ABI has the most direct overlap with customers of Autodesk's (NASDAQ:ADSK) AEC division, which accounts for ~15% of revenue.

CY06 will likely prove to be a tug-of-war between investors concerned about the smaller 2004 product retirement pool and investors confident that new seat growth will offset any upgrade-related slowdown. There are two primary sources of new seat growth: 1) new engineer hiring due to increased project pipelines, and 2) product activation technology. One way to look at the potential for new seat growth is the Architectural Billings Index (ABI), which tracks non-residential project pipelines. In general, the ABI has been strong through the first half of CY06, indicating a growing project pipeline for the remainder of the year. The index was down slightly in May (49.6) and June (49.2), but bounced back into positive territory in the month of July. The July ABI was 51.8 (details on pg 2). Any number greater than 50 indicates an increase in pipeline.

Maintains Outperform and $47 tgt.

Notablecalls: Not actionable but good to know category. This note will have no impact on the share price but since I have been following the story (check the archives), I thought to highlight it.


The WSJ's "Long&Short" column discusses provate equity latest actions. Lately bunches of companies are experiencing every teenager's nightmare: They're holding parties that no one attends. Last week, Jones Apparel (JNY) took itself off the block when private-equity firms wouldn't meet its price. This month has seen a spate of similarly failed auctions, big-screener Imax (IMAX), biotech ImClone (IMCL), auto-parts retailer Pep Boys (PBY) and fitness-club chain Bally Total Fitness (BFT). After the relentless drumbeat about how much cash the deal-happy private-equity world is sitting on, why are so many of these public auctions stumbling? "There's a little bit of hype about taking companies private. I heard the other day that someone wants to take Microsoft private, which is absurd," says Barry Ritholtz, who runs his own investing-strategy boutique. But the spate of failed deals "makes you wonder, what are these things really worth?" So why do co's put themselves out there? It's like including the phrase "Date me, I'm desperate" in your entry.

According to the WSJ's "Heard on the Street" column, in today's energy-stock sector, investors might want to borrow a credo from Watergate-era reporters: Follow the money. Thanks to soaring energy prices, the world's biggest oil and natural-gas co's are sitting on mountains of cash. Exxon Mobile (XOM) had more than $32bn in its coffers at the end of June. At the same time, Royal Dutch Shell,Chevron (CVX) and BP (BP) had a total of more than $26bn in cash. So, where will that money go? While shareholders likely will benefit from higher dividends and share repurchases, a big chunk of the cash will go toward building infrastructure projects required to get the next generation of oil and gas out of the ground, refined and brought to mkt. That is good news for engineering co's such as Jacobs Engineering Group (JEC), Foster Wheeler (FWLT), Chicago Bridge&Iron (CBI) and McDermott (MDR), which are seeing a buildup in backlogs of multiyear projects. "We're going to have to spend more capital to increase energy supplies," says John Segner, manager of the $1.5bn AIM Energy Fund. "And I think we're in the very early innings of doing that." This thesis led him to add Chicago Bridge stock to his fund's portfolio last fall.

According to the WSJ's "Tracking the Numbers" column, Sovereign Bancorp's (SOV) stock has been stuck in neutral all summer but could soon slip into reverse. The reason: Banco Santander Central Hispano (STD) is poised to stop its daily purchases of hundreds of thousands of the bank's shares. In early June, Sovereign sold a nearly 20% stake in itself to Santander for $27 a share, about 27% above where the stock was trading at the time. The sale was part of an investment agreement that allows the Spanish bank to keep buying Sovereign shares until its stake hits 24.99%. Since then, Santander has been snapping up millions of dollars in shares, sometimes more than 600K in a single day. These purchases, made in the open mkt, routinely account for 30% or more of the daily trading volume in Sovereign shares. That buying has put a floor under Sovereign's stock price, which has hovered between $20 and $21, despite some analysts' doubts about the strength of the bank's business. The Spanish support is about to come to an end, if it hasn't already: As of Friday, the last day Santander disclosed its buying activities, the bank's Sovereign stake had climbed above 24.8%. Assuming the same buying pace, Santander is about to hit the 24.99% or has already done so, according to BofA analyst Kenneth Usdin. When Santander stops buying, Sovereign's shares could come under pressure, or at least trade in line with other banks. "I think it could weigh on the stock in the short term," Joseph Fenech, an analyst for Sandler O'Neill, said of the end of Santander's share purchases. "The stock really hasn't gone up, even though Santander has been aggressively buying. I wouldn't be surprised to see some weakness heading into September."

Barron's Online discusses favorably BP (BP), whose shares have fallen 3% since the co announced Aug. 6 it would cut production in Alaska's Prudhoe Bay to patch a leak and fix corrosion. BP's largest competitors, save ConocoPhillips, are up about 2% in the same period. The Alaska shutdown was the latest in a list of recent setbacks, from a deadly Texas refinery fire to deepwater-rig damage. But those factors are already in the stock, the worst performer among Big Oil shares in the past 12 months. In fact, investors may well have overreacted, alarmed by the drop in oil and natural-gas prices during the past 2 weeks. Now BP shares look reasonably priced, especially considering Alaska is less than 3% of BP's expanding global production. "BP has been caught napping at the wheel," says Fadel Gheit, of Oppenheimer, of the Alaska situation. "But the investor will put [the shutdown] aside because it will not have a meaningful impact on earnings. It is a hiccup."

According to the Barron's Online, Saks' (SKS) Chmn has sold nearly 2.3m shares of the operator of dept-store chains for a total of $34.4m following a disappointing Q2 report. Saks was identified as a potential tgt for a private-equity offer after Bon-Ton Stores agreed to acquire Saks' Northern dept-store division for $1.1bn last Oct. But Jonathan Moreland, director of research at, says that Chmn's selling seems to signal that a buyout is not on the horizon. "The idea of a private-equity firm scooping [Saks] up for much more than it's trading for, given the chmn's transactions, is just not likely," Moreland says.

Tuesday, August 22, 2006

Calls of Note Part 3

- BB&T Capital Markets is positive on Hub Group (NASDAQ:HUBG) after hosting a field trip to HUBG's corporate headquarters in Downer's Grove, IL. Overall, they had a positive meeting with management and came away feeling much more comfortable with regards to both intermodal volume growth as well as the company's need to increase asset ownership. Firm is confident that HUBG continues to have substantial margin improvement opportunities, particularly over the next 4--8 quarters. Finally, they are optimistic regarding the outlook for growth at the company's truck brokerage and drayage divisions.

Firm notes they look for growth in truck brokerage and drayage, continued strong pricing in the company's core intermodal product and strict cost controls to drive double digit EPS growth over the next 2--3 years.

They believe that margin improvement will be driven by: 1) growth in its more profitable truck brokerage business, 2) growth in its more profitable drayage business and in the percentage of its total drayage moves that are handled internally, and 3) continued strict cost controls.

Firm thinks intermodal volume growth will likely remain sluggish. This is due to four
factors: 1) an irrational competitor with low pricing, 2) tight industry capacity, 3) continued rail service issues and 4) a conscious decision to reduce its auto exposure. These four factors will likely continue to weigh on volume growth over the near term. That being said, HUBG's stock has generated significant momentum over the last three years despite lackluster volume growth. Firm suspects that this could be true going forward as well.

New 2006--2008 EPS estimates are $1.10, $1.28 and $1.41, up from $1.09, $1.15 and $1.22,
respectively. Firm's new 2006--2008 operating margin forecasts (as a percent of total net revenue) are 34.1%, 35.3% and 35.8%, up from 33.5%, 33.7% and 34.1%, respectively.

Tgt goes to $33 from $30. Maintains Buy.

Notablecalls: Putting on my nostalgic hat again. At my old trading desk, after reading the note I would most certainly go into 'all your HUBG belongs to me' mode. This stock is a mover and you want be in it.

Calls of Note Part 2

- Bear Stearns is out with an upgrade on XM Satellite (NASDAQ:XMSR) taking their rating to Outperform from Underperform. Firm believes that the wave of negative catalysts that have plagued the company over the previous months has finally subsided; in fact, they believe the company is about to experience a positive wave of catalysts, led by the impending FCC authorization for their devices.

After the precipitous decline in XMSR over the past three months, the firm believes that the market has over-adjusted for the concerns in the marketplace.

Firm highlights several Investment Points which support the change in their thesis on the company, including: survey work showing continued strong demand, their anticipation that guidance will be raised, and a bolstered management team.

1) FCC approval for XM's FM modulation units (they would expect in late Aug/ early Sept)

2) The commencement of shipping units for back-to-school / 4Q inventories The unshackling of the marketing rollout, which had been hampered by the FCC mod issues

3) Availability of Helix and Innos in quantity, at potentially lower MSRPs than Sirius' new line

4) Increase in market share (demand), per NPD data (as spurred by the marketing and new products)

5) Management exposure to Street - as the co completes its operational issues, they believe it will open up to the Street (particularly meeting new President & COO Nate Davis), further expounding on the positives of the XM story

6) Launching of Oprah (in September)

7) Raising (narrowing upward) guidance in October when the co reports, due to the
achievements above

8) Resolution of the recording rights & royalties issues

10) Further OEM penetration commitments (probably 1Q07)

Bear Stearns notes their new model is built conservatively, estimating: 16.5 mn subs by 2010 (vs. XM's expectation of high teens), declining OEM conversion rates, modest retail market share, higher churn rates, minimal ARPU growth, and lower SAC deceleration.

2007 target price of $17 is based on DCF valuation and supported by discounted EPS and FCF/Share analyses, as well as a Sirius EV/Sub comparative basis, all of which yield valuations in the $17-$18 range. Firm would expect a FCC approval to be followed shortly by manufacturing and shipment in volume in plenty of time for the big 4Q season. An improved marketing team coupled with the demand indicated by survey work, indicates a rebound in the 4Q for the company.

Notablecalls: As most of you already know that while I don't like highlighting upgrades/downgrades on this page, it's when I see something like this one, I usually end writing it up. Bear has been dead right on XMSR in the recent past and I think they may me right this time as well. You have a $11 (and change) stock here today that will be a close to $13 stock in the coming days. Prime example of an actionable upgrade.

Calls of Note Part 1

- Thomas Weisel Partners has some positive things to say about Sandisk (NASDAQ:SNDK) after spending time with co's management.

Firm's key takeaways are 1) Sandisk's cost per MB is likely to improve significantly in the coming quarters, 2) the pending M-Systems acquisition should have significant synergies and improve Sandisk's flash sourcing and/or royalty position, in firm's view, and 3) Sandisk appears confident it will be able to utilize MLC flash in the emerging SSD-based notebook market. Sandisk refrained from comments regarding short-term trends but acknowledged that Apple order activities at major flash vendors will have a significant impact on price stability for the duration of 2006. TWP continues to believe Sandisk is well positioned for significant long-term growth.

Firm reiterates their Outperform rating on the shares of Sandisk and view the acquisition as a near-term and long-term positive: 12-month $100 price target is based on 33x 2007 EPS estimate of $3.03 and a 1.25x PEG ratio on expected 26% EPS growth in 2007, which they believe is reasonable given Sandisk's leadership position in the flash memory industry and
likelihood of further positive estimate revisions.

Notablecalls: Back at my old trading desk I would be all over SNDK, pushing it higher in the pre mkt to dump the thing after the open. Think SNDK can move up today.


The Wall Street Journals "Heard on the Street" column is out saying that Wall St. is increasingly asking questions about Dell's (DELL) Kevin Rollins. Since Mr. Rollins became CEO in Jul'04, the world's largest PC maker by number of PCs shipped has hit a series of speed bumps. In the past 5 quarters, Dell has missed earnings and sales projections several times and posted disappointing financial results. On top of that, the co has grappled with poor customer service, personnel defections and the recall of 4.1m laptop batteries that potentially could overheat and burst into flames. Overall, co's once-robust stock is down about 60% since Mr. Rollins took over. Now, the Street is openly wondering if the fault for Dell's woes lies with the CEO. Some large institutional investors have sold Dell stock, including Fidelity Investments, Wellington Mgmt, and OppenheimerFunds. "Clearly, [Mr. Rollins] has to take some responsibility," says Sunil Reddy, a fund manager at Fifth Third Asset Mgmt unit of Cincinnati's Fifth Third Bancorp, which manages $22bn. While Mr. Reddy says his funds don't own Dell stock, Fifth Third had about 442K Dell shares as of late Jun. Andrew Neff, of Bear Stearns, adds that Dell needs to get a "real sense of urgency. You're going to need that either from Kevin Rollins or his successor." And so far, Mr. Neff says, "you're not seeing that" from Mr. Rollins. The analyst rates Dell a Peer Perform.

According to the WSJ, an investor group including Harbert Mgmt reported a 10.2% stake in Gateway (GTW) and said it sent a letter to the co offering assistance in enhancing shareholder value. The move comes as Gateway has battled fierce competition and a lethargic stock price. Once a computer highflier known for its use of distinctive boxes spotted with cow markings, Gateway has a mkt cap of $543m. In the letter, the Harbert group said it was writing to request a meeting to discuss how it can assist in the co's effort to "drive the business and build value at Gateway." The group said, "We believe our backgrounds with consumer brands as founders, CEOs and strategic investors can add horsepower to your current efforts to recruit the best possible leadership."

According to the Barron's Online, US Mobility's (USMO) metrics are signaling "SOS" as the largest US paging co's subs and rev continue to fall drastically. But one hedge-fund manager isn't distressed. David Abrams, a USA Mobility director since Nov'04, disclosed that his fund Abrams Capital Partners and its investment partners have spent nearly $29.6m to purchase more than 1.4m shares in the open mkt from Aug. 11 through 16. SEC filings show Abrams Capital beneficially owns about 3.9m shares, or 14.4% of USA Mobility.

Monday, August 21, 2006

Calls of Note Part 4

- Oppenheimer notes that UK-based Pipex will begin deploying Airspan (NASDAQ:AIRN) equipment for the first of a multi-phase WiMAX rollout later this year, with an official announcement possible next month. This is earlier than we had expected, and recently, Pipex has begun to provide more detail about rollout plans in additional metro markets. In the context of Sprint's "blessing" of WiMAX as its 4G technology and Pipex Wireless's significant spectrum holdings, we wonder if the decision by Pipex and Intel to spin-off a subsidiary of the UK operator earlier this year is prologue to a possible acquisition of Pipex Wireless by British Telecom. As far as they know, Airspan is the only provider supplying WiMAX equipment to Pipex Wireless.

Firm sees some option value in the potential for a UK deal not reflected in Airspan's current price.

They note the shares have begun to recover but they think there is too much Yozan risk priced in; at the same time, we think not enough upside related to WiMAX's recent momentum gains in major metropolitan areas is reflected in AIRN. This is not to suggest that Airspan is without risk " it remains a high-risk "story" stock. Firm just thinks the story is getting better. With the shares at 0.6x 2007 revenue forecast and less than 10x a preliminary 2008 earnings per share forecast of $0.25, they see more upside than down.

And with a market cap of less than $100 million they also view Airspan as a potential take-out target.

Maintains $8.50 tgt (guess what the rating is).

Notablecalls: Like the note. Would risk 10 cents just for the hell of it.

Calls of Note Part 3

- Goldman comments on Ford (NYSE:F) saying the shares essentially shrugged off news of a massive 21% yoy 4Q production cut, even with most of the cut on high-profit truck platforms. Firm suspects investors have been buying Ford shares now and waiting to ask questions later to avoid missing a GM-style, restructuring-fueled run. But they think risk is now to the downside, with the stock up 33% in a month, firm's estimations that shares are pricing in ambitious cost cutting and asset sales, plus clear evidence fundamentals are worsening.

Goldman thinks risk in Ford shares is now to the downside for 4 reasons:

1) Shares are pricing in a lot. Firm's new 2007 EPS of -$0.05 already includes about $4bn in 2006 and 2007 cost cutting. They think a revised "Way Forward" plan may boost that figure by $1.0bn - $1.5bn (EPS impact of $0.32 - $0.64). Selling Jaguar by year-end 2006 (ambitious) could boost 2007 EPS by another $0.25. That gets us to a potential 2007 EPS of $0.84, which at 9X is $7.56, 5% below the current share price.

2) Upside at Ford from alliances seems dubious. Goldman doubts any alliance materially improves fundamentals for at least 3-4 years. They think scenarios that have GM shunning Ghosn, Bill Ford resigning, and Ghosn stepping down from NisRen to run Ford seem far fetched and are not stable ground for making a Ford "Buy" case.

3) Much of what propelled GM shares YTD - diminished risk of a Delphi strike and a Chapter 11 filing, and a strong truck-lead product cadence - does NOT apply to Ford. In fact, Ford's product cadence is worsening as truck pressures quickly mount.

4) It warrants noting that massive production cuts to key platforms (F-Series, SUVs) evidence a business in secular decline. Further employee cuts and plant closings under a new Way Forward plan do nothing to slow an eroding top line.

Notablecalls: Goldman is not the only bear this morning. F stock is trading down 2% in pre mkt trading. Would have expected a bigger haircut following the Goldman call. But we may still get it it.

Calls of Note Part 2

- Baird has some interesting comments on Millennium Pharma (NASDAQ:MLMN) saying their latest hematologist survey shows that Velcade is maintaining its position in all lines of multiple
myeloma, and it appears to have improved its position as a promising treatment in NHL. With over half of physicians stating they will increase Velcade use, we could see upside in 2H, 2006.

Firm's recently-fielded hematologist survey (July 2006) indicates that Velcade is both holding its own in MM (despite concerns over the impact of Revlimid) and is actually gaining physician mind-share in NHL.

Specifically, in front-line MM, Velcade has maintained its 12% market share, and continues to hold on to 60%+ and 40%+ shares in the second- and third-line settings, respectively. Velcade was also named as a promising new treatment strategy by 41% of ASCO attendees (56% of non-attendees), indicating that physicians appear to continue to think highly of the drug. Surprisingly, despite data showing utility as an induction agent (for stem-cell transplant), Velcade barely registers at 6% use rate in this front-line setting.

Fundamentally, the important question for MLNM is whether physicians will increase their use of Velcade. In firm's survey, the answer appears to be a clear "yes." Of surveyed hematologists, 53% stated that they were planning to increase their Velcade use, consistent with Q106. Notably, only 3% stated they would decrease use, which could bode well for 2H, 2006 Velcade sales.

Baird is currently maintaining $11 tgt and Neutral rating.

Notablecalls: MLNM has been pretty strong over the past 6 months and this may have discounted some of the heightened potential of Velcade. But still, expectations are still quite modest. This one may see some upside in the n-t. Not a high conviction call.

Calls of Note Part 1

- ThinkEquity comments on Move (NASDAQ:MOVE) reiterating their Buy rating and $9 price tgt. Firm notes MOVE shares have been under pressure recently in sympathy with a sagging housing market. While sentiment is negative, the underlying fundamentals and trends for MOVE are perhaps stronger than ever, creating an excellent buying opportunity for a long-term sector winner, in firm's view. MOVE's current investment phase should begin driving top-line momentum and operating leverage heading into FY07 as the company completes the transition to CPC pricing, launches its community products and introduces new Web site features like mapping upon the 4Q06 data center move.

As a media business, MOVE's keys are audience size/growth and advertising demand both of
which have been trending strongly. MOVE's Web site traffic grew 5% in July/ June (source: Comscore) and advertising demand has been accelerating as real estate professionals are seeking greater efficiencies in higher-return marketing channels, e.g., the Internet, in the face of a housing downturn. Not only should MOVE, as the dominant on-line real-estate destination, continue to benefit from the overall growth of users/ad dollars online, evidence suggests that a weakening housing market may be a catalyst for its business.

MOVE trades at 10x FY07E EV/EBITDA vs. FY07E EBITDA growth of 153%. Firm's price target of $9 assumes 27x FY07E EV/EBITDA vs. a projected three-year EBITDA growth rate of over 100%.

Notablecalls: Not actionable but good to know category.


According to the WSJ's "Heard on the Street" column, despite a recent swoon in eBay's (EBAY) share price, Wall St. seems willing to give CEO Meg Whitman the benefit of the doubt. EBay's merchants beg to differ. Some of those who sell merchandise through the co's Web site recently have called for drastic action and mgmt change at the co. They are particularly upset at the deterioration in the co's flagship auction site, where they say they are seeing fewer transactions and declining sale prices. "EBay's core [auction] performance is suffering tremendously," says Steve Grossberg, a longtime videogame seller on eBay. He says he now lists an item 4x on avg in order to sell it, up from two listings two years ago. Adds Andy Mowery, an eBay seller of home and garden gear: "It is time for new leadership at eBay." Yet investor sentiment toward Ms. Whitman remains sanguine. "The problems eBay's got are a function of the fact that they're a large co," says Ken Smith, a portfolio manager at Munder Capital, which owns eBay shares. "I don't think mgmt change is necessitated."

According to the Barron's Online "Inside Scoop" section, defense stocks may have seen some bearish investor sentiment lately, but two directors at DynCorp International (DCP) recently spent nearly $2.1m on the open market fortifying their holdings of the government securities-services contractor.

Barron's Summary

Barron's cover discusses Aetna (AET), which shares hit a 52w low on Aug.1, shortly after Aetna disappointed Wall St. with its Q2 earnings. Though the stock has rebounded to about 36.50, it's still down about 23% since the start of the year. Some investors and analysts see plenty of value, however. According to the article, there's good reason to believe that Aetna's problems aren't as bad as the bears portray them. For one thing, predicts Jay Leopold, of Legg Mason Capital Mgmt, Aetna will be able to fix the MCR problem. "They will be able to correct the medical cost issues they face over time," probably within 12 months. Analysts say that there's room to raise premiums. Jay Nogueira, of T. Rowe Price, which as of June 30 held 3.1m shares of Aetna, says that, while "things didn't quite break their way" on the medical-cost ratio, the co made up for it by reducing overhead costs. The quarter, he adds, was "not an unmitigated disaster, the way the market is treating it." Matthew Borsch, of Goldman Sachs, who upgraded the shares the day after Q2 earnings came out, calls the selloff "overdone, leaving an attractive risk/reward" ratio. His six-month tgt is 40.

Barron's discusses Ameriprise Financial (AMP) which came public at 34.34, and now trades for 45.50, or a modest 14x earnings. But the stock could be worth 57 as the co's strategic moves yield results.

If sales of variable annuities in Japan continue to slide, Hartford Financial's (HIG) profit growth will sputter. Bears think that could keep valuations cheap.

The Trader column suggests that the builder's rally is likely just an enjoyable summer zephyr. Larry Jeddeloh, chief investment officer at money manager TIS Group, did buy shares of Toll Brothers (TOL) and Ryland Group (RYL), but he notes that it's a quick trade to take advantage of a likely short-term rally. "My gut feeling" is that there is another leg down for this group, he adds, as the stocks typically fall significantly below book value before they rally on a sustainable basis.

Follow Up section reviews Procter&Gamble (PG) and PepsiCo (PEP) articles. Article suggests that P&G is still fine, despite feaars and new boss should keep fizz in Pepsi.

Technology Trader section highlights story about small defense stocks, notably UIC and AH, ones that should outperform. Article was highlighted in Barron's Online Friday.
Read here.