Monday, December 31, 2007

Mastercard (NYSE:MA): Visa’s FY07 Price Increases Support Our Pricing Power Thesis on MA - Morgan Stanley

Morgan Stanley is out positive on Mastercard (NYSE:MA) saying data from Visa Inc.’s latest SEC filings indicate that Visa strongly raised prices over its past fiscal year. This gives the firm increased conviction in their pricing power thesis on MA.

For the year ended September 30, 2007, Visa Inc. revenue grew 33% year-over-year; fully 11% came from direct price increases to its customers. Another 5% emanated from reducing rebates to its bank and merchant customers, a symbol of pricing power in firm's view. During the same period, MA revenue rose 20% year-over-year, with 3% coming from price increases

MSCO believes on average, Visa prices slightly below MA. Price increases from Visa should make it easier for MA to raise its prices, in turn.

2008, they think MA could enjoy flat to up pricing year-over-year, fueled by Visa raising prices (in connection with its planned IPO) and MA’s strong competitive position. Reits Overweight on MA.

Notablecalls: Well, it's certainly going to be a slow day today. Nevertheless, I suspect MSCO's comments will generate some early interest in MA.

Echostar (NASDAQ:DISH): The shares are oversold, Reit Buy and $53 tgt - Deutsche Bank

Deutsche Bank is positive on Echostar (NASDAQ:DISH) saying they believe the shares are oversold on churn concerns related to its 3Q07 performance, which they believe will normalize faster than many investors are expecting. Also, the DBS sector continues to hold up well in the face of cable's triple-play and scaling RBOC video. Lastly, the EHC spin should highlight value and reduce capital intensity.

DISH expects to complete the tax-free spin-off of Echostar Holding Corp to shareholders on January 2nd, to trade under SATS on the Nasdaq (0.20 shares per DISH share). This essentially separates from DISH the engineering group (700 engineers) and the excess satellite capacity (9 sats plus 5 more being built, plus excess FCC satellite licenses), along with $1.531b of cash.

DISH is trading on '08E at 6.1x EBITDA, 15.1x P/FCF and 14.5x P/E. DB's $55 DCF-driven target price will become $53 post EHC spin given the cash being distributed. Reiterates Buy.

Notablecalls: I believe DISH is a bounce play here. The stock has been weak ahead of the spin news as the players betting on the buyout have been washed out. The valuation looks reasonable and as DB's Douglas Mitchelson notes, essentially, non-productive but capital intensive assets are being spun-off, which has little impact on cash flow but is accretive to earnings.

I very much like DISH here as a bounce play.

Sunday, December 30, 2007

Barron's Summary (COGT worth only $4 a share; MED; LTR)

Barron’s cover discusses emerging farmland bubble. Nationwide, farmland prices skyrocketed 50% over the past 3ys. Mike Duffy, of Iowa State University, calculates that the avg yr-end farm price in the state will be a record $3,908 an acre. The catalysts in the farmland bubble are federal subsidies to ethanol producers and the belief that ethanol demand will keep rising and that China's and India's new wealth will keep boosting global commodity prices. US farmers are switching to corn from other crops, curbing supplies of food grains. Nationwide, from ‘02 to ‘07, the number of acres on which corn was planted rose 24%. An investor who buys land will have no problem finding tenants to work it for him, says agricultural-property auctioneer Rex D. Schrader, b/c, with commodity prices high, they believe they will still be able to make fat profits. Rising rents appeal to Wall Streeters who want a piece of the hot action but don't know a corn stalk from a pole bean. Schrader says that 10% of his customers are investment groups of 5 or 6 ppl who want in on the current boom.

Fund manager likes FNM, FRE, COF, C, BAC and ALU.

Investors are valuing BNY Mellon (BK) more modesty than its two biggest rivals. When they fully recognize the co's virtues, the stock will rise by over 15% annually. BNY Mellon CEO Robert Kelly says that while, at first glance, his stock might appear fairly valued vs State Street's and Northern Trust's, the rapid growth of his co's asset-mgmt and non-US profits don't seem to be reflected in the price. "In 5ys," Kelly observes, "we could be closer to 50% asset mgmt and close to 50% international," up from 30% for each right now. "There is $140 trln of fixed-income and equity assets on the planet, and we have $21 trln of it," under mgmt or in custody.

Cogent (COGT) shares, trading near 12, are worth about 1/3 that, by one est. The mkt for its fingerprint-ID systems is growing more slowly and is more price-sensitive than expected. A hedge-fund manager who's short the stock pegs the shares' worth closer to 4. His view: "It's just not a growth co." The $4 figure would value the co at 2-3x sales, which he believes more accurately depicts its growth status. Cogent, which has ample cash reserves of $331m, has been an acquirer of its own stock. But CFO Kim sold $478K worth of shares Nov. 15. As sales and operating performance have deteriorated, Cogent increasingly has relied on the interest generated by its cash to boost earnings. In the SepQ, interest income equaled $5.8m, or nearly 80% of pretax profits, while operating income equaled just $1.7m. "Revenue predictability has been an issue for the co, and it will continue to be a problem," Kim says.

Loews (LTR) trades around $49, a marked discount to its estd NAV of $64 a share. A plan to spin off its tobacco unit could lift the stock about 20%. In June or July, public holders of Carolina Group should get shares in Lorillard, while Loews is expected to execute a tax-free "splitoff" of its $5.7bn stake in Carolina. "We believe this is in the best interests of Loews and Carolina Group, and that there is more value in splitting them up than having them stay together," says Jim Tisch.

“Follow Up” section highlights Medifast (MED), saying that the stock looks cheap. It's trading at about 10x the consensus '08 earnings forecast. Says analyst Laura A. Richardson of BB&T: "Even with the risks of a down economy, we continue to think '08 could be a breakout year for Medifast as it gains sales traction from investments made during '07," including a new ad campaign. In addition, the analyst expects the co to disclose positive results for a new clinical study of its products. Richardson, who sees profit up 25% annually over the next 3-5ys, has a 12-month tgt of 9.

Friday, December 28, 2007

Paperstand (HBC, BBI, LEAP)

The WSJ’s “Heard on the Street” column out saying that in the credit crisis, banks have been taking extraordinary steps to shore up their finances, selling stakes to foreign investors and snapping up loans from central banks. Now comes the yard sale. In a sign that they see tough times ahead, US and European banks are considering sales of everything from branches to entire units. Possible sellers include Citigroup (C), which may unload or shut several midsize units, and HSBC (HBC), which could exit all or parts of its $13bn auto-finance business. Talk of the potential moves comes days after Merrill Lynch (MER) announced that it would sell most of its commercial-lending business to General Electric (GE) for $1.3bn. Morgan Stanley (MS) pocketed more than $250m last month by selling a slice of its MSCI investment-analysis unit in a public offering. "I think we are going to see a real wave of these coming through in the 1H08," says Huw van Steenis, of Morgan Stanley.

Barron’s Online discusses Blockbuster (BBI), saying that so far, the revitalization has proved challenging for the new chmn and CEO, Jim Keyes. Shares tumbled in Nov after a candid investor-day presentation failed to quell fears about the co's future. Blockbuster deserves a fresh look, though, as the co refocuses on its 7,800 retail stores and deemphasizes a once-promising strategy of morphing into a purveyor of movies by mail, like Netflix. Despite a growing number of viewing options, traditional DVDs remain a major mkt. Global video sales are still estd to be $24.8bn in ‘07 -- 49% of Hollywood studios' rev, according to SNL Kagan. Of that total, the rental business will represent $7.8bn this year, based on SNL Kagan ests. "To just assume that studios are going to throw that [business] away b/c they think it's cool to beam a movie into your house is pretty stupid," says Wedbush Morgan analyst Michael Pachter.

“Inside Scoop” section reports that two insiders at Leap Wireless (LEAP) have jumped at the chance to snap up shares in the wireless provider buying $258m in stock this month. Chmn Mark Rachesky purchased 3.8m shares for $163.2m. He now owns 15.2m shares for a 22.3% stake in Leap. Harbert Mgmt purchased 2.4m shares for $94.8m. The investment firm now owns 10.2m shares, a 15% stake in Leap. "I look at [the purchasing] as a positive," says Lon Juricic, of "Since the recent downward action of the stock after MetroPCS withdrew its merger proposal with [Leap], larger holders have been stepping up and buying on weakness. While there may not be a merger, the insiders definitely see value there, and they definitely see bright prospects for the co over the longer period."

Thursday, December 27, 2007

Paperstand (AAPL, WFC, MBLX)

According to the WSJ, News Corp's (NWS) Twentieth Century Fox and Apple (AAPL) are preparing to announce a deal in which Fox movies would be available for rent digitally through Apple's iTunes Store. In a related move, Fox also plans to release DVDs that use Apple's digital rights mgmt system, a move that would allow consumers to make legal copies of the disc that could be played on an iPod or other device, such as a computer.

“Heard on the Street” column discusses Wells Fargo (WFC), saying that now may be the time to get out of the stock, before more bad news comes along. Until late Nov, Wells Fargo had appeared to be weathering the housing swoon far better than its competitors. And, while Wells's shares are down 12% for the year, that is a far cry from the 26% decline posted by the DJ Wilshire Banks Index. Wells also has been adamant that it was too smart to get mired in the subprime lending boom. But now the housing downturn is starting to tarnish even Wells Fargo's sterling reputation for conservative loan underwriting. And, the bank does have subprime exposure, although it likes to downplay the risks. The bank's recent home-equity missteps, combined with the worsening housing mkt, make it appear unlikely that Wells can avoid a tough year ahead as it builds reserves for bad loans. The co's loans are concentrated --both geographically, in states such as California, Nevada and Arizona, and in lines of business, including home-equity and construction loans --in areas likely to see more problems, says Fred Cannon, of KBW. "They have more exposure to home-equity loans" than their peers, "and the exposure is in areas where housing is fairly weak," says Matthew Wright, of First Investors Blue Chip Fund. He adds: "I tend to think there will be more loan-loss provisions."

Barron’s Online highlights Metabolix (MBLX), saying that the co is at the forefront of developing new type of environmentally-friend plastic. Derived from corn, natural plastic completely breaks down to its basic elements of carbon dioxide and water on its own whether it is in a landfill or sitting in water. These plastics can be engineered to biodegrade over weeks or months. Next year is a critical year for the co as it transitions from a R&D co to a commercial one. A slew of well-known partners are giving credibility to Metabolix's technology and products. Most visibly, all 12 of the holiday gift cards introduced this season by big-box retailer Target are made from Metabolix's Mirel plastic brand under a pilot program. And by the end of ‘08, the facility being built by Archer Daniels Midland (ADM) will start producing that plastic in mass quantities. The potential applications for this natural plastic are broad from single-use products such as coffee cups, dinnerware and golf tees to sturdier containers for cosmetics, food and detergent. Agricultural applications include degradable plant pots, stakes, erosion control netting and mulch film. "The key to Metabolix is that they seem to be the most advanced public co with a green plastic alternative to fossil-fuel based plastic," says Jackson Robinson, of Winslow Mgmt.

Wednesday, December 26, 2007

Powerwave (NASDAQ:PWAV): Customers Rallying and Spending Rebounding - Morgan Joseph

Morgan Joseph is out with an interesting call on Powerwave (NASDAQ:PWAV) saying their checks through the fourth quarter lead them to believe that Powerwave's chief customers have resumed spending.

Firm notes they have credible evidence suggesting that AT&T is again spending on improving the functionality of its wireless network, which they believe should directly benefit Powerwave.

Network spending at AT&T has been in a drought since the early part of 2007 when AT&T assumed full control of Cingular. Upon consolidating ownership of the wireless group, management entered a capital expenditure hiatus while making the effort to evaluate the network's condition. Checks indicate that the spending spigot is again open.

Although more difficult to quantify, they believe Nokia Siemens (NSN) has seen good business through the quarter as well. NSN has relied on Powerwave for core wireless network components.

At $4.50 Morgan Joseph thinks PWAV stock is left for the dead. Reits Buy.

Notablecalls: MJ's Kevin Dede has done some surprising checks! If AT&T is back spending, that's certainly good news not only for PWAV but for a host of other telco equipment names.

While I think Morgan Joseph isn't exactly the name that moves stocks, the call is good enough to move PWAV this time.

Sunday, December 23, 2007

Barron's Summary (CWCO may drop 50%; TWP, RHI, WM)

Barron’s highlights Consolidated Water (CWCO), a richly valued firm that's been gathering up water utilities across the Caribbean. CW is now fighting the govt of the British Virgin Islands, the only customer for a desalinization plant that could account for up to a quarter of the co's current earnings. Strangely, the co keeps reporting those earnings, even though local authorities have been withholding payments for a year. BVI has a serious beef: It claims that it, not Consolidated, owns the water plant. Problems like the BVI dispute could cut Consolidated's ‘08 earnings by about 1/3 below the $1 per share now forecast by analysts. Yet, the stock trades for about 40x the 80c expected this year. That valuation plainly anticipates continued growth. But if CW takes a hit in BVI, its earnings could fall and its shares could lose their premium valuation. The thinly-traded stock might plunge by as much as half if investors accorded it a smaller multiple of lesser earnings.

Barron’s out saying that the preferred shares of Fannie Mae (FNM), Freddie Mac (FRE) and Washington Mutual (WM) all look enticing. So do the bonds of Comcast (CMCSA), Ford (F) and General Motors (GM).

After losing 90% of their value since hitting a high in 2004, Trex (TWP) shares look like a great speculative play. The company is ripe for a turnaround, and the stock has lots of room to run. "Our channel partners are reporting excellent retail sell-through for Trex products and distributor inventories are lower than last year," says CEO Andrew U. Ferrari. Analysts' ests for ’08 avg 37c a share.

The shares of Robert Half Intl. (RHI) have tumbled 40% since Feb, to the mid-20s. Barring a severe economic slump, they should be trading around 40 by the conclusion of ‘08. "In a very real sense, Half is running the business for the long term," says Brandt Sakakeeny, of Deutsche Bank. "It should not be penalized for that."

“The Trader” column discusses Washington Mutual (WM), whose shares have collapsed by 2/3 to around 14. WaMu holds about a $20bn subprime portfolio and some $43bn in 2nd-lien home-equity loans. The problem is that no one knows the value of the former. As bad as things appear for WaMu, the rest of the bank has lots of appeal. Home loans may represent 100% of WaMu's problems, but the division accounted for less than 15% of its total rev last year. Since next year will likely show red ink, there are no near-term earnings valuations worth comparing. But WaMu trades at 0.5x book, 50% below the bottom of its historical range of 1-2x. In the unlikely event that most of its subprime exposure went belly up, WaMu would be in deeper trouble than even a 67% stock decline implies. If WaMu's future write-downs turn out to be significantly less than feared and the subprime issue is behind it by 2010, perhaps WaMu could earn about $2 per share that year. If you apply WaMu's avg 10x P/E multiple to that, the price is $20, 40% higher than Fri's close. That's nice but not enough to merit such risk. Until WaMu puts a number on its subprime exposure, buying its shares is a gamble, not an investment.

Two industry veterans like Weatherford Intl. (WFT) and Schlumberger (SLB). Another fund holds VIP, SYT, DAI, PUM, RHHBY, USG, INB and WPP.

Friday, December 21, 2007

Quantum (NYSE:QTM): Recent conversations have revealed two data points - Avian

Avian Securities is out with some interesting comments on Quantum (NYSE:QTM) saying their recent conversations have revealed two data points that have significant (positive and negative) ramifications for the stock:

1) They believe that Quantum is in the final stages of negotiating a reseller agreement with EMC for its DXi data deduplication products.

2) Expected general availability of Quantum’s DXi-7500 has been pushed out to at least calendar Q1.

While they view an EMC reseller agreement as a significant positive development, in their opinion the delay in the DXi-7500 roll-out puts Quantum’s estimates for its deduplication ramp (management had suggested its emerging technology segment could achieve $30M in sales in the March quarter) at risk. For the current quarter, Avian believes Quantum is tracking towards management guidance of $265M to $275M, though internal expectations of revenue growth in the teens appears unachievable at this point. They remain positive on Quantum given their view around the potential opportunity in data deduplication and continue to believe the Street is underestimating the value of this segment with Quantum having established itself as the 2nd player in this emerging market.

Notablecalls: Note that this is NOT a trading call. Avian has dug up some interesting datapoints and remains L-T positive on the name. DDUP is the pure-play in the deduplication space and QTM was never even considered a player until recently. That's the hidden value. Once they get it up to speed. Worth a further look. I'm sure Avian will tell us when the DXi-7500 product will start ramping. And I hope I won't miss that call!

DealerTrack (NASDAQ:TRAK): AmeriCredit just informed JMP Securities that it is actually seeing increasing credit application flows, pos for TRAK

JMP Securities reiterating their Strong Buy rating on DealerTrack (NASDAQ:TRAK). Shares of DealerTrack continue to retreat over general macro concerns of the retail automotive sector and more specific concerns regarding the funding outlook for subprime lenders. Yet, AmeriCredit just informed JMP that it is actually seeing increasing credit application flows in reaction to tighter lending standards, a positive trend for DealerTrack in the face of weakening retail demand. Firm's 12- to 18-month target remains $58 based on 35x implied 2009 EPS, or a 1.3x PEG ratio assuming 25-30% growth.

Notablecalls: TRAK has gotten killed lately and I think JMP's comments are actionable for a bounce here.

Fuel Tech (NASDAQ:FTEK): Actionable trading call from JMP

JMP Securities is out with a major call on Fuel Tech (NASDAQ:FTEK) saying they hosted a site visit for clients to Fuel Tech's corporate headquarters in Batavia, Illinois. A number of near-term catalysts appear to be on the horizon, including the potential for contracts from China and India in the next two weeks. These awards would come after the company's announcement of $8.7M in new awards just this wk for the US market, and management indicated that the pipeline in North America continues to be healthy. Furthermore, management communicated that it is bidding on a large number of projects in China and has high expectations for this region in 2008.

Fuel Tech management also highlighted Mexico as a considerable intermediate-term opportunity as the country works to clean up its coastal tourist and residential communities. JMP's $35 target price reflects a 35x earnings multiple on our 2009 EPS estimate, a premium to its peer group, based on expected sales and earnings growth opportunities.

Notablecalls: Wow. Today is the day when stuff with high short interest is likely to move. FTEK has a 42% short interest. And now JMP is out saying the co will likely announce contracts from Asia!

Actionable trading call for today! I suspect this will be a $22 stock today.

Thursday, December 20, 2007


I'm taking Friday off.

It's going to be slow tomorrow.


Yucheng Tech (NASDAQ:YTEC): About to close another large and regional bank deal - Susquehanna

Susquehanna is out very a good call on Yucheng Technologies Limited (NASDAQ:YTEC) saying that earlier hosted marketing meetings with the management of YTEC, a small-cap IT Services and Products company based in Beijing. Currently, three large banks - Construction, Agriculture, and CITIC - comprise a large percentage of YTEC's revenue. While these contracts are doing well, the frim came away from discussions with increasing confidence YTEC will potentially close another large and regional bank in the near future. With a modest valuation, sound management is executing effectively on a broad market opportunity entering into 2008. SUSQ reiterates their Positive rating on the shares.

Notablecalls: YTEC's a mover and I think SUSQ's comments regarding a possible large deal coming soon may reignite it. Nice call by James Friedman from SUSQ's Global Business Services.

eBay (NASDAQ:EBAY) : Goldman Sachs positive, sees upside to $51 price tgt

- Goldman Sachs is out positive on eBay (NASDAQ:EBAY) saying that based on their 28th quarterly study, marketplace trends reinforce their growth outlook and 4Q results should be in-line/above slightly higher revenue and EPS estimates of $2,141 mn and $0.41 vs. $2,125 mn and $0.40 previously.

While achieving or exceeding 4Q estimates will be a net positive and will reinforce firm's growth outlook, the bigger focus and stock driver will be management's decisions related to pricing and EBIT growth given margin comments. After assessing the debates and unknowns, they remain
comfortable that eBay's decisions will be within a financial box of at least 15% operating income and EPS growth, while ultimately results could prove to be better. The pricing changes over the long term should increase the value of the platform to both the buyer and seller and could potentially re-ignite growth. Additionally, the potential margin pressure in 2008 due to a mix shift and investments will likely not come at the expense of overall operating income dollars, which should grow in the mid-teens.

GSCO maintains their Buy rating with upside to their $51 price target. They think the stock's current valuation of 16X 2009 EPS and a 7% FCF yield implies ~11% growth, which appears to be based on eBay's marketplace growth as opposed to their 16% growth from 2009-2012, which reflects total company growth.

Notablecalls: EBAY has sold off over the past month but I think GSCO's comments may generate a tradable bounce in the very n-t. Just take a look at that $51 price tgt! EBAY's a $30 stock here. That's a good risk-reward.

Wednesday, December 19, 2007

Compellent (NYSE:CML): Interesting call from Avian Securities

Avian Securities has an interesting call out on Compellent (NYSE:CML) after they had a chance to speak with management team recently. The meeting as well as recent conversations with contacts have highlighted the following points:

1) Compellent continues to execute in its core market segment (commercial to SME). In Avian's view, Compellent’s emergence at a time when opportunities in this market are accelerating, provides a strong growth path through CY’08.

2) An opportunity is emerging in larger enterprise accounts and it appears CML is taking steps to engage this market; and

3) It appears CML is also looking at moving downstream, an initiative that they see as more problematic given the potential for channel conflict as well as service issues.

In firm's view, strong company visibility through Q1 as well as conservative Q4 guidance mitigate near-term risk. Moreover, b/c spending in Compellent’s current customer base has historically proven more resilient in economic downturns, they see the company as better positioned than some of its competitor’s heading into a period of macro uncertainty. Finally, checks continue to suggest growth in deal size, with traction in larger enterprise accounts offering a growth path beyond 2008. As such we view Compellent as an attractive longer-term opportunity that is somewhat insulated from the perceived near-term risks in the storage segment.

Notablecalls: Goddamn, I had this call from Avian pre-open and I forgot to post it. And now it's up almost 8%. The stock looks cheap and bottomed out. Worth a look.

I think Avian is starting to get noticed as their calls work out. Anything from Tero Kuittinen, their wireless analyst is a MUST read.

Starent (NASDAQ:STAR): Reiterate Buy rating; Reaction on competitive concerns overdone - Goldman Sachs

- Goldman Sachs is defending Starent (NASDAQ:STAR) after the shares traded down 22% today on news that five T-Mobile European properties (Austria, the Czech Republic, Germany, Netherlands, and the UK) selected Huawei as its supplier for next generation packet switched core networks (PS-CN).

GSCO reiterates their Buy rating on STAR shares as they believe investors are overreacting to the potential longer-term competitive threat from Huawei. Firm continues to believe that Starent's competitive position remains strong given its ability to perform complicated services such as deep packet inspection with high throughput capability.

They continue to believe that the WCDMA opportunity for Starent remains robust & see upside potential to their estimates in 2008 and 2009; The firm also expects the company to win new major contracts over the next 6-9 months;

Maintains Buy and $28 tgt.

Notablecalls: I think STAR represents a good bounce oppy here. After all, it's GSCO defending it.

Synaptics (NASDAQ:SYNA) : Actionable call alert from Oppenheimer

Oppenheimer is out on Synaptics (NASDAQ:SYNA) saying the stock has been taking a hit on concerns of market share loss at H-P (HPQ) to a competitor, Alps. Firm's channel checks indicate that there has not been any change in the procurement patterns for touchpad modules for notebooks (NB) at the Taiwanese ODMs who account for 90% of the NBs made for H-P. Also, both H-P and Acer (2353.TW, NT$57, Not Covered) mid-quarter raised their NB orders to the ODMs, which could provide upside to SYNA's guidance. Also, handset and MP3 sales appear to be robust in 4Q. With the stock having pulled back 20% they believe it provides a good opportunity to establish positions for another run in 2008. Raising 4Q07 estimates on NB strength. Reiterating Buy and $60 PT, 40% potential upside from here.

Notablecalls: SYNA has been crushed over the past 3 days. This call will generate a meaningful bounce. Actionable call alert!!

PS: My gut is telling me SYNA will trade over $45 today and possibly toward $46.

Transocean (NYSE:RIG): BofA reits Buy and $175 tgt

- Banc of America is out with a good call saying they see incremental demand for deepwater rigs from exploration success driving additional backlog and ultimately multiple expansion from the higher visibility. Among the names, the firm reits Buy on Transocean (NYSE:RIG) with a $175 tgt.

Stronger-for-longer. Yes it's a sell-side cliche, but with the industry's inability to keep up with growth in crude oil demand (the tyranny of geology and politics), the lack of deepwater rigs (73% of floater days are already committed over the next 36 months), and upside from a forecasted increase in exploration activity (BAC estimates Tupi alone needs an incremental 25-50 deepwater rig years), they expect the 'high' return on capital period for the oil services, equipment and drilling companies to last for the foreseeable future. While the lack of rig availability may limit 2008 EPS upside, the increase in pent-up demand, most visibly in the deepwater rig market, implicitly provides backlog for service companies as well, and should make for a multiple expansion the story for 2008.

While forward cash flow and earnings multiples have compressed for the better part of the last four years, multiples appear to have bottomed. With the pent-up demand offering unprecedented visibility, they expect the 'high' return on capital period for the oil services, equipment and drilling companies to last for the foreseeable future, and drive multiple expansion in 2008. Interestingly, multiples for the group also expanded as the cycle matured back in the 1970s cycle.

Notablecalls: BAC's comments make sense. Co's with deepwater exposure may represent a safe haven for now and we will see multiple expansion there. The chart on RIG looks good and I think BAC's call will generate some buy interest in the name.

Other Buy-rated names mentioned in the call: DO, CAM, FTI, SLB

I'm also hearing GSCO is upgrading several Oil Service names which should generate further interest in the space today.

Paperstand (BSC, JAKK, LTM, HLF)

The WSJ’s ”Heard on the Street” column reports that in an acknowledgment of the most-difficult period in Bear Sterns’ (BSC) history, CEO James Cayne and other senior execs are expected to forgo bonuses for this yr. The expectation comes as Bear prepares to announce tomorrow its 1st qrtrly loss ever, an outcome certain to curb pay for the firm's 15,500 employees. This is a turnabout for Bear, which over the yrs has used its generous, merit-driven compensation system to recruit job candidates. Bear's current exec compensation plan mandates that the firm hit a minimum ROE level before senior brass can receive bonuses. Bear just barely met that ROE standard this year and execs could draw on a small bonus pool.

”Inside Track” section reports that the recent preplanned sale of $1.9m in stock by the CEO Jack Friedman of Jakks Pacific (JAKK) sends a warning signal about the co's prospects, according to an analytical tool developed by The last time such a negative signal was recorded, Jakks shares fell by more than a third in 3 mo’s. The 4Q is particularly important for Jakks. In Oct, the co posted a 17% increase in its 3Q profit and backed its annual rev forecast of $800m in net sales. At the time, Mr. Friedman said in a statement the co is "well-positioned for the ‘07 holiday season." Mr. Friedman sold shares since then under a plan set up in March to sell as much as 150K shares. The plan called for Mr. Friedman's sale of 75K shares the week after the co filed its 3Q report. "Based on that footnote, it suggests to me that the 2nd sale didn't necessarily need to be transacted," said Ben Silverman, of InsiderScore.

Barron’s Online out saying that the coming of a new year is traditionally a time when the out-of-shape make resolutions to join health clubs or embark on diet regimens. That's why Barron's Online only feels comfortable suggesting a couple of names: Life Time Fitness (LTM) and Herbalife (HLF). "2/3 of the American population is overweight or obese, so if you have the winning product, then the mkt opportunity is huge," says Scott Van Winkle, of Canaccord. In Jan, health clubs get the largest monthly portion of new sign-ups, about 12%. And weight-loss programs like Weight Watchers and Jenny Craig, owned by Nestle, also fare well. "It's their version of Black Friday," says Tom Shaw, an analyst with Stifel, Nicolaus.

Tuesday, December 18, 2007

Attention readers: THE NC NETWORK!

When it comes to successful trading or investing, having a good network of connections is probably as important as having a good broker/brokers or a good research team. After all, we're in the information business.

NC has been around for almost 20 months and during that time I have met several brilliant people who share the similar passion for markets and trading as I do. Some are independent traders, some dwelve in the deep and dark pits of institutional trading firms. Analysts, prop-shop traders, even some journalists frequently read NC and provide constant feedback via email and IM.

In a way, NC has become much more than the early-morning calls posted on the site. It has become a network for serious-minded market participants wanting to share information/ideas/chatter with their kind.

So, in an effort to further expand the NC network, I will be accepting new members to the NC network. In order to join, shoot me a brief email that includes a short description of yourself and your AOL nickname.

Please do note that contacts via IM are limited to people with:

- 3+ years of trading experience

- Access to quality research/analyst commentary

- Ability to generate and share (intraday) trading calls

I will not accept contacts from purely technically oriented traders, penny stock fans or people who have less than 3 years of experience in the field. Sorry.

Towerstream Corp (NASDAQ:TWER): New $1K Product Blitz Pushed By 100; Reiterate Buy - Morgan Joseph

Morgan Joseph is out with a very positive call on Towerstream Corp (NASDAQ:TWER) saying co's service offering is winning at unprecedented rate. Early last week, Towerstream began offering a new 8 Mbps data connectivity service priced at $1,000 in select markets. Over the eight days the service has been offered, Towerstream has won a record 27 contracts and 58 proposals.

The attractiveness of the new service pricing is driving new customer win statistics equivalent with typical monthly efforts, in just one week's time. Offered late in the fourth quarter, and based on experimental pricing adjustments, they don't believe that Towerstream had intended to offer a new product at this juncture, nor do they believe that the service offering should have a meaningful impact on 4Q07 results.

MJ continues to believe Towerstream provides a service that is dearly wanted and has little similarly focused competition. Price target stands at $5.00

Notablecalls: Yes, it's thin but do read the call! Can this be any more positive?

Also, talking to a L-T holder of TWER, there seems to be a large naked short position in the stock. Must say I kinda felt their presence after I posted the call on the site. The stock was shot down 10c 30 mins after the post. Maybe MJ's comments will cause a short squeeze in the stock?

PeopleSupport (NASDAQ:PSPT): ThinkEquity raising tgt to $24 from $18 - A new Street high

ThinkEquity is upping their tgt on PeopleSupport (NASDAQ:PSPT) to $24 from $18 saying the co is ripe to be acquired, and an acquirer could be willing to pay an EV/EBITDA multiple of 15x teir new 2008 estimate, which is how they arrive attheir new $24 price target.

PSPT shares are cheap, with roughly $5.45/share in net cash and acurrent EV/EBITDA multiple of only 6.3x firm's new FY'08 EBITDA estimate. Inthe case of private equity, eliminating $5-7M in public company expenses and improved operating efficiencies could easily improve cash flow by another $5-10M annually. In the case of M&A, the firm believes multiple companies could see value in PSPT, specifically the large Indian outsourcing vendors that they believe are searching for new growth opportunities outside of India.

Reits Buy.

Notablecalls: PeopleSupport last week rejected IPVG and AO Capital Partners' unsolicited offer to acquire a majority stake for $15 per share. Over the weekend, RBC Capital upped their tgt to $19 from $15 saying the stock should go higher here but now we have ThinkEquity's Nate Swanson out with a Street high $24 target. That's bound to generate plenty of buy interest as PSPT has been hugging around the $14 level for the past couple of weeks. I suspect we are going to have a breakout day today!

I like the outsourced BPO market a great deal. I think ETEL remains one of the undiscovered gems in the space.

DryShips (NASDAQ:DRYS): Shares are extremely oversold - Jefferies

- Jefferies is out with a monster call on DryShips Inc (NASDAQ:DRYS) after the co yesterday morning announced they had acquired a 30.4% stake in Ocean Rig ASA, an offshore drilling contractor.

After selling off 14% yesterday, and 45% over the past six weeks, the firm believes DRYS shares are extremely oversold given the current strength in dry bulk shipping charter rates, expectations for dry bulk shipping charter rates to strengthen further in 2008, and an improving outlook for the dry bulk shipping market in 2009. In fact, DRYS shares now trade at 3.6 times 2008E EPS, 3.1 times 2008E CFPS, and 3.9 times 2008E EV/EBITDA. With dry bulk shipping charter rates likely to increase further next year, they believe their current estimates could actually prove conservative. Although the firm would have preferred for DryShips to utilize it's surplus cash flow to either acquire additional dry bulk vessels, pay down debt, repurchase shares, and/or increase the Company's dividend payments, nonetheless, DryShips still has the most operating leverage to the attractive dry bulk shipping market. As a result, the firm reiterates their Buy rating and their 12-month price target of $160 per share.

Notablecalls: I can't believe the stock was DOWN yesterday on heels of the Ocean Rig deal. After all, it's accreditive to 2008 EPS! The deal is so good George Economou, the CEO & Chairman of DRYS himself took a 4.4 percent stake in Ocean. The guy bet his own dinero!

Also, check out the conviction of Douglas J. Mavrinac, Jeffco's Martime Group Head as he stands by his Buy rating with a whopping $160 price tgt. This is a $70 stock! And it's not a biotech! This call is bound to generate buy interest. This ought to be a $80+ stock today.

When DRYS takes off, keep an eye on the other Dry Bulk names: EXM, GNK, TBSI, DSX and EGLE.

(Did I just sound like Cramer?!)

Paperstand (AAPL, BBY, MC)

The WSJ reports that Apple (AAPL) CEO Steve Jobs recently met with NTT DoCoMo's president, Masao Nakamura, to discuss a deal to offer its iPhone in Japan through Japan's dominant mobile operator. Apple has also been talking to No. 3 operator Softbank and execs from both co’s have made multiple trips to Apple HQ.

“Ahead of the Tape” out on Best Buy (BBY), saying that the co will report strong 3Q today, but the outlook for ‘08 might not be so jolly. Electronics retailers aren't cutting prices on flat-panel TVs as aggressively as they did last year, but they continue to drop and the flat-panel product cycle is getting long in the tooth. Meantime, some analysts say there are few hot new electronics products in the pipeline for ‘08. Electronics sales were juiced this year by the rollout of Microsoft's Vista, a boom in videogame products such as the Nintendo Wii console, and Apple's many successes. "You look into the future and for the first time in quite some time, it's hard to find a product to get excited about," says Sanford C. Bernstein analyst Colin McGranahan.

“Heard on the Street” column discusses Matsushita Electric (MC), saying that cracks are emerging in one of those pillars of growth: plasma TVs. Matsushita has more than a 30% share of the global plasma-TV mkt, making it the overwhelming leader. Fast growth in the plasma business helped its stock price double over the past 5yrs. After a decline earlier this year following some negative news, the stock has been steadily rising again. Analysts generally are optimistic about the co's products, including semiconductors, automotive electronics, consumer electronics and appliances. But plasma TVs are losing overall share of the flat-panel-TV mkt to LCDs. By 2011, LCD-TV shipments are expected to nearly double. DisplaySearch expects plasma-TV shipments to be less than 1/8 of that. The co is expected to continue to lead in the plasma-TV industry. But since plasma TVs overall share of the flat-panel mkt is shrinking, Matsushita's share of flat-panel shipments has fallen from about 10% in ‘05 to 6.6% in the latest qrtr. That compares with big LCD makers like Samsung, which had a 17.3% share, and Sony, with 9.9%. Matsushita "will increasingly lose share," says David Gibson, of Macquarie Research.

Monday, December 17, 2007

WellCare Health Plans (NYSE:WCG): Target upped to $66 from $50 at Jefferies

- Jefferies is upping their tgt on WellCare Health Plans (NYSE:WCG) to $66 from $50 saying general indications from their proprietary Medicare Advantage broker survey indicate that while sales are not likely to meet last year's levels, concerns that WCG MA enrollment could meaningfully decline in '08 as a result of the recent investigation are over done.

Raising their MA enrollment outlook to just a 5k decline from prior view of a 27k decline, though enrollment gains appear more likely. The firm is maintaining their '08 estimate as they incorporate even greater legal and compliance expenditures than they had previously modeled.

Reits Buy.

Notablecalls: WCG has seen a nice rebound, up 7-8 bucks since I highlighted it as an Actionable call 3 weeks ago. I think today's call from Jefferies will generate some further buy interest, say 1-2 bucks worth.

Sunday, December 16, 2007

Barron's Summary (BRKA too pricey;ADY to sink further; LCAV; BTU)

Barron’s cover discusses Berkshire Hathaway (BRKA), saying the stock is too pricey. The Class A shares have surged 30% since Aug. The rally reflects the co's haven status; it's dodged the mortgage and credit problems. The Street’s enthusiasm for Berkshire, however, might be excessive. Its stock now appears overpriced, reflecting a sizable premium for the skills of the 77yr-old Buffett. Our est, based on several valuation measures, is around $130K a share, about 10% below the current quote. Credit Suisse's Charles Gates values it even more conservatively. He carries a 12-mo price tgt of $125K and rates the stock Neutral. "We consider the stock fully priced," he wrote in a client note. Gates cited the ages of Buffett and his long-time Berkshire partner, Charlie Munger. Gates also noted the "lack of clear mgmt succession" at the co. Edward Jones analyst Tom Kersting recently cut his Berkshire rating to Hold from Buy, citing valuation.

JC Penney (JCP), and its stock, will revive. The shares, which have stumbled into the mid-40s, should be in the high 50s or 60s within 12 mo’s. "Based on EV to EBITDA, this is as cheap as Penney has gotten in the last 15ys," says S. Basu Mullick, of Neuberger Partners Fund. "The mkt has priced in a recession."

One top investor thinks the stock of Citizens Comm. (CZN) should trade at 15-16 a share, or nearly 27% above its current level. That, along with the hefty dividend, would mean a total return of 35%. The co is delivering top-line growth of 5-6% and cash-flow margins of close to 55%. "No one in the industry does 55c on the dollar," says Scott Black, a member of the Barron's Roundtable.

American Dairy (ADY) sank 23% to 14 last week on news of an SEC investigation. The stock could keep falling amid questions about the co's auditor and its business prospects. "Who can say what surprises might be in store for investors?" says Todd Fernandez, of Glass Lewis. "Not only did American Dairy keep word of the SEC investigation away from investors since the last qrtr, but it also failed to mention it was aware of such concerns as far back as ‘05, when the SEC began a review."

“The Trader” discusses LCA-Vision (LCAV), whose shares have collapsed from over 50 to arount 16. "If you can't make your mortgage payment, you might opt out of eye surgery," says Chris Armbruster, of Al Frank Asset Mgmt. The fortunes of the co have tended to track the economy. Armbruster says that the mkt is missing an opportunity. With a drop in the P/E ratio from over 30x, based on the consensus ‘08 EPS projection back in July, to less than 9x the $1.90-a-share projection now, the shares incorporate the bad news and then some, Armbruster avers. Admittedly, the ‘08 est is suspect, but there are numerous charms to sustain this stock over the long term, he adds. Armbruster points out that LCA's balance sheet is strong, with nearly $4 a share in cash, and a dividend yield of over 4%. More important, LCA's growth may be interrupted next year, but it's hardly over. The co has done some 900K laser eye-correction procedures since ‘91. That leaves 168m US residents who wear eyeglasses or contact lenses. "It's a good long-term growth story at a value price," argues Armbruster.

“The Trader” also discusses Peabody Energy (BTU), which has had to endure some tough US inventory conditions that have pressured prices and to contend with bottlenecks arising from rising Asian demand from Australia that have limited volume. The price of coal has risen to $53 a ton from $40 a year ago. Paul Forward, of Stifel Nicolaus, believes that Peabody will obtain enough leverage to get even better prices. In ‘08, "sharply higher" prices for Australian metallurgical and thermal coal should take earnings to $3.15 a share. Higher ests mean that Peabody now trades at a relatively attractive multiple of 18x ‘08 earnings. At last measure, Peabody had 10bn tons of reserves. According to CEO Greg Boyce, the mkt gives Peabody little credit for the oil reserves it has. Oil and gas co’s get plenty. Sure, the mkt has increased its valuation of Peabody's reserves to 9c per mln BTU today, but, says Boyce, "We're just scratching the surface." Oil and gas co’s typically trade around $2 or $3 per mln BTU. Peabody shares should be in any stocking whose owner wants to hedge against '70s-style energy inflation.

Fund top holdings include: JNJ, NOK, ADBE, CG, LMT, VIAB, WLP, BAC and AZ.

“Technology Trader” talked to Glen Kacher and Chip Morris, of Integral Capital Partners. Kacher says Integral is "being a little more cautious on taking new positions around enterprise spending, especially on co’s with high exposure to the financial sector." But Integral is finding plenty of stocks to buy and a variety of themes to play. It is bullish on Internet advertising, for instance, and has sizable positions not only in Google (GOOG), but also Korea's NHN and Baidu (BIDU). Another Integral play: smartphones. Morris contends recent weakness in RIM (RIMM) is overdone and they believe ppl are being short-sighted in their recent treatment of Palm (PALM), which he thinks could eventually be acquired and is potentially a "multi-bagger." Pip Coburn, of Coburn Venture Partners, remains short the NYT, MOT, PALM, EBANY, ALU, IPG and CNET. He’s long ORCL, ADBE, ANSS, SSYS and TRMB. Paul Wick, of Seligman, likes NTAP, MENT, ONNN and SNPS.

Friday, December 14, 2007

Xyratex (NASDAQ:XRTX): Best positioned to benefit from shift in HDD spending - Avian

Avian Securities is out with a somewhat out-of-consensus call saying companies relying on capex spending by the hard disk industry have struggled over the past year as production caught up to a surge in capex that began in ’04 and continued into early ’07. They see this trend reversing as early as mid 2008. With the drive industry hitting capacity limitations in the back half of 2007, additional production will have to come on-line in CQ2’08/CQ3’08 to support next year’s build. The firm sees Xyratex (NASDAQ:XRTX) as best positioned to benefit from this shift in spending, contributing to an already compelling systems story driven by a rebound at Network Appliance as well as significant growth at Xyratex’s emerging customers.

Xyratex results have suffered over the past year by Seagate’s lower spend (historically Seagate has represented >10% of Xyratex’s revenues) as old Maxtor equipment has been reutilized. This situation looks set to reverse in mid 2008 as Seagate capex as a percent of sales lifts back towards the 8% - 9% range that Seagate had been averaging since FY’02. With WD (Xyratex’s other large drive customer) continuing to show steady growth in capex, they see the potential for our Xyratex numbers (which currently assume limited contribution from Xyratex’s HDD related capital equipment business through CY 2008) to lift meaningfully.

The firm believes the grow prospects for Xyratex’s systems business remain excellent. While Netapp is still showing 20% Y/Y growth, Xyratex’s smaller customers (~20% of sales) are experiencing significantly higher growth levels driven by the penetration of networked storage into smaller accounts.

As such, they see Xyratex potentially benefiting from two major trends in 2008, one secular and one cyclical, both of which could push street numbers higher. With the stock trading at under 10x next years consensus earnings estimates, Avian is reiterating their positive outlook for the name.

Notablecalls: XRTX has been a controversial HDD Equipment name for quite some time. The stock has been called cheap for as long as I remember. Avian's call is out-of-consensus one and may attract some interest in XRTX over the next couple of days.

Potash Corporation (NYSE:POT): A two-tiered increase of $190/metric ton (MT) for 2008 potash exports to China? - BAC

- Banc of America is out positive on Potash Corporation (NYSE:POT) and Mosaic (NYSE:MOS) saying they have seen nothing in the press, but have heard from sources that attended meetings with Uralkali last week that Russian potash export association BPC (Belorussian Potash Company) has proposed a two-tiered increase of $190/metric ton (MT) for 2008 potash exports to China. BPC has apparently proposed a $140/MT increase for 1H08 followed by another $50/MT in 2H. BAC understands the Chinese government is working on a counter with a round of meetings scheduled for this week. This initial BPC offer appears to be well above BAC's estimate of an $80/MT settlement with China next year. While it is impossible to predict the eventual outcome, clearly there is potential upside to China potash price assumptions for next year. China typically sets the global benchmark for potash prices as the largest importer of potash (9.2m MT, 72% of domestic use) globally.

The news has potential positive implications for potash earnings at all North America producers. By their math, every $10 per ton in potash price adds earnings of $0.19/share at POT, $0.12/share at MOS. Rates Buy on both.

Notablecalls: Expect to see buy interest in both POT and MOS following this call. Nice one, Marshall! (NASDAQ:BIDU): Target upped to $423 at RBC Capital

- RBC Capital is out with a good call on (NASDAQ:BIDU) saying their most recent channel checks reveal that after a lackluster, in-line October, November has seen significant acceleration and although December is not completely done, it will likely maintain November's momentum. Net/Net, they believe 4Q07 is tracking to beat guidance/consensus. This has prompted them to raise 4Q07 estimates ahead of guidance/consensus to +17% sequential growth (vs. prior +16%, consensus +15%).

In short, Baidu is accelerating once again, and they have raised their 2008 and 2009 estimates and target to $423 (from $345). BIDU remains one of the few companies in RBC's coverage universe that is benefiting from every macro, secular, and cyclical catalysts all at the same time.

RBC believes Baidu has made its way through the factors (Shenzhen salesforce reorg, gov't activity) that resulted in in-line 3Q07 performance and 4Q07 guidance, and that consensus 1Q08 estimates calling for flattish performance vs. 4Q07 are too low.

Notablecalls: Can BIDU hit $400 following this call? Yeah, why not!

JA Solar (NASDAQ:JASO): Piper Jaffray ups tgt to $100!

- Piper Jaffray is out with a major call on JA Solar (NASDAQ:JASO) upping their tgt to $100 from $70 saying meetings with JASO and Shunda give them increased confidence in JASO's nearand long-term prospects; they raise 2008 and 2009 estimates.

Firm adds JASO to the Piper Jaffray Alpha List based on potential upside to Q407 consensus estimates of $0.36/$117M, on greater-than-expected production, and on higher ASPs (FX), inventory sales and flat wafer costs.

Other near-term catalysts include potential for new wafer contract(s), new sales contracts with an expanded customer base, and a lower-than-expected tax rate during 2008.

Notablecalls: What can I say, be early and agressive. This one will fly $4-$5 bucks today. Actionable trading call!

Research in Motion (NASDAQ:RIMM): Goldman Sachs and Citigroup positive ahead of results - Shortcrusher?

Couple firms are out positive on Research in Motion (NASDAQ:RIMM) ahead of its FQ3 results scheduled for Dec 20:

- Goldman Sachs notes that investor concerns around a weakening financial services IT spending environment have pressured shares down from $130 levels to $100. Firm sees the effect of weaker financial services on RIM's performance as minimal, because the majority of RIM's growth is coming from new channels in new markets (China, Russia, Eastern Europe, Latin America), rather than increasing penetration at large US financial services firms. Maintains Buy and $147 tgt.

- Citigroup says RIMM was a very strong performer in 07, and they think it is the stock to own for 08. It is a pure-play in one of the fastest tech markets (smartphones) and should grow sales at 57% and see EPS growth of 66% in CY08. Contrasting PALM, RIMM should be at least inline with cons. of $1.65B and EPS of $0.62; CIR estimate is $1.61 billion/$0.60. Cons. calls for 3.85 mln units; Citi's model has RIM shipping 3.7 mln units. Feb-Q estimates have edged down recently, but they think strong trends continue for RIMM into 2008, despite recent macro and financial services concerns. Reits Buy and $140 tgt.

Notablecalls: There has been some negative chatter on RIMM over the past weeks but I think we won't see a disappointment from these guys. At least not yet. Even if we get in-line results, the stock has already taken a 30% haircut and will likely crush the shorts. The thing is, RIMM has gotten way too popular among shorts lately.

I think supportive comments from GSCO and Citi will likely cause the stock to trade up today. Hitting $108 is definitely a possibility today.

Thursday, December 13, 2007

Physicians Formula Holdings (FACE) - Citigroup highlights positive data

Citigroup out with nice comments on FACE intraday, saying that this morning, they received ACNielsen market share data for the four weeks ended December 1, 2007, which reflected a slight uptick in FACE's share of the total cosmetics category (at 2.9%), an improvement over the prior two periods where FACE delivered sequentially declining market shares.

Further, in the current period, FACE delivered 11.6% dollar sales growth in the total cosmetics category, which represents the second consecutive period where FACE has delivered accelerating dollar sales growth in the category.

And, while FACE continues to deliver dollar sales growth in the total cosmetics category that exceeds that of their peers, dollar sales growth for the masstige players nonetheless grew a healthy 3.2%, better than the 0.9% growth seen for the total cosmetics category.

Notablecalls: Expect to see buying interest in this beaten down stock after this nice call from Citi.

Google (NASDAQ:GOOG): Spectrum Bid Could Be A Short-Term Negative for Google, If Won - CIBC

- CIBC is out with a cautious call on Google (NASDAQ:GOOG) saying they believe the co is bidding an amount in excess of $4.6 billion for the FCC's 700 MHz wireless spectrum auction, which is expected to start January 24, 2008.

The firm believes most investors expect Google to bid more as a matter of principle than putting in a bid to win, mainly showing its support for open wireless networks, bidding no more than the $4.6 billion reserve auction price for the "C block" in this auction. However, if Google ends up winning this auction, they expect the win to pressure the stock in the near term due to lower interest income and concerns that op-ex could increase to support a more aggressive expansion into the wireless business.

Winning the spectrum bid would mean spending $5 billion or more on the spectrum purchase, while building and operating a wireless network could cost about $10 billion more. More likely, the firm expects Google would partner with a network provider, in the event it wins the auction. If the company chooses to build and operate its own wireless network, they believe the adverse stock price impact will be stronger.

Overall, they view a potential spectrum auction win as a negative for Google.

Notablecalls: Capex has been an issue for Google for quite some time already. I'm sure the market participants would not take kindly to a $10-$15 billion foray into wireless networks (on top of the usual $2+ billion capex for core business).

I suspect GOOG stock may see some pressure following this call.

Paperstand (MGI, MOT, HERO, DLR)

According to the WSJ, citing ppl familiar with the matter, Euronet Worldwide (EEFT) has made an unsolicited offer to buy MoneyGram Intl. (MGI) for $1.65 bn in stock. Euronet in a Dec. 4 letter offered MoneyGram $20 a share, a 43% premium over that day's closing share price. The co also indicated it would be willing to raise the offer "if the results of our due-diligence review would warrant it."

“Heard on the Street” column discusses Motorola (MOT), saying that signs are growing that the co may be contemplating a breakup in the wake of the collapse in popularity of its Razr cellphone. Such a move would satisfy activist investor Carl Icahn, who this year ran an unsuccessful proxy fight to gain a board seat. He says carving up Motorola could produce almost $20bn of additional shareholder value. That translates to nearly $8 more a share and would make the stock worth roughly 50% more than its current price. Analysts agree in principle with Mr. Icahn's math, although many caution that Motorola needs to fix underlying problems in the handset division to maximize the value of a breakup. Breaking Motorola into stand-alone units would highlight uncertainties facing its lesser-known businesses and would go against the trend of consolidation in the telecom-equipment business. And any effort to sell one or more of the businesses could fail b/c of the frozen credit mkts. Speculation could lift Motorola's stock more than an actual split-up.

Barron’s Online discusses Hercules Offshore (HERO), whose shares are down 29% YTD. The shallow waters of the Gulf make up more than half of Hercules' business. But the mkt is treating Hercules as a pure play on the region's natural gas. The rest of its business comes from increasing exposure to inland US waters and intl mkts. As such, Hercules shares atrophied this summer when the commodity fell to around $5 per mln BTU by late Aug, about half of what gas was selling at following the ‘05 hurricane season. The stock is down 29% this yr. Hercules shares are trading 8.5x earnings ests for the next 4 qtrs, a deep discount to offshore drilling peers at a time when the co's prospects appear to be bottoming out and improving in ‘08. With the largest fleet of rigs and barges in the Gulf of Mexico's shallow waters, Hercules shares are poised for great upside as rig day rates are stabilizing and demand picks up with natural-gas prices treading north of $7. Gas prices are recovering as cooler weather increases demand and starts to slowly deplete high inventories. Thanks to this year's acquisition of competitor Todco, Hercules has gained control over more rigs in the Gulf of Mexico and some exposure to intl offshore rigs. "The mkt isn't rewarding [Hercules shares] with the multiple or valuation that the combination of the Todco assets and the Hercules assets (deserves)," says Joshua Schachter, of Snow Capital Mgmt.

“Inside Scoop” section reports that last week 3 insiders at Digital Realty (DLR) sold $5.4m in stock. Scott Peterson, senior VP of acquisitions, sold 67K shares for $2.7m. CIO and CFO A. William Stein sold 50K shares for $2m. Dir and CEO Michael Foust sold 20K shares for $756K. Jonathan Moreland, of Ladenburg Thalmann Asset Mgmt, feels the sales are more ominous than normal profit-taking. "It's disturbing to see execs so unwilling to hold shares for long, as these sales are basically removing most if not all of their direct holdings," says Moreland. "It's never a positive sign if execs are not willing to keep shares open to the vagaries of trading, which is too bad b/c this looks like one of the few REITs out there that have held up well, whose financials seem not to have been hurt…by the credit crunch."

Wednesday, December 12, 2007

MEMC (NYSE:WFR): Ahead of itself? - Citi

- Citigroup is out with some cautious comments on MEMC (NYSE:WFR) saying the stock was up ~5% yesterday in a relatively flat tape (and up ~20% in past week alone) on news that STP will accelerate its solar capacity ramp by 2 years with an updated target of 1GW by YE08 and 2GW by YE2010. While it appears the market is pricing this in as upside to WFR (one of three contract suppliers of polysilicon to STP), the firm surmises that a major chunk - if not all - of this additional capacity will actually be supported by STP's recently announced 7-yr deal to source polysilicon from Asia Silicon where checks suggest pricing is much lower than the terms of STP's deal with WFR.

While there still remains roughly 100MW of poly capacity that STP must secure to reach its C2008 targets, Citi estimates it won't result in more than ~$5MM upside to their model for FQ4:07 (Dec) or $0.01-$0.02 in EPS at best.

Net/net, while this is not a negative for WFR, the stock has recently discounted a big beat and raise for FQ4:07 (Dec) due to a very strong spot market and even if one assumes a best-case scenario for the spot market, this would only drive revs to the high-end of WFR's guidance for CQ4 and just a few $MM better than current Street expectations. Maintains Hold and $65 tgt as the stock appears to be ahead of itself.

Notablecalls: WFR sure looks to have gotten ahead of itself.

Citigroup (NYSE:C): Top Short Idea for 2008 - Morgan Stanley

- Morgan Stanley is out pitching Citi (NYSE:C) as their top short idea for 2008. Near-term, the announcement of Vikram Pandit as CEO as well as the Fed should be a plus for Citi. But looking to 2008, we see 3 reasons to be short: earnings are deteriorating, they expect new management to deliver a dividend cut, not a breakup, and they expect further hybrid issuance, diluting current shareholders. The firm does not believe the stock has bottomed out as it is trading above trough multiples: 18% above trough PEs, 24% above trough P/B and 48% above trough P/TB + Reserves.

The firm has lowered their 2008 EPS From $4.01 to $3.55 due to higher losses against loans, CDOs, and SIVs, and due to slower top line growth in the IB and thinner net interest margins given wide LIBOR. They have lowered the forecasted dividend from 54c/quarter to 30c/quarter in 2Q08. MSCO is lowering their price target to $28 based on trough PE levels of 8.0x.

MSCO notes they would be sellers on strength (Fed rate cuts, positive news flow).

Notablecalls: This is a major actionable call! I have been negative on C lately (check recent archives) but when Morgan Stanley pitches it as their Top Short idea for 2008 the stock WILL get hit. Be early and be agressive.

Hewlett-Packard (NYSE:HPQ) : We would buy the shares - Goldman Sachs

- Goldman Sachs is positive on Hewlett-Packard (NYSE:HPQ) saying that while the analyst meeting did not provide a near-term catalyst for the stock, but they would buy the shares as they believe the company's ability to grow earnings at a multiple of revenue growth and its upside opportunities should drive the stock to firm's $59 12-month price target.

While extracting costs remains a key part of the HP story, the company is intensifying its focus on improving its go-to-market capability by investing heavily in its direct salesforce and channel programs, which GSCO thinks will allow HP to show consistent revenue growth even in a softer
enterprise spending environment. They are making small adjustments to their out-year estimates, raising revenue slightly, offset by a higher tax and a more conservative share buyback, leaving EPS estimate unchanged at $3.85 for FY2009. FY2008E EPS of $3.40 is also unchanged.

HP remains on the Conviction Buy List.

Notablecalls: Expect the stock to see some early buy interest as GSCO is not alone with the optimitic comments this AM.

Paperstand (CS, BBY)

The WSJ’s “Heard on the Street” column discusses Credit Suisse (CS), which has largely escaped the subprime woes. Credit Suisse's success is even sweeter b/c its hometown rival, UBS, is the one with the big problems. UBS, normally the more staid of the two, has ousted two top execs, taken $14.2bn in write-downs and losses and was forced to get an infusion of capital from investors in Singapore and the Middle East. In addition, CS surprised rivals by reaching a deal last week to form an investment-banking joint venture in China. Historically, CS has been mgmt-challenged, says analyst Kian Abouhossein, of JP Morgan. "You normally have a blowup in this type of environment, but this time they've done extremely well," Mr. Abouhossein said. Mr. Abouhossein notes that Credit Suisse exposure to risky subprime mortgages and collateralized debt obligations, which are backed by assets such as mortgages, is less than $2bn, a fraction of the $39bn held by UBS when the mortgage crisis hit.

“Inside Track” section reports that Best Buy (BBY) founder and Chmn Richard Schulze sold more than $145m in co shares over the last week. Mr. Schulze sold 2.85m shares for an avg price of $51.32 a share. Mr. Schulze's stock sales came during a holiday season in which retailers typically look to boost their sales. According to Ben Silverman of, Mr. Schulze's sales send an "incremental negative" signal to investors.

Tuesday, December 11, 2007

FLIR Systems (NASDAQ:FLIR): Positioned for significant potential increases in both 2008 revenue and EPS estimates - SunTrust

- SunTrust is out with an interesting call on FLIR Systems (NASDAQ:FLIR) saying that last week, the U.S. Army posted a modification to its pending Forward Activity Detection System (FADS) program that could substantially increase the scope of this program from a 5,000-system, 1-year procurement to a potential 17,800-system, 5-year program to supply a new infrared-based Driver's Vision Enhancer - Family of Systems (DVE-FOS), replacing many of the DVE systems currently deployed by the military. Although DRS Technologies is the incumbent supplier of this system to the Army, they believe FLIR is very well positioned to aggressively compete for this program based on the success of its currently fielded DVE systems used in the commercial automotive and trucking industries.

According to the firm, FLIR is likely pursuing several large programs of which DVE-FOS is only one. They view DVE-FOS as a substantial upside opportunity to go along with G-BOSS, VOSS, and SBINET. Firm believes FLIR is favorably positioned to win at least one of these large opportunities (G-BOSS in particular), leading to significant potential increases in both 2008 revenue and EPS estimates, and reiterate Buy rating and $42 tgt.

Notablecalls: Interesting comments buy SunTrust's Chris Donaghey. Expect to see some buy interest in FLIR today.

Washington Mutual (NYSE:WM): The stock is headed lower

Couple of firms comment on Washington Mutual (NYSE:WM) following negative news out last night:

- Citigroup notes WM announced several steps to navigate the more difficult mortgage environment, including a capital raise, dividend cut, layoffs, and a reorganization of its national mortgage businesses. While they expected some of these measures would be needed, the magnitudes are generally worse.

WM's desperate measures, incl dilutive capital and mortgage restructuring, reflect a poorly managed business & excessive exposure to subprime & 2nd lien HE. While capital & liquidity should now be stable, there's little left to support any NT growth. Citi is cutting '07, '08 & '09 EPS ests to $0.08 gain, $0.08 loss, and $1.40 gain, lowering TP to $15 and rating to Sell from Hold.

- Piper Jaffray is lowering their tgt to $20 from $22 saying WM's outlook for expected credit costs spikes higher, but they believe credit costs could potentially go even higher.

Maintains Neutral; while mortgage segment continues to plague WM, retail and credit card segments have been relative bright spots, which should provide support to the stock.

- FBR notes that given WM's exposure to $58 bln of Pay-Option ARMs, $62 bln of HELOCs, $20 bln of subprime mortgages and $40 bln of managed credit card receivables, they believe the current capital raise will be insufficient to get through the next few quarters, and expect further capital raises in coming months. Cuts tgt to $12 from $14.

Notablecalls: I suspect WM is headed lower here. We have an analyst from Punk Ziegel out speculating that JPM may be looking to buy WM here. I think this is punk and WM is headed lower as the rumor dissolves over the next hour. Is there any reason to by WM here? No!

Hartford Financial (NYSE:HIG): Several firms defending

Several tier-1 firms are defending Hartford Financial (NYSE:HIG) following last night's conservative guidance:

- Citigroup notes that despite an initial 2008 guidance range ($9.80-$10.20) which was lower than the Street's $10.51, they would expect that based on history, guidance will rise over the course of 2008 (barring a large unexpected asbestos charge or significant hurricane activity in 2008).

They are inclined to believe that management tends to set the operational bar at a very achievable level. A detailed analysis of earnings surprise history suggests likely EPS outperformance in 2008. Since 1997, the company has reported earnings beat 64% of the time. Firm notes that the average quarterly EPS surprise is $0.10/share since 1997.

When HIG announced its 2007 estimates back in Dec 2006, the stock dropped to the $85-86 range only to achieve more than 20% upside in the six months to follow. Shares declined 3% on Friday in advance of the guidance as short-term traders expected a low guidance range. Maintains Buy and $118 tgt.

- Goldman Sachs says that based on HIG's outlook, they have reduced their 2008-2011 EPS estimates by $0.60, $0.40, $0.55, and $0.65 to $10.40, $11.15, $11.50, and $12.05, respectively. Firm notes that their 2008 EPS estimate remains above the high end of management's guidance as they believe that the company attempts to set a conservative bar each year. In addition, they expect reserves to continue to develop favorably, which the company does not forecast.

- Morgan Stanely continues to recommend investors accumulate a position in Hartford, and are downplaying the significance of guidance coming below expectations. Trading at just 9 times firm's 2008 estimate, they believe the valuation remains attractive, with over 20% potential upside to their $116 price target.

Notablecalls: While I'm not too familiar with HIG, I like what I see. Should the stock gap down say below the $90 level, I think it becomes a good bounce candidate. It's not every day one sees such unison defense from several tier-1 firms.

Monday, December 10, 2007

Shuffle Master (NASDAQ:SHFL): Recent turmoil may prompt takeover interest - Deutsche Bank

Deutsche Bank notes they have uncovered that Shuffle Master's (NASDAQ:SHFL) Board of Directors has engaged an executive recruiter in order to replace Chairman and CEO Mark Yoseloff. Firm believes Yoseloff is cooperatively involved and that this ultimately should be positive for SHFL.

Yoseloff has been with SHFL for a decade and during his leadership revenues have grown nearly tenfold to approximately $200m. He has been vocal over time that his operating sweet spot tops out around these levels of revenue. Yoseloff's strength has clearly been product development and they'd expect for him to remain affiliated with the company in some type of product strategy and development capacity once a replacement is named.

According to Deutsche, the combination of this CEO search and recent departure of CFO Rich Baldwin suggests turmoil that may prompt takeout interest. SHFL dominates the table pit with utility and entertainment based products and is ahead of the curve with its video table initiative. Enviable free cash flow and favorable secular expansion backdrop should put SHFL on the grid for a number of parties.

Notablecalls: Nice call by Deutsche Bank's Bill Lerner. Expect SHFL to trade up in the n-t. This thing has been crushed over the past months and has a close to 20% short interest. That's an explosive combo.

Fannie Mae (NYSE:FNM) in trouble – Barron’s

Barrons’ “The Trader” column discusses Fannie Mae (FNM), which last week bit the bullet and disclosed plans to raise $7bn in new capital in the next several mo’s, and also slash its qrtrly dividend. All of this is in response to recent losses that shrank the co's regulatory capital to $41.7bn, or $2.3bn above the minimum required. The capital-raising was likely prompted by impending mark-to-market charges that Fannie will have to make in its investment portfolio, including $42.4bn of subprime mortgages and securitizations and $33.8bn of Alt-A mortgage paper. To match the current prices of these securities indicated by the ABX index, recent trades and markdowns taken by various investment banks, Fannie should take an earnings hit in the range of $6.4-14bn, according to one informed source. Likewise, Fannie's claimed regulatory capital is exceedingly soft. It includes $9.89bn in deferred tax assets and $8bn in tax credits on low-income housing partnerships. Much of this total also should be written down, since there's no way that Fannie for years to come will generate the $36bn in future income needed to fully use these tax losses and credits. These assets have little to no liquidation value. Thus we'd stay away from Fannie, even though the Bush administration's subprime-mortgage freeze program caused the stock to rebound some.

Notablecalls: Missed this one yesterday, thanks Mike, for pointing it out.

Micron (NYSE:MU): Now is the time to Buy - Citigroup

- Citigroup was out with an important call late Friday saying they were too early in their upgrade of Micron (NYSE:MU) (March '07). Inventory build by module houses caught them by surprise and drove 2H07 pricing down well beyond expectations. However, with Micron shares below book value, DRAM prices well below 200mm cash cost (and at 300mm cash cost), and signs of a rationalizing supply base now evident, the firm believes the shares are now set up for appreciation and they anticipate a more favorable stance from Wall Street in the near/medium term. The firm therefore advises investors to build positions in preparation for a better fundamental backdrop in 1H08.

Led by 200mm decommissioning, Citi's expectation of an easing of excess DRAM supply in 1H08 is increasingly likely. With rationalized capital spending, bit growth in 2008 is expected to slow dramatically from 2007 (45%-55% growth from 70%-90%). F1Q08 revenue/EPS estimates go to $1,418M/($0.27) from $1,509M/($0.18) previously.

Micron shares are trading at 0.96x firm's lowest estimated book valuation. When applying a
comparable multiple to its CMOS image sensor business, the memory valuation is even lower at 0.87 book. Maintains Buy and $17 tgt.

Notablecalls: First of all, I think this call makes sense. It's always the darkest before the dawn. When DRAM prices go below cash cost, supply starts to rationalize. Soon we are going to hear about DRAM makers pulling back their output and capexes (already happening) and after that some players will leave the game. This will help the industry out of its current slump. Do note that Micron is currently only 50% DRAM, with NAND and CMOS representing the other half.

Also note that last week, a buyer picked up close to 40,000 MU calls.

Considering Citi's mea culpa call on MU was issued around Friday afternoon, I suspect it didn't get the attention it deserved. Therefore, I think it would be prudent to assume the stock will see further buy interest today as traders return from the weekend.

Sunday, December 09, 2007

Barron's Summary (JPM, YHOO, CMCSA, PALM)

Barron’s cover discusses favorably JP Morgan (JPM), saying that the co isn't immune to current banking problems. It wrote down $1.3bn of its leveraged-loan portfolio in the 3Q. It's been nicked by its subprime business, home-equity loans in particular, for which it recently added $306m to its loss reserves. But the big investment and commercial bank has fared better than many of its peers, and its stock has held up better, too, falling 4% for the yr. The co provides the best evidence yet that a well-driven banking behemoth can negotiate the harrowing curves of the world's financial mkts. And when the road straightens out, JPMorgan could really accelerate. Thus far, it's shown a talent for avoiding the worst of the subprime wreckage, thanks to risk-conscious CEO Jamie Dimon's firm hand on the wheel. With ample reserves, capital and liquidity, the bank also has the wherewithal to pounce on strategic deals; it could buy a big consumer bank or brokerage. "Jamie and his team are in the catbird seat to be opportunistic," says Susan Roth Katzke, of Credit Suisse, which has an Outperform rating on the stock, with a 12-18mo price tgt of 60-65.

Allstate (ALL) is trading at a depressed level, but investors are focusing too much on potential risks and too little on potential rewards. Barring a Katrina-like catastrophe, the stock could rise at least 25% in a year.

Kinetic Concepts (KCI) shares, which have fallen back after strong gains, look like dead money for now. The medical company faces new competition, including the U.K.'s large Smith & Nephew.

According to the “The Trader” column, Utility shares have the added attraction of potential upside. David Kovacs, of Turner Investment Partners, believes stocks like FPL Group (FPL), with 7% annual dividend growth over the past 5ys, and Exelon (EXC), with 15% annual dividend growth, have room to rise. "Nobody's paying attention to this group," which Kovacs believes will outperform the mkt for the next 6mo’s or so.

Fund top 10 holdings include: GE, NVS, MS, JPM, MRK, DD, HES, OXY, PG and NSC.

“Technology Trader” section discusses Yahoo (YHOO), saying despite a recent high-profile mgmt change, with Terry Semel booted out as CEO in favor of co-founder Jerry Yang, and a much-ballyhooed program called Panama to improve the monetization of search results, Yahoo continues to flounder. Yang's tenure so far has featured a flurry of mgmt shifts and pruning of some minor operations, but not the grand gestures the Street is hoping to see. Jeffrey Lindsay, of Bernstein, contends that the co seems more and more befuddled. "It is becoming increasingly difficult to put a positive spin on Yahoo's continuing misfortunes," he wrote in a research note. He points to mounting signs of operational problems. For instance, he notes that the co's shopping site was basically out of commission on Cyber Monday, leaving many of the merchants that rely on Yahoo to host their online stores without a way to complete transactions. He also thinks Yahoo mishandled the disclosure of recent changes in its relationship with Rogers Communications. Lindsay notes that though Yahoo recently announced a renewal of their relationship, the company failed to disclose the termination of the monthly subscription fees that Rogers had been paying Yahoo. In fact, Rogers is paying Yahoo $52m to get out of the deal. Under the new arrangement, the co’s will simply share revenue from ads Yahoo sells on Rogers' Websites. "We believe that this change not only reflects how keen one of Yahoo's [partners] was to get out of this type of agreement, but it also likely triggers the most-favored- nation provisions in the other players' contracts," he wrote in his report. The co has deals with AT&T (T) and others coming up for renewal; Lindsay expects the relationships to be similarly restructured. Over all, he sees about $750m in annual revenue from per-subscriber fees now in jeopardy.

“Technology Trader“ discusses also Comcast (CMCSA), whose shares are down 35% YTD. That includes a drop of about 10% last week, after Comcast (CMCSA) ratcheted down growth expectations for the rest of the year. Many analysts last week were slashing ratings, ests and price tgts. But maybe enough is enough. Morgan Stanley's Benjamin Swinburne last week actually raised his rating on the stock to Overweight from Equal Weight, saying concerns about "an all-out price war" in pay TV aren't reasonable. Cable, telco and satellite players have installed bigger rate increases for ‘08 than in ‘07, and he contends that Comcast can continue to score 15-20% growth in EPS and FCF in the yrs ahead, driven by gains in voice, expanded deployment of high-def and DVR set-top boxes and increasing data speeds. The stock, he says, trades for a historically low valuation. He thinks you should buy it.

“Plugged In” column highlights Palm (PALM), whose shares were hammered on Fri. But they started to recover once Morgan Keegan analyst Tavis McCourt reported that shipments of Palm's Windows Mobile smartphones have grown faster than total Windows Mobile shipments in the past 2 qrtrs. One possible conclusion to draw from the Windows Mobile sales is that Palm is gaining with corporate users-who like integration with their Windows OS, at the expense of RIM's (RIMM) BlackBerry. It also implies Palm is selling more handsets abroad. Elevation Partners injected in Oct $325m into the co for a 27% stake. Elevation managing partner and Palm board member Roger McNamee said "The shareholders voted to support mgmt's strategy to invest in products and operational expertise so that Palm could participate fully in the growth opportunity of smartphones.” "You won't even see it in the numbers for awhile, but the co is off to a great start," he adds. McNamee is confident that the new blood can transform Palm into a strong niche player in the handset mkt. One opportunity is affordable mobile e-mail for everybody-not just corporate execs. Palm's new Centro handset, introduced this fall by Sprint at a price of about $100, is selling like hotcakes, McCourt says. Elevation inherited that product, but it suggests some of the future possibilities in mobile broadband. Says McNamee: "We are betting our fund on that notion."

Friday, December 07, 2007

Mastercard (NYSE:MA): Positive comments from Morgan Stanley

- Morgan Stanley is out with a curious note on Mastercard (NYSE:MA) saying they think MA could enjoy flat to up pricing year-over-year, fueled by Visa raising prices (in connection with its IPO) and MA's strong competitive position. However, when speaking to the investment community, MA continues to maintain its position that pricing should gently fall over time. Partially driven by such favorable pricing, as well as a strong international growth outlook and potential for decelerating expense growth, the firm sees a favorable risk-reward on MA and maintains Overweight rating.

Notablecalls: Hm, is this enough to push MA towards, say $210? Sure. Note that 9 out of 10 banks MSCO spoke with haven't noticed a price increase from Visa or MasterCard over the last year, even though both companies have been raising prices. Rather bizarre, in a positive way.

Suntech (NYSE:STP): Jefferies positive on solar space this AM

- Jefferies is positive on the Solar space this AM saying they believe that Suntech (NYSE:STP) is well positioned to rapidly accelerate cell and module production. Suntech recently announced a bolt to 1 GW of capacity by the end of 2008, two years ahead of plan. Over the next two years, the firm sees the company's cost structure benefiting from the introduction of higher efficiency solar cells, a transition to lower cost wafers through longer-term contracts, and declining market prices (particularly in 2009). Moreover, this could allow STP to absorb rapid module price declines while still maintaining margins—a scenario they have built into their forecast and EPS estimates for 2009.

Suntech has approximately $588 million in cash and positive operating cash flow, as well as very low capex costs per watt and a solid history of ramping production well ahead of expectations. Improved polysilicon supply relationships have muted concerns about raw material requirements somewhat.

They believe that investors may narrow the trading-multiple discount STP receives (25x) compared with SunPower Corporation (SPWR, Buy) (39x) on 2009 Street estimates, given Suntech's similar earnings growth pattern and declining risk profile as it relates to silicon as well as recognition of its potential to maintain margins in a declining price environment. STP's new price tgt is $108 vs $76 earlier.

Notablecalls: Note that Jeffco is upping their rating on SPWR to a Buy from Hold with a $170 tgt (vs $125). They may serve as a ultra short-term catalyst for the group, including STP. Please note that Jeffco has factored a 15% ASP decline for cells and modules in FY2009 and FY2010 into their estimates. Yet, they remain bullish on the space.

Paperstand (CFC, AN, UR)

According to the WSJ’s “Heard on the Street” column, since a credit crunch engulfed mortgage lenders in mid-August, analysts and investors have had nearly 4mo’s to think about whether Countrywide Financial (CFC) can survive. Their conclusion? It is too early to tell. So far, the nation's largest mortgage lender has managed to limp along, largely by increasing its borrowings from the Federal Home Loan Bank of Atlanta and receiving $2bn from Banc of America (BAC) for preferred stock convertible into a stake of about 16% in Countrywide. Its execs have vowed to return to profitability this qrtr after a $1.2bn loss in the 3Q. "I'd rather be breathing than dead," Countrywide's CEO, Angelo Mozilo, quipped at a conference Mon. The co's stock and bond prices, however, suggest that investors see a serious risk that Countrywide eventually could seek bankruptcy protection or resort to huge sales of new stock that would slash the value of existing shares. "The mkt is really concerned about the possibility of default," says Steven Persky, of Dalton Investments.

Barron’s Online discusses AutoNation (AN), which has been burned by the tightening credit mkt, fears of a recession and predictions of lower ‘08 vehicles sales. The stock is down 20% in the past 12mo’s, hovering near its multiyear low. But at this point, the stock looks attractive. Billionaire investor Edward Lampert for one has already signaled his belief the stock is bargain priced. Since late Oct, Lampert's ESL Partners scooped up more than 6.5m shares for $109m, raising its stake in AutoNation to almost a third of the auto retailer's common shares. With a mix of domestic and foreign brands, and with revenue from maintenance and service as well as vehicle sales, AutoNation can still offer investors value. "It is easy to see the potential problems for a retailer of autos from a liquidity-challenged US consumer," says Al Frank Asset Mgmt analyst Chris Armbruster. "Still…it seems that much of their potential problems are priced into the shares. And, that is without growth which may reaccelerate in the coming year as the [comparable sales] become easier."

“Inside Scoop” section highlights United Rentals (UR), which last month was jilted by its private-equity suitor just days before the merger was going to be closed. After the Nov. 14 announcement of the dead deal through Dec. 6, SuttonBrook Capital Mgmt plunked down $111m to purchase 4.65m United Rentals shares on the open mkt. That boosted SuttonBrook's fledging United Rentals stake to 5m shares, or 5.83%. The firm has spent $121.9m to build this entire stake. If United Rentals succeeds in compelling Cerberus to complete the transaction, SuttonBrook "stands to make a pretty good profit on the buys," says Ben Silverman, of

Thursday, December 06, 2007

Apple (NASDAQ:AAPL): Expect massive holiday Mac sales - RBC Capital

- RBC Capital is out positive on Apple (NASDAQ:AAPL) saying they are expecting massive holiday Mac sales. November data from RBC's Technology Adoption Panel (3,900 respondents) point to massive Mac momentum in the holiday quarter (Q1/08 end Dec, reporting Jan). They expect 2.4M Macs shipped Q1, up 9% Q/Q and 47% Y/Y, breaking the record 2.2M Q4.The firm expects global Mac share to rise to 3.7% CY08, up from est 3.1% CY07 (US share 9.3% from 7.2%.

On the higher Mac outlook, their F08 estimates become $32.7B revenue ($32.0B prior) and $5.08 EPS ($4.81 prior). F09 outlook increases to $40.4B ($39.3B prior) and $6.19 EPS ($6.02 prior).

Carrier meetings and store visits in UK, France, Germany point to solid European iPhone momentum. Once Apple launches 3G (expected 1H/CY08) and the iPhone in other countries, iPhone sales appear poised for material improvement in demand and momentum.

Reits Outperform and ups tgt to $215 from $205.

Notablecalls: That's certainly good news for Apple fans. Will it be enough to push the stock higher in the n-t? Yes, why not!


The WSJ discusses big pharma, saying that over the next few years, the pharma business will hit a wall. Some of the top-selling drugs in industry history will become history as patent protections expire, allowing generics to rush in at much-lower prices. Generic competition is expected to wipe $67bn from top co’s annual US sales between 2007 and 2012 as more than three dozen drugs lose patent protection. That is roughly half of the companies' combined ‘07 US sales. At the same time, the industry's science engine has stalled. The century-old approach of finding chemicals to treat diseases is producing fewer and fewer drugs. Especially lacking are new blockbusters to replace old ones. The coming sales decline may signal the end of a once-revered way of doing business. "I think the industry is doomed if we don't change," says Sidney Taurel, chmn of Eli Lilly (LLY). Just yesterday, Bristol-Myers (BMY) announced plans to cut 10% of its work force and close or sell about half of its 27 manufacturing plants by 2010. Pfizer (PFE) will be particularly hard-hit when the patent expires as early as 2010 on Lipitor. By 2012, Merck (MRK) will face generic competition to its 3 top-selling drugs. Other co’s mentioned: SGP, GSK, WYE, NVS and SNY. Article suggests that big pharma will continue acquiring biotech co’s, like GENZ and DNA.

“Ahead of the Tape” discusses Toll Brothers (TOL), which has one of the largest supplies of land in the industry. Based on its rate of sales over the past 12mo’s, Toll has enough land to last for 8.4ys, compared with an industry avg of 5.3ys, says Ivy Zelman, of Zelman & Associates. While many builders are cutting home prices to burn through high-cost land, Toll has largely held its prices. But even Toll, which is fortunate to have a lot of older, lower-cost and well-located land, may have to fess up to the increasingly grim mkt. Toll forecast that it would write down $250-450m in assets in its F4Q, and many analysts believe it will come at the high end of that range when it reports earnings before the mkt opens today. "You reach a point where you can no longer avoid writing off assets on your books," says Paul Puryear, of Raymond James. "My gut reaction tells me that Toll Brothers is perhaps one of the co’s with more medicine to take before this thing is over."

Barron’s Online “Inside Scoop” section reports that CFO of Brookfield Homes (BHS), Paul Kerrigan, sold $2.5m in stock Tue. The sale was the first by a Brookfield Homes insider in at least 4ys. Kerrigan sold a combination of existing holdings and 35K newly acquired shares, acquired through an options exercise for $1 per share. The options vested one day before Kerrigan's exercise and were not set to expire until 2012.

The NY Post has learned that NBC boss Jeff Zucker is expected to make big cuts on the newsgathering and operational side of the co's news division, including eliminating an entire level of MSNBC's mgmt team, in a bid to save between $20-40m. Sources inside or close to NBC yesterday claimed the cuts, which are expected to come down this week or next, will be weighted evenly between NBC News and MSNBC. CNBC staffers are being shielded from this round of cuts b/c Zucker wants the network to be at full strength now that the battle with Fox Business Network has begun.

Wednesday, December 05, 2007

Netflix (NASDAQ:NFLX): Potential Hike in Postal Costs Jeopardizes Online Sub Economics - Citi

Cirigroup is out with a negative call on Netflix (NASDAQ:NFLX) saying an audit prepared by the Postal Service Office of the Inspector General (OIG) has concluded that the soft leading edge on 70% of NFLX's return mailers (NFLX is not specifically mentioned but is implied) get stuck during sorting and require manual processing and added about $21 mil in annual labor costs.

To combat labor costs that are forecast to soar to $61.5 mil over the next two years, the OIG has recommended imposing a 17 cent surcharge on each mailer. If NFLX has to bear the full brunt of this increase (without other cost offsets), monthly operating income per paying subscriber would fall 67% from $1.05 to $0.35. NFLX questions whether the USPS will accept the OIG's suggestions, and if no hikes occur, the impact would be limited.

Based on the magnitude of this risk, the firm believes NFLX will most likely redesign its mailers to better accommodate automatic processing. However, they are somewhat concerned that the USPS has singled out the rental by mail industry, which could allude to price increases despite any compliance with the mailers. Reits Sell and $18.50 tgt on NFLX.

They have also confirmed that BBI's mailers are not prone to the same issues. Reit Buy on BBI.

Notablecalls: Rising postal expenses have always been among my top concerns when it comes to Netflix. If indeed USPS has singled out the rental by mail industry, NFLX will need to pass on the expenses to subscribers. That will put it in a tougher place vs. BBI. I suspect NFLX will trade down on these comments in the n-t.