Wednesday, December 31, 2008

Ceradyne (NASDAQ:CRDN): Downgraded to Hold at Morgan Joseph

Little known Morgan Joseph is out with a downgrade on Ceradyne (NASDAQ:CRDN). Firm is lowering their rating to Hold from Buy after their due diligence shows Ceradyne will not ship any of its new X-SAPI body armor in 4Q08 as a result of a contract protest by a competitor.

If the matter had been settled quickly, Ceradyne might have made shipments by year-end. Instead, the Army has decided to start from scratch and seek new bids from suppliers. Those bids are expected to be submitted in mid-January, with orders possible as soon as the end of the month.

Firm is significantly lowering their 2009 estimates due to lower body armor shipments, pricing pressure on ceramic solar cell crucibles, and new accounting treatment of the company's $120mm convertible debt. They estimate total sales of $599.0mm, gross profit of $204.7mm, EBITDA of $135.5mm, operating income of $97.1mm, and net income of $63.9mm or $2.30 per diluted share. They had expected 2009 sales of $641.2mm, gross profit of $240.9mm, EBITDA of $171.1mm, operating income of $130.1mm, and net income of $84.1mm or $3.17 per share.

Morgan Joseph is cancelling their $22 price tgt on CRDN and are currently providing no new tgt.

Notablecalls: CRDN bulls are definitely not going to like this. I also suspect this is the reason why CRDN issued that stealthy earnings warning 2 weeks ago. Note that consensus for 09 EPS stands at $2.61 vs Morgan Joseph's $2.31.

I really do not see CRDN getting crushed on this call but 1pt worth of downside may be in the cards.

Tuesday, December 30, 2008

Dow Chemical (NYSE:DOW): Cough up the cash or else...

I just wanted to do a quick follow-up to the Dow Chemical (NYSE:DOW)/ Rohm & Haas (NYSE:ROH) story:

Barclays' Risk Arbitrage Team is out with a call saying they believe there are significant restrictions on Dow’s ability and incentives to maneuver its way out of the deal or into a price cut. They find the current risk-reward attractive and expect the deal to be completed on its current terms.

Notablecalls: So this means DOW will have to buy ROH for $78 per share in cash? Sure looks like it.

Also, note that according the the initial agreement, if the merger is not completed by January 10, its price rises every day by a fixed amount to compensate Rohm investors for the delay.

So if DOW does not cough up the cash by Jan 10, the deal will get more expensive for them. A really cruelsome situation to be in.

As the old adage goes - In the best times the worst deals are made.

PS: Notable Calls Network (NCN) had a very similar Barclays call already yesterday saying there was very little DOW could do in terms of backing out of the deal. Rohm & Haas (ROH) stock was trading around $49 and change when the call was issued. It shot up $54.5 over the next couple of hours and I see fills around $55 this AM.

So a 4+ pt gain was to be had, depending on ones entry/exit. Any size.

This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

Not all calls are this good (we get many wrong as well) but NCN is for the pros. You decide which calls to take and which one's to leave.

Want to be part of NCN?

It's easy. Just 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.

Monday, December 29, 2008

Dow Chemical (NYSE:DOW): Comments on K-Dow news

Citigroup comments on Dow Chemical (NYSE:DOW) after Parliamentary opposition over the economics of K-Dow has led the Supreme Petroleum Council to cancel the $17.4B JV.

The move comes as a surprise following a re-valuation of the deal this month, and the firm views as a HUGE negative for Dow shareholders. Kuwait’s liberal Popular Action Bloc had been pressuring the Prime Minister to scrap the deal before January 1st to avoid a $2.5B termination penalty.

ROH Implications — The ROH acquisition ($18.5B EV) is expected to be completed in early ‘09, according to ROH’s press release. The deal looked fully-priced when announced in July ‘08 & now appears extremely overpriced given a deep recession and lack of cash from the Kuwait deal. With the credit crisis spreading, the borrowing costs have shot up for most companies globally.

Can ROH Deal Close? — DOW should be looking to protect its shareholders by cutting the ROH deal at a lower price or walking away from the deal by paying a break up fee. However, it may not be easy since there is no "buyer's remorse" clause in the merger deal, nor a MAC clause trigger. If DOW is forced to pay the original price of $78/share, then they will have to reevaluate their thesis on Dow. Recently, Apollo was able to opt out of its $10.6B deal with HUN for a payment of $1B. Firm now expects lengthy negotiations between DOW & ROH.

Notablecalls: I suspect both DOW and ROH will get hit in a major way today. For DOW the worst case scenario would be - ROH closes, but K-Dow does not. That's what we are seeing ATM.

The K-Dow deal was expected to increase Dow’s financial flexibility and increase the likelihood of the ROH merger concluding efficiently. So it's logical to see ROH get hit.

Where should/could ROH trade?

ROH was trading around $45 when the deal news hit back in July. Yet, if one takes a look at the peers - NCX was trading around $23-$24 in July and now trades around $4-$5.

I would not be surprised to see ROH hit $45 today. If the deal breaks down the stock will be headed toward $30 level.

How to play DOW?

I suspect we may see some downgrades in the n-t as most analysts were pretty high on the K-Dow deal. I see a 6-10% downside move in DOW. Let's see if I'm right about this one.

Tuesday, December 23, 2008

AMAG Pharma (NASDAQ:AMAG): Bounce?

We have several firms out defending AMAG Pharma (NASDAQ:AMAG) this morning follwing news the FDA issued a Complete Response Letter for Ferumoxytol:

- Leerink says they are encouraged that two of the three issues in the original Complete Response Letter from late October appear to have been resolved without the need for additional clinical trials, and they would be buyers on any weakness, as this removes the worst case scenario, in firm's view. Reits Outperform and $46 tgt.

- JP Morgan reits Overweight on AMAG saying they expect weakness in AMAG shares as investors question the management’s ability to effectively address regulatory questions, but they believe that ferumoxytol (trade name now Feraheme) will be approved without additional clinical trils. Remain Overweight on expectations of a brief delay (6- mo or less), which in their view would drive significant upside in AMAG shares.

A longer delay doesn’t seem likely. The ferumoxytol saga looks a lot to them like Vyvanse story, where Shire gained FDA approval after 2 CR letters, where both resubmissions were designated Class 1 (2-mo review). Unresolved label conflicts apparently was the basis of the 1st CR, while manufacturing questions underpinned the 2nd CR, and the entire approval delay was less than 6 months. Firm believes ferumoxytol could follow a similar path, with approval by mid-09. Note that a longer delay (2H09 or later) could start to impact valuation, since we believe IV iron sales growth could moderate in a bundled environment (likely phase-in begins by 2011e).

Notablecalls: AMAG will hold a conf call 8:30 AM ET to clarify the issues behind the 2nd CR Letter. I really like JPM's reasoning re: Vyvance

I suspect there will be several firms out in defense of AMAG today.

The stock will take a hit but it shouldn't be more than say 10% putting it above the $30 level in my book. This makes the $27-$28 levels a buy

Friday, December 19, 2008

Ceradyne (NASDAQ:CRDN): Downgraded after a stealthy warning

Stanford is out downgrading Ceradyne (NASDAQ:CRDN) to Hold from Buy after the co lowered its FY08 and FY09 guidance at an investor conference yesterday after the market close. The company reduced its FY09 sales guidance from $640-650 million to $600 million and EPS guidance from $3-3.25 to $2.30 due to pricing pressure in solar, XSAPI body armor delay, and weakening demand for its industrial business.

Firm lowers FY09 sales and EPS estimates to $596M and $2.29. They believe there is still downside risk to management’s new guidance due to uncertainty from the XSAPI rebid after BAE Systems (BAESY, Not Rated) withdrew its protest. According to sources, the Army is considering splitting the XSAPI business more evenly amongst the winners, which means Ceradyne could end up with less than the previously awarded 64% market share. In addition, management assumes it maintains the 75% market share on the new side plates (ESBI), but the scope and timing remains uncertain.

They downgrade Ceradyne to a HOLD and reduce price target from $23 to $18 based on new estimates.

Notablecalls: What's so great about this dg? Well, there is no PR out on this warning. Short at will. This baby will go down hard. I'm guessing $21-$22 range. And don't cover until the PR.

PS: Now hearing Stephens out saying CRDN will trade below $22 in their opinion.

Flour (NYSE:FLR): Downgraded to Sell at Citigroup

Citigroup downgrades Flour (NYSE:FLR) to Sell from Hold partially on the Obama Overbuilt thesis, but also on project-specific risk at Al-Zour. They find FLR shares are up ~60% since mid-November, and this cannot be accounted for by 1) the Obama impact and 2) the recent rally in energy-related shares. They also believe there is increasing risk Fluor’s piece of the $15 billion Al-Zour refinery may be canceled by the Kuwaiti Oil Ministry.

- Citi calculates an average EPS impact of the Obama plan less than 5% over the next two years. This impact has been more than factored into E&C shares over the last four weeks as the names are up 76% - far more than both the S&P Energy Index and the impact of a stimulus package. Risk of Obamamania hitting a reality check is high, particularly hen oil prices have slid over the same four weeks. Firm's math concludes two of the E&Cs, Foster and McDermott, should not benefit at all from a stimulus package.

- The $15 billion Al-Zour refinery may be canceled by the Kuwaiti Oil Ministry, and this project was already included in Fluor’s backlog (Fluor won the $2 billion utilities package for the facility.) News reports of the project’s demise are not new. But the project’s viability appears more at risk the further oil and gas prices fall, and they believe it is now prudent to exclude it from their estimates.

Citi target is down to $37 from $41 fro FLR.

Notablecalls: FLR has been hit by several downgrades over the past week. GSCO put it to their Conviction Sell list last week while Lazard slapped a Sell on it yesterday. Stock has been pretty resilient but Citi's call may be the one to break the camel's back.

The wording of the call is strong and I suspect we will see FLR in the $44-$45 range today.

Thursday, December 18, 2008

Intel (NASDAQ:INTC): Downgraded to Underperform, $11 tgt at Jeffco

Jefferies' Semicondutor team is out with some pretty nasty downgrades on almost all of the largest players in the space:

- Unlike prior downturns we entered with relatively lean inventories in most end markets.
- Q4 has gotten worse for everyone – significantly below prior guidance.
- Q1 visibility is AWFUL and likely not to improve before earnings calls given the holiday shutdowns

- Don't get fooled by this near-term rally.
- Start buying in mid-February – the first leg of the cyclical upturn will
rise all tides.
- 2nd Leg of the upturn – what to own and what not own;
- What to own - Broadcom, NetLogic, Qualcomm, Silicon Labs, and
- What not to own - AMD, Cypress, Intersil, National Semi, Silicon
Image, Texas Instruments, and Zoran.

For example they are downgrading Intel (NASDAQ:INTC) to Underperform from Buy while lowering their tgt to $11 from $26.

They recommend investors sell shares as Intel is likely to experience multiple compression as 1) the PC market slows due to desktop declines and slowing laptop growth, 2) a mix shift to the low-end in the PC market pressures MPU ASPs, and 3) other efforts in new end markets disappoint. Reducing CY09 EPS estimate to $0.76 (from $1.45).

$11.00 PT is based on 1.5x '09 EV/Rev or 15x CY09 EPS (inline with peers).

Notablecalls: Phew..are they on mushrooms or are they for real? Regardless of their choice in drugs I suspect INTC is going sub-$15 today. Nasty.

Wednesday, December 17, 2008

OM Group (NYSE:OMG): Downgraded to Underweight, $15 tgt - KeyBanc

Keybanc is out with a yet another major Specialty Chemicals call downgrading OM Group (NYSE:OMG) to Underweight from Hold with a $15 price tgt.

Firm notes that during 4Q08, cobalt prices moved from $29/lb in October to $16/lb in November to about $11/lb in December, making the 4Q08 average price $17/lb. They had previously based their 4Q08 EPS estimate of $0.28 on cobalt at $23/lb. Given the precipitous drop, they now estimate 4Q08 EPS for OM Group at a loss of $0.18, bringing revised 2008 EPS estimate to $4.60. Prior 2008 EPS estimate was $5.05

Using a cobalt price of $11/lb (vs. $21/lb previously) for 2009, Keybanc's EPS estimate is cut from $2.50 to $0.80. They again caution that cobalt prices are highly volatile with swings that can be large and swift; therefore, the new 2009 EPS estimate of $0.80 should be viewed with a high degree of skepticism and with the expectation that frequent EPS revisions are possible as cobalt prices change.

A wild card in their 4Q08 estimate is the amount – if any – OMG may write down its inventory as it applies the "lower of cost or market" criteria to its inventory valuation. Firm notes they have estimated a $7.0 million (equal to $0.15 per share) mark-to-market adjustment in the 4Q, but have no firm basis for making a specific estimate.

They see no catalyst to drive the shares higher in the near term. With losses expected in 4Q08 and 1Q09 and very low EPS expected in 2009, they see more downside risk than upside potential at this time.

Notablecalls: I'm starting to like Mr. Saul Ludwig, KeyBanc's Speciality Chemicals analyst.

Assuming he is right about 2009 EPS OMG shares are trading at a whopping 27-28x P/E.

Remember what happened to Arch Chemicals (NYSE:ARJ) few weeks back when Ludwig was out with a pretty much similar call? ARJ got whacked!

OMG is going to suffer the same fate, I suspect. I see the stock going sub $20, probably as soon as today. This is a monster call.

Apple (NASDAQ:AAPL): One Scare Too Many; Downgrading to Perform - Oppenheimer

Oppenheimer is out downgrading Apple (NASDAQ:AAPL) to Market Perform from Outperform saying they don't know why Steve Jobs has pulled out of his annual address at Macworld on January 6. Maybe he's not feeling well, or maybe he just has nothing new to say. Whatever the reason, the unexpected announcement has underscored the greatest risk to Apple's long-term success—its dependence on Jobs' health and its apparent lack of a succession plan.

Six months have passed since Jobs appeared at the Apple Developer Conference, looking drawn and unwell. It's past time for Apple to either disclose the state of his health or elaborate a viable plan for eventually transferring power. Until such time, they can no longer continue to recommend Apple as a long-term investment. Downgrading to Perform; and removing $145 PT.

Notablecalls: This call I think will generate some serious debate about Jobs' health. It sure takes a set of cojones to come out with a downgrade like this one.

I see more downside to AAPL stock in the n-t.

Tuesday, December 16, 2008

United Parcel Service (NYSE:UPS): Downgraded to Underperform at Merrill Lynch

I wanted to highlight you the Merrill Lynch downgrade on United Parcel Service (NYSE:UPS). It's a nasty one.

Merrill is reducing their opinion on UPS’ shares to Underperform from Neutral and lower price objective to $44 from $54. They are reducing 2009 and 2010 EPS estimates 12% and 10%, to $3.15 and $3.70, from $3.58 and $4.09, as they further reduce volume and margin targets.

While they believe UPS, which owns 50% of the market, will win its fair share of DHL’s business (represents ~5%-6% of the market), they believe volumes have fallen precipitously over recent weeks, causing a further pressure in targets. Firm targets domestic volumes to fall 1% in 2009 (from flat) and domestic operating margins will fall 110 bps to 11.5%, owing to the weak economy. The price target is based on a 14x target multiple of 2009 EPS estimate.

Notablecalls: I think UPS will get whacked on this call as:

1) MLCO has uncovered new information about UPS' business decelerating markedly over the past few weeks

2) MLCO's tgt price is way below current mkt price

3) MLCO has the largest customer base - their calls move the mkt.

I suspect $49's are in the cards today. (several points of downside over the next week or so)

Other calls of interest::

Merrill Lynch calling for a bottom in Ferts:

Temporary buyers strike largely priced in We believe fertilizer fundamentals are nearing a bottom, given nitrogen and phosphate prices have already plunged through breakeven margins for marginal producers, triggering significant shuttered global capacity. The significant deferral in fertilizer applications that occurred this fall can not repeat in the spring if crops are to be planted. We are raising our EV/EBITDA valuation multiples for each nutrient by one multiple point (nitrogen from 2 to 3, phosphate from 3 to 4, and potash from 4 to 5), which are still well below historical levels. Our ratings on POT, MOS, IPI, and TRA are raised to Buys, CF is raised to a Neutral, and AGU remains an Underperform, largely due to a potential large inventory devaluation in its retail business.

FBR initiates Bank of America (NYSE:BAC) with Underperform and $9 tgt:

We reinitiate coverage of Bank of America Corporation (BAC) at Underperform with a $9.00 price target, equal to 0.6x pro forma tangible book value of $15.50. Our chief concern is Bank of America's thin tangible common equity. We calculate a tangible common equity ratio of just 3.15% (including its October capital raise, the acquisition of Merrill Lynch, and TARP warrants), which is just too low. While Bank of America's capital will be rebuilt over time, we expect that it will have to raise a substantial amount of new common capital to jumpstart the process, which will dilute existing shareholders. We recommend that investors stay away from the stock until this initial raise is complete. Our 2009 operating EPS estimate of $2.00 is well below the consensus estimate of $2.61, which we attribute largely to continued, elevated provision expense.

Notablecalls: Ferts will react to MLCO upgrades. BAC..I see a 30-40c move to the downside at best today. (NASDAQ:BIDU): Added to Conviction Buy List at Goldman Sachs

Goldman Sachs upgrades (NASDAQ:BIDU) to Buy from Neutral and adds it to their Conviction Buy List:

Baidu trades at just under 20X 2009E non-GAAP earnings:

1) Paid search spending is 2bp of GDP in China, versus 9-12bp in developed search markets.

2) Goldman forecasts search spending climbing at around 30% per year for several years and believes Baidu can maintain query share (with government help and consumer loyalty) for around 30% per year revenue and EPS growth.

3) Baidu has $10 net cash per share, a 35% 2008 ROE, and they estimate it will convert over 80% of earnings to free cash flow. The GS Options team suggests buying 1X2 call spreads for low-cost leverage.


1) They expect concern that the China government has targeted Baidu for punishment will diminish; they doubt the government seeks to disadvantage Baidu to the extent it loses substantial query share to foreign rivals.

2) Firm believes paid search will outgrow China’s GDP given low penetration, rising query volumes on increasing broadband penetration, and secular demand from consumer-facing companies. (3) Baidu is trading at multiples comparable to slower-growing, more-cyclical businesses such as and Ctrip, and its 2009 P/E multiple is about one-third above Google’s, while its growth rate is about double Google’s.

Notablecalls: It kind of looks like Goldman will catch a lot of short sellers with their pants down. Statistics show GSCO Conv. Buy list additions run 3-10%, depending on the nature of the stock. We know BIDU is a mover so the expected move it probably closer to 10% than to 3%.

My bet is we will see BIDU around $125-$128 level today.

Goldman isn't saying anything new but the fact they are putting the stock to their Conviction Buy list ($145 tgt) speaks for itself.

Monday, December 15, 2008

JP Morgan (NYSE: JPM): Downgrade to Underperform at Merrill Lynch

Merrill Lynch downgrades JP Morgan (NYSE: JPM) to Undperform from Neutral while lowering tgt to $27 from $44.

Merrill expects 4Q loss of -$0.11 from +$0.25 on expectation of another significant round of credit reserve builds exacerbated by cap mkts activity, mark-to-mkt losses. Also rationalizing ‘09E to better reflect the deteriorating economic environment and better reflect the impact of WaMu loan portfolio. Key driver of new forecasts is expectation of loss rates moving up in-line with higher unemployment. Accordingly, they cut ‘09E to $1.98 (details within). They also stresstest forecasts for very real possibility of higher unemployment and find 09E could easily fall into the red.

Capital markets weak as marks continue
They are now forecasting another substantial ($2.8bn) mark-to-market loss in the Investment Bank as asset spreads have gapped meaningfully almost across the board. Investment banking activity has fallen dramatically and the firm expects the environment to remain weak in ‘09E as the economy remains in recession.

Underperform: Cutting PO to $27 from $44
Merrill does not believe the Street has rationalized the true impact of expected economic woes on Cons. Credit, and particularly what that means for JPM earnings. Their new ‘09E of $1.98 is 27% below consensus and represents a 5.3% ROE. Applying 0.7x expected BV of $39 to discount low ROE expectation offset by some valuation premium due to relative franchise strength, gives new PO of $27.

Notablecalls: How much is this downgrade worth? I think it's worth a lot. I see stock getting pounded towards the $29 level in the ultra s-t and prolly below MLCO's tgt price over the next weeks.

Market has shown some considerable resilience over the past weeks but I think it needs another shake-out. This dg may give the que.

Ah, and btw - Goldman downgraded Apple (NASDAQ:AAPL) this AM. Rating goes to Neutral from Buy with tgt lowered to $115.

Thursday, December 11, 2008

Costco (NASDAQ:COST): Morgan Stanley and JP Morgan expect COST to guide down

Two tier-1 firms are very negative on Costco (NASDAQ:COST) ahead of today's call:

- Morgan Stanley expects management to be extremely cautious on the outlook for the rest of the year and for the stock to come under pressure throughout the day.

What to Watch For on the Call: We expect management to lower both 2Q (MS $0.71 vs. street at $0.75) and full year guidance on the call (MS $2.97 vs. Street at $3.01). As current US core comps are running below our 3% estimate for the rest of the year, we believe there is risk the company can guide below our current estimates.

- JP Morgan: Looking To The Call For Revised Guidance. As previewed, we think that the market widely anticipated a 1Q beat (relative to consensus estimates) and we wouldn't be surprised to see the stock open modestly higher. However, we believe that the real news of the day will come on the company’s 11:00 AM EST conference call (dial in # 1.800.399.8203) when details of the beat (i.e., how much of the upside came from unusually rich gas margins vs. core merchandising strength) are revealed and the significance of the quarterly trend is framed vis-à-vis updated FY09 guidance (currently @ $3.00-$3.25, Street @ $3.01). With this in mind, we believe that the prior outlook may prove too optimistic with risk that the company will either trim its full-year EPS guidance – resulting in a potential mid-day shift in the stock toward the downside.

At 17.3x our CY09 EPS the stock looks priced for perfection, if not a bit over-valued given slowing core comp trends, which could lead to significant SG&A deleverage down the road. Stay Neutral.

Notablecalls: As JPM notes the stock is still priced to perfection and a guidance cut will cause the stock to trade down. Looks like COST isn't the safe heaven many believed it to be.

My bet is a 5-7% downside is in the cards today.

Wednesday, December 10, 2008

American Express (NYSE:AXP): Initiated SELL $13 tgt - BofA

Bank of America is initiating American Express (NYSE:AXP) with Sell and whopping $13 tgt

- Number of factors will have a disproportionately negative impact on AXP’s near-term prospects. These factors include 1) the significant consumer and corporate spending slowdown, 2) the accelerated loan book growth over the past few years, 3) geographic and demographic risks embedded in current receivables and 4) upcoming funding and liquidity obligations needing to be addressed in a stressed capital markets environment.

- AXP’s “spendcentric” model is being tested given consumer & corporate distress, leading us to model a sharp decrease in billed business. The surprising deterioration in super-prime customers due to the housing meltdown factors into our outlook for accelerating chargeoffs. We look for 2009 EPS to fall 35% y/y to $1.58. Our forecast is $0.65 below the Street. Our 2010 EPS estimate is $2.97, $0.58 below the Street.

Notablecalls: Oh my god!

Apple (NASDAQ:AAPL): Morgan Stanley negative on the stock

Morgan Stanley is out negative on Apple (NASDAQ:AAPL) saying they see near-term downside to AAPL shares in light of weaker demand, especially for the iPhone where expectations remain high. They highlight three surprising data points from their survey of 2,500 US consumers:

First and most important to the stock, despite significant price cuts, “extreme” interest in the iPhone is lower than February ‘07 survey (5% vs. 7%). They reduce CY09 unit forecast to 14mln (from 19mln) and note additional price cuts may be necessary to stimulate unit demand at lower margins. Firm assigns a 15x P/E multiple to iPhone, a blended average of RIMM and GOOG.

Second, Mac brand satisfaction and market share momentum remain intact but PC purchasing plans over the next year are half of 2005 levels. MSCO lowers Mac unit growth to flat and assign a 13x P/E to this segment (50% premium to P/Dell).

Third, iPod penetration peaked in the US and new purchases by the installed base this holiday season will fall well short of past years (6% vs. 40% typically). They lower CY09 unit growth (to -30%YoY) and assign a 3x P/E multiple which assumes revenues trend towards zero over the next three years

What’s next: MSCO lowersC4Q estimates but believes Apple can meet the wide guidance range provided in October given channel fill of new products. That said, consensus C1Q and CY09 estimates are at risk of lower unit demand, inventory adjustments and price cuts.

Notablecalls: AAPL stock is going to get whacked on this. I would not be surprised to see a 5pt downside move today. Note that MSCO's new price tgt for AAPL is $95.

Tuesday, December 09, 2008


JP Morgan is out with a MAJOR NEGATIVE call on General Electric (NYSE:GE):

- Cutting estimates. 2009 goes to $1.20 from $1.45 (now ~$0.37 below Street), with 2010 to $1.10 from $1.30 (now ~$0.55 below Street).

- Negative: 4Q a miss. The $0.50-0.52 excludes a $1.0-1.4 B after-tax charge, part of which is provisioning (~$600 mm). GE gets a pass on restructuring, but provisions are a part of doing business and inclusion in the number brings us to ~$0.44-0.46.

- Management reaffirmed the dividend, as expected; however, this appears to assume the business trends are steady state or that the company will find other significant sources of cash flow. As per our estimate, we see the potential for the business to decline over next year or two. This means that the company will need to fill a hole with working capital or "other" both sources of cash that we view as unsustainable, assuming that GECS remains as challenged as we think it will Current cash flow estimates indicate that 2009 should be safe (and even if a GECS infusion were to occur, it would still leave $10B cash from the recent equity offering), but we remain cautious on the company’s ability to sustain the dividend in 2010.

Initiates $13 price tgt for GE!

Notablecalls: GE will get whacked, I suspect.

T. Rowe Price (NASDAQ:TROW): Downgraded to Sell from Neutral at Goldman Sachs

Goldman is downgrading shares of T. Rowe Price (NASDAQ:TROW) to Sell from Neutral. Firm's 12-month DCF and P/E based price target is $28, unchanged, implying 24% downside. They believe TROW’s current 60% P/E premium to the group (versus a historical 20% premium) is unsustainable amid accelerating fundamental headwinds including expected net outflows, slipping relative investment performance, and deteriorating operating margins. Goldman views T. Rowe as a long-term beneficiary of market turmoil, but they see the shares under- performing on a relative basis over the coming quarters.

T. Rowe’s strong financial position (a solid $853 mm in net cash or $3 per share) has rendered the stock a relative safe haven, leading to meaningful outperformance versus peers (+24% relative YTD). That said, shares now trade at 25X 2009E EPS or a 60% premium to peer average – a level they view as unsustainable given rising fundamental headwinds. Specifically, they expect 4Q08 to mark TROW’s first quarter of net outflows since 2001 due to weak equity absolute performance and slowing target date flows, while rising unemployment pressures the firm’s retail-heavy business mix and 401(K) flows. Further, TROW’s recent relative investment performance has slipped with the asset weighted Morningstar rating in October at 3.6, down from 4.0 a year ago. In addition, Goldman sees the firm steering clear of expense reductions to gain share (in comparison to peers cutting costs), which they expect to drive operating margin 900bps below pre- downturn levels – a decline similar to the early 2000’s.

Notablecalls: A Sell rating from GSCO on a stock that's trading 25x 2009 EPS - a recipe to get whacked.

I see TROW down 5-7% today. Lets see if I'm right on this o

Monday, December 08, 2008

Chesapeake Energy (NYSE:CHK): Deutsche colour on news

Deutsche Bank is out positive on Chesapeake Energy (NYSE:CHK) after the co issued a press release containing a comprehensive new financial and operational strategy in response to turbulent financial markets and commodity price uncertainties. The key highlight is a cash neutral budget (i.e. reliant on neither asset sales nor equity issuance) that CHK expects to generate growth of 5-10% for 2009, and 10-15% in 2010 (down from 17% and 16%, at the midpoint of prior guidance).

Cuts 2009-10 capex by more than $6B (40%)
CHK is cutting its 2009 capital budget by $3.5 billion, or 43%, and its 2010 budget by $2.95B, or 35%. Meanwhile, asset sale plans remain unchanged ($450MM VPP#4 still anticipated by YE; $450MM VPP#5 and a midstream monetization slated for Q1-09), such that per guidance CHK expects to build up to $4B in additional cash resources over the next two years. Its cash flow profile seems reasonably visible given CHK's restructured hedging portfolio, under which about 76% of its 2009E production is hedged at a floor price of $8.20/Mcf, including only 12% of production subject to knockout hedges, which are largely concentrated in Q4-09.

Rethinks equity filings; conference call Monday AM
Finally, and likewise very importantly, CHK announced plans to terminate the recently announced Distribution Agreements, and will NOT in fact issue any shares under the S3; it is also reducing the shares to be registered under its acquisitions shelf (S4 filing) to 25MM shares from 50MM. Given recentlyacute concerns surrounding CHK's spending plans and liquidity profile, Deutsche believes the stock will react very favorably to these retrenchment moves; they will provide further thoughts and updated numbers following the company's conference call this morning at 9AM EDT (888-211-7383 / 1193464).

Notablecalls: I think $13.50-$14.50 levels are in play for CHK in the near-term.

Friday, December 05, 2008

Cubist Pharma (NASDAQ:CBST) : Downgraded to Underperform at Oppenheimer

Oppenheimer is out downgrading Cubist Pharma (NASDAQ:CBST) to Underperform from Mkt Perform, seeing downside to $18-$19 range.

According to Oppenheimer the downgrade is based on concerns that the near-term product in-licensing is likely to be outside core markets and may result in material dilution. CBST has identified licensing a late-stage or commercial product as a high priority. Based on firm's review of acquisition candidates in CBST's core anti-infective market, they see few compelling opportunities and believe CBST may be forced to expand outside its core market. On valuation, CBST trades at 22.0x '09 fully taxed pro forma EPS compared to 16.1x for a universe of profitable biotechs. View the absence of composition of matter patents for Cubicin as a chronic high-impact risk factor justifying a lower PEG than peer group.

Opco points to the acquisition of Ecallantide from Dyax Corp. (DYAX, NR, $2.48) on 4/24 as the first step in CBST's transition from anti-infective company to an acute care-focused commercial company.

Does lower commercial risk trump higher clinical development execution risk? In firm's view, investors offered a clear answer, sending shares of CBST down 13% in the two week period following the Ecallantide in-licensing on 4/24/08, versus the Amex Biotech Index performance of -0.25% during the same period.

ANDA Risk Fades But IP Questions Remain. While investor concern about a near-term aNDA filing for Cubicin is receding, Oppenheimer views the absence of composition of matter protection for Cubicin as a chronic overhang justifying a lower PEG ratio and creating a deterrence to potential acquirers.

If a paragraph IV challenge is filed, CBST would have 45 days to file an infringement suit against an ANDA applicant. An infringement suit would prevent FDA approval of the ANDA for at least 30months from the date of the notice, unless a court rules in favor of the ANDA applicant beforehand. While we have no specific knowledge of companies preparing Paragraph IV certifications, the firm believes there is always a chance such filings would occur, creating overhang on CBST shares.

Notablecalls: I like the reasoning behind this Opco's call. It kind of looks like the stock has gotten ahead of itself - Cubicin is a nice product but has its problems (ANDA's looming).

What to do with the stock?

I think the stock will get hit on this call. See sub-$27 levels.

The larger cap bios have underperformed lately and I think people are better off taking profits in CBST and moving into CELG's of the world.

Thursday, December 04, 2008

Arch Chemicals (NYSE:ARJ): Major downgrade from Keybanc

Keybanc is out with a pretty major downgrade on Arch Chemicals (NYSE:ARJ) cutting their rating to Underweight from Neutral with a $18 tgt.

In the face of many headwinds, they are reducing their FY09 estimate to $1.80 from $2.30 vs. 2008 EPS estimate of $2.25; firm's $2.25 estimate is the midpoint of Arch Chemicals, Inc.'s current full year guidance of $2.20-$2.30.

In their many discussions with companies over the past few weeks, they are seeing a lack of urgency in further reducing current cost structures and companies may not be doing enough to adjust to the current environment. Keybanc senses that ARJ may be in this camp; this is their opinion only. As volumes tumble with weakening demand we should see a sharp increase in unabsorbed overhead, which would lead to an overall reduction in profitability.

The headwinds that ARJ is facing in 2009 are a strengthening dollar, a weakening European and Asian economy, higher pension costs, higher interest expense, continued weakness in North American housing, and lower non-residential construction spending. The Advantis acquisition, lower shipping costs and benefits from the Company's HTH plant expansions and the personal care plant in China will partially offset some of these headwinds.

At this time they do not see a reason why investors would want to establish a new position at the current price near $26.

Notablecalls: I suspect this call has what it takes to destroy the stock today. By destorying I mean a 6-10% downside move. Note the $1.80 FY09 EPS estimate is the new Street low (consensus stands at $2.39).

Keybanc's downside price target is based on a P/E of 10x estimated 2009 EPS of $1.80. Sounds prudent in current environment.

Red Had (NYSE:RHT): Jeffco upgrade to Buy; Cisco relationship on tap?

Jefferies is out with an interesting upgrade on Red Had (NYSE:RHT) taking their rating to Buy from Hold with a $16 tgt.

OK November. Checks indicate steady demand for the core RHEL products (AP, RHN, etc.), while Jboss sales continue to outperform. It seems like Red Hat is picking up some share in middleware dueto BEA/Oracle (ORCL, $16.13, Buy) dislocation and because open source solutions become relatively more attractive as budgets tighten.

Cisco relationship on tap. Industry sources indicate that Cisco's (CSCO, $16.01, Buy) upcoming line of blade servers is likely to offer RHEL as an option, perhaps even as the default OS. The KVM (non-bare metal) virtualization features in RHEL would allow any type of virtualized container to run on the Cisco blades.

Upgrade to Buy. With 100% recurring revenue including 80% off the balance sheet in any given quarter, increasing Jboss sales, and low-cost leadership, Red Hat is well-positioned to buffer the '09 spending storm. Additional revenue from a deal with Cisco would provide upside to our current estimates. The company has $3.90 in net cash per share, and on a cash flow basis, the shares are yielding about 16%.

Notablecalls: 1) Beaten down stock 2) Very low valuation (16% FCF yield is low), 1/3 of mkt cap in cash 3) A catalyst in the horizon in form of Cisco news.

RHT should see some nice buying interest following this call.

Tuesday, December 02, 2008

Xenoport (NASDAQ:XNPT): Actionable Call Alert!

XNPT: MAJOR DEFENSE FROM MORGAN STANLEY - Seems like a big over-reaction. Rating Overweight

Results for 986 P2b in GERD are out this morning, overall the trial failed on efficacy and there were no problems with safety. Harr had nothing in his model for this indication, expectations should have been quite low for 986 in this indication. However, stock is getting hit extremely hard in pre-trading. Seems like a big over-reaction. Rating Overweight.

Notablecalls: Bounce!

Tessera (NASDAQ:TSRA): What is the true value of the stock? - FBR

Friedman Billings Ramsey comments on Tessera (NASDAQ:TSRA) after the Administrative Law Judge (ALJ) in the wireless ITC case determined that TSRA's asserted patents are valid but not infringed by the respondents (ATI, Freescale, Motorola, Qualcom, Spansion, ST Micro).

FBR notes this is the same judge who (in February 2008) granted the same respondents a stay of motion, which was actually overruled by the ITC Commission 29 days later upon appeal by TSRA. To that end, it appears "on the surface" that TSRA could, once again, appeal to the ITC Commission with the goal of an overruling, especially considering the ITC staff commentaries that have been in favor of TSRA.

With all the uncertainties associated with the legal front, and lower EPS estimates in CY09, the key question is "What is the true value of the stock?"

Firm calculates a sum of the parts of $18.00: $7.00/share for the core semi business, $5.00/share for the non-semi mix—combined with the current net cash/share of $6.00, this results in their $18.00/share valuation.

Stock net: despite disappointing news from the wireless ITC case, we believe that TSRA's intrinsic value of $18.00/share bakes in a worst-case scenario, with no settlement in any of the legal fronts and not much incremental revenues from the new non-semi segments realized. The stock, below $10.00 (where it traded after hours), is undervalued, in their opinion, and offers "event-driven" investors an attractive entry point.

Notablecalls: I suspect TSRA will trade over the $10 level today. ITC Commission has been very pro-Tessera and with current $9 levels representing pretty much the worst case scenario, risk/reward looks to be in place for a solid upside bet.

Monday, December 01, 2008

General Electric (NYSE:GE): Could lower guidance tomorrow - Citigroup

Citigroup is out cautious on General Electric (NYSE:GE) saying GE Capital webcast could be forum to lower 2009 outlook. Firm maintains Hold rating and $16 tgt on the stock.

On 11/25 GE announced it will be holding a webcast on 12/2 to review GE Capital. The goal of the webcast is to review strategy, funding, liquidity, risk management and details behind the recently announced $2 billion cost reduction program at GE Capital.

Opportunity for GE to Lower 2009 EPS Expectations? — Firm believes the webcast could also serve as a venue to lower 2009 EPS expectations. Normally the coming year guidance is communicated by CEO Jeff Immelt at the late December meeting which is scheduled for 12/16 this year.

Historical Precedent For Guide Down — In prior years, when street estimates were too high, GE has held late Nov/Early Dec meetings and used them as a forum to lower expectations so the CEO could focus more on strategy, etc at the late Dec meeting. The likelihood of this being the case this year appear reasonably high given the short notice on the webcast and the unprecedented macro and financial upheaval. Cit notes they cut their ‘09 GE estimates on 11/14 to $1.65 and while numbers have drifted down since, the street is still at $1.75. Further, the risk to their below consensus estimate appears biased to the downside.

Notablecalls: Interesting call from Citi - something I would call research (or a research call). The stock has recovered nicely from the $12-$13 level and could get hurt on this call.

Friday, November 28, 2008

Bank of America (NYSE:BAC): UBS lowers tgt to $15.50

UBS is out somewhat negative on Bank of America (NYSE:BAC) noting that they recently lowered target prices for many of our bank stocks (with BAC one of the few left unchanged). The lowering of BAC target price to $15.50 from $29 today reflects: 1) Firm's outlook for tighter credit availability, which will likely lead to higher credit losses for banks in general in 09 (incl at BAC); 2) Greater uncertainty over the near-term prospects of the MER deal—reflecting both concern over further writedowns at MER and downside bias to MER’s EPS power; and 3) risk of additional writedowns at BAC given recent widening of credit spreads (even after yesterday’s tightening)

Lower credit availability likely to lead to higher losses in 2009

In BAC's view, credit availability will likely remain tight into 2009 as banks focus on maintaining sufficient capital and liquidity levels given the current difficult operating environment. This will likely put further pressure on both consumers and commercial borrowers, leading to higher credit losses in 2009.

Concern over lower earnings power at combined BAC/MER

They think there is risk to MER’s earnings power given continued pressure on MER’s capital markets related businesses. Also, we think further writedowns at both MER and BAC are possible given recent widening of credit spreads.

$15 price target assumes 1.1x pro forma BAC/MER tangible common book per share estimate of $13.25

Notablecalls: Would have been all over this one 3 months ago. Today...not sure. So you know it's out there. Could very well be the Street low tgt for BAC.

Tuesday, November 25, 2008

Legg Mason (NYSE:LM): Downgraded to Underperform, $7 tgt at FBR (Actionable Call Alert)

Friedman is out with a pretty major downgrade on Legg Mason (NYSE:LM) to Underperform, while lowering their tgt to $7 from $11.

Firm notes they are increasingly concerned about the company's $3.9 billion of non-bank SIV exposure, as the expiration of support agreements begins as early as this month and asset values remain under pressure. This is especially concerning with regard to their operating estimates, which suggest that the company is on track to trip certain debt covenants, adding additional liquidity risk. While the firm believes there are several scenarios under which the company can avoid a complete liquidity crisis, they view LM shares as overvalued relative to peers, given its leveraged balance sheet and falling EBITDA, which create additional risks to shareholders' equity.

Compounding the liquidity problems caused by the SIVs are Legg Mason's debt covenants, which restrict Legg's ability to access additional borrowings and stipulate a required debt/EBITDA ratio below 2.5x. Given the falling assets under management, FBR believes the company is on a run-rate to exceed the 2.5x leverage ratio (based on a trailing 12-month basis), which would require the repayment of a $500 million revolver and $550 million term loan.

Adjusting for the impact of recent market performance an expectation of accelerating investor outflows from equity and bond funds, FBR is lowering their FY09 and FY10 earnings estimates, which do not reflect any additional SIV charges, by $0.05 and $0.19 to $0.04 and $2.46, respectively. More importantly, they estimate that, by the end of the December quarter, trailing 12-month EBITDA will be approximately $976 million, which, depending on the expected value of contingent payments to Permal, could potentially result in noncompliance with the 2.5x leverage covenant.

Notablecalls: This one reads badly for Legg Mason (NYSE:LM). It seems the co has very little in terms of positives on the horizon. Au contraire, there seems to be lots of bad news in store for them:

- Performance is going to deteriorate. Pressure on EPS.

- I suspect we're going to see Bill Miller leave (outsted) the co. The news could come as soon as this year.

- Covenant issues - the killer.

I feel this one will be a sub-$10 stock in the very near future.

Going to call this one an ACTIONABLE SHORT.

Google (NASDAQ:GOOG): Analyst chatter this AM

Seeing lots of positive/defensive commentary on Google (NASDAQ:GOOG) this morning:

Barclays says sell-off overdone. Still thinks GOOG consensus # are too high for 4Q08 (+5.2% Q/Q net revs) & 2009 ($22.25 PF EPS), but stock clearly anticipating much lower numbers. And there are some early signs from SEMs that conversion rates & search spending have picked up a bit over the last couple weeks.

Piper Jaffray reits Buy and $600 tgt saying October, total query volume on Google grew 7.4% m/m, which has been the strongest sequential showing since March

MLCO reits Buy and $468 tgt.

Google to cut contract workers - WSJ (this was rumored yesterday..probably main reason why it underperformed the mkt..also people were anticipating worse comScore data..which ended up being not that bad) - FYI Only

Thursday, November 20, 2008

Lincoln National (NYSE:LNC): Encouraging comments from Barclays - Bounce?

Barclays has some interesting comments on Lincoln National (NYSE:LNC) following yesterday's investor-day presentation. Note the stock was down over 40% yesterday - yet, Barclays' comments seem pretty encouraging. Firm reits their Overweight rating and whopping $60 tgt on the name.

Firm notes they like Lincoln, despite the drop in its stock price: It’s being direct and blunt with investors.

Their view, in short, is that Lincoln’s public-relations strategy – and that is exactly what it is and needs to be, a public-relations strategy – is both apparent and intelligent. It is to be the first insurer to report on the negative impact of fourth-quarter developments on the theory, presumably, that the company that reports bad news early will suffer less of a hit to its stock
price over the long run than the company that drags out the process. More than being about first, however, the strategy seems to be out laying out the facts about Lincoln as comprehensively and with the least possible positive varnish that Lincoln can use. Management’s thinking would appear to be that if Lincoln focuses on the right issues (capital, liquidity and investments), sticks to the facts and doesn’t try to sugarcoat the problem or somehow try to persuade investors that there isn’t
a problem, that Lincoln will end up far better off than if Lincoln were to try to divert investors’ attention.

Barclays couldn’t agree more with this strategy: Being straight up with investors is absolutely the best strategy, in firm's view, even if over the short term it is costing Lincoln further reductions in its stock price. In fact, they’d say that while lots of what Fred Crawford, Lincoln’s CFO, and other senior financial executives at Lincoln, had to say yesterday was new, none of it should have come as a surprise.

Make no mistake: Lincoln is sailing through a bad, bad storm. But it is the same storm that others are smack in the middle of too. Firm believes the fact that Lincoln is addressing head on and in technical detail how it plans to handle the swells should be commended. Indeed it is precisely because Lincoln has acknowledged the issues and is talking to the world about how it is managing through them that leaves them thinking it will be among the survivors.

Notablecalls: Sounds pretty encouraging. I suspect we will get a bounce in the names (LNC, HIG, PRU, MET) today as a lot of the bad news has been discounted here. Rhymes with my market call.

Citigroup (NYSE:C): Saudi Prince Alwaleed plans to boost Citi stake back to 5% - DJ

- he is saying they have raised 50B in private capital.

Notablecalls: This is huge news for C and the whole market. Remember what happened the last time Alwaleed bought Citi?

Wednesday, November 19, 2008

Research in Motion (NASDAQ:RIMM): Added to Conviction Buy List at Goldman Sachs

Goldman Sachs is adding Research in Motion (NASDAQ:RIMM) to Conviction Buy List with a $68 tgt, representing 44% upside.

RIMM is down 62% in the last 3 months compared to 51% for firm's coverage median and 32% for the S&P 500, on concerns of slowing demand and margin compression as a result of competitive offerings from Apple and others.

Goldman believes that following its sharp pullback, the stock already prices in the risk that FY10 (Feb) Street estimates will come down further, and they remain 20% below consensus at $3.62 vs. the Street at $4.55, reflecting just 4% YoY growth. However, with the stock trading at 13X below-consensus estimate, compared to the S&P500 at 11X and coverage median of 16X, they see the valuation as compelling, as they think RIM can grow its earnings in the high teens going forward past 2009 due to its increasing market share in the rapidly growing smartphone market. Firm sees 44% upside to their 12-month price target of $68, based on 19X P/E.

The catalyst?

Goldman thinks RIM will reach the low end of its F3Q (Nov) guidance for four reasons. First, as noted in their 11/16/08 report, checks reveal that sales of its recently introduced Bold device are off to a good start. Second, the fact that the launches of both the Bold and the upcoming (on Nov. 21) Storm fall within F3Q suggest reduced risk to numbers given the need to fill the channel. Third, despite acute investor concerns over the impact on RIM’s business from the market turmoil, our IT Survey taken in mid-October showed a relatively mild deterioration in US enterprise demand; for context, the financial services vertical drives around 12% of RIM’s sales. Fourth, firm's estimate of more than 500bps margin compression over five quarters may prove conservative due to 1) a stronger US$ which helps from an opex and component perspective, and 2) a possible slowdown in hiring and marketing spending in response to the deteriorating macro.

Notablecalls: Well, RIMM will trade up from here. The call is also a clear sentiment positive for the whole market. Think the stock can challenge the $50 level on this call.

PS: Spoke to a tier-1 trader this AM who said SP will hit 900 soon.

Monday, November 17, 2008

United Therapeutics (NASDAQ:UTHR) : JP Morgan defending

JP Morgan is out defending United Therapeutics (NASDAQ:UTHR) after the phase III FREEDOM-C trial did not meet the primary endpoint of improvement in exercise capacity, as measured by the 6 minute walk distance (6MWD) in PAH patients receiving oral Remodulin in combination with Tracleer or Revatio over those receiving Tracleer/Revatio alone.

Firm recalls that the FREEDOM-C protocol was amended to allow dose titration with smaller steps through the introduction of 0.5mg and 0.25mg doses, it is possible that together with a positive FREEDOM-M trial (which has a lower bar of needing to beat only placebo) and the new FREEDOM-DR study with all patients having a easier dose titration, oral Remodulin could still achieve regulatory and commercial success. United’s conf call is at 9 am (800 603 1777 US) and JPM is hosting a conference call today at 11am ET with Dr. Jeremy Feldman, KOL and FREEDOM-C investigator to discuss the implications of the results (dial in forthcoming). Firm maintains their Overweight rating and believes that IV/SQ and inhaled Remodulin support a valuation > $70-75/sh and based on today’s FREEDOM-C results, they still believe that oral Remodulin has a path to market.

FREEDOM-M looks more likely to succeed. Improving the standard of care (FREEDOM-C) is a much more difficult clinical achievement than merely showing activity against placebo. The growth opportunity for the Remodulin franchise is likely as oral monotherapy in Class 2-3 patients; hence JPM believes the 6MWD improvement in the FREEDOM-M trial is an important dataset.

They believe oral Remodulin could ultimately double the size of the PAH opportunity for United.

Notablecalls: UTHR looks interesting as a bounce candidate. Very fast moving stock so adjust your risk accordingly. Havent heard from other firms yet. - FYI

PS: Deutsche now out with a dg to Hold from Buy, $70 tgt.

PPS: Barclays out defending, reits Buy and $137 tgt.

Friday, November 14, 2008

Atlas Pipeline Holdings (NYSE:AHD): Rating lowered to Sell, $4 tgt - Citigroup

Citigoup is out with a pretty powerful negative call on Atlas Pipeline Holdings (NYSE:AHD) downgrading the shares to Sell from Hold while lowering tgt to $4.

Firm notes Atlas Pipeline Partners, L.P. (NYSE:APL) has debt covenants that call for maintaining a Debt/EBITDA ratio of no more than 5.25x and EBITDA/Interest coverage of no less than 2.75x. In view of continued weakness in commodity prices and current debt levels ($1.4 billion net debt), APL could potentially be in violation of its covenants as early as Q1:09. Firm is lowering their target price on APL to $9.00 from $14.50.

Impact on AHD Amplified — As with other general partners, changes at APL will be amplified at Atlas Pipeline Holdings, L.P. (AHD). A reduction in distributions to the minimum level would effectively eliminate all IDR cash flows that AHD currently receives (~$36 million annualized). Unless APL engages in combination with AHD, distributions at AHD may have to be lowered to ~$0.16/unit.

Amplified Effect on AHD: While the situation at APL appears dire, the situation at the general partner Atlas Pipeline Holdings, L.P. (AHD) could be even worse. General partners such as AHD do not have any operations of their own and their primary asset comprises of incentive distribution rights (IDRs) in the MLP that allows the general partner to collect an increasing percentage of the cash flows as distributions at the MLP increase. This leverage works both ways. A distribution cut at the MLP will have a much larger impact at the general partner. Therefore should APL cut distributions to the minimum level as Citi is anticipating, distributions at AHD may have to be cut by over 90% to ~$0.16/unit as AHD will no longer receive IDR payments which are currently running at ~$36 million annually.

Notablecalls: Citi's call sounds pretty much like a death sentence for AHD (and of course APL). I would not be surprised to se AHD down $1+ on this call.

Genworth Financial (NYSE:GNW): This is good news for GNW, Reit Buy, $16 tgt - UBS

UBS has some interesting positive comments on Genworth Financial (NYSE:GNW) after the co announced it borrowed $930M of its $1.7B available credit facilities to repay $1.1B of senior notes maturing in 2Q09—after which GNW has no long-term debt maturing until 2011. According to UBS, GNW may be able to purchase a significant amount of this debt in the open market at a discount to par. Liquidity also appears sufficient at life and mortgage insurance operating company levels.

Capital seems adequate for double-A S&P/AM Best ratings in near-term
GNW reported a 3Q08 RBC ratio of 360% (levels typically consistent w/ double-A ratings). In 4Q08, it freed $115M in capital and was working on another $500M in capital-relief efforts (half internal). If credit losses are similar to 3Q08’s $(321)M, the firm thinks GNW may avert further downgrades through at least another quarter.

Asset sales—if possible—would help GNW’s capital and liquidity position
GNW could reinsure run-off blocks of life insurance and annuities; divest of some or all of its international businesses (including lifestyle protection and mortgage insurance); or sell its smaller wealth mgmt businesses. However, buyer demand for these assets could be light. Most insurers appear capital constrained at this time.

Valuation: Adjusted 4Q08E BVPS
UBS $16 PT assumes ~(30)% discount to GNW’s 4Q08E BVPS (which factors in quarter-to-date fair value declines in its investment portfolio) to reflect the possibility of a book value dilutive capital raise.

This is good news for GNW—since some observers suggested that the credit facility would not be accessible, as was the case for AIG when it tried to draw on its bank credit lines on September 15. Even after the good news, some suggested that this appears to be a desperate move for an investment-grade rated company. But, make no mistake, these are unprecedented times. And, GNW is
doing the right things to protect its liquidity.

Notablecalls: I have a bet going on since yesterday - GNW will surpass the $2 level today or I will be making 30 push-ups.

I don't plan to lose that bet.

GNW has $3.8 bln in cash - sufficient to fund $3.7 billion in GIC and funding agreements that may be
coming due in the next 12 months.

The stock is still trading like a Chap-11 candidate, yet the news from yesterday pretty much migitated these concerns.

I suspect GNW will trade above the $2 level today.

Thursday, November 13, 2008

Bring it on, Rally Monkey!

I suspect now is the time to bring out the....


Was watching Bloomie TV last night as commentators went ga-ga over the 'terrible and way unexpected' warning from Intel (NASAQ:INTC).

The stock is down around 6% this morning.

They didn't say anything we didn't already hear from Best Buy (NYSE:BBY) yesterday. Demand has fallen off the cliff and inventory levels have grown. Notice how BBY bounced?

It was only matter of time when the Wall St. induced crisis hit the Main Street. It's here and the stocks have already discounted it.

Paulson put out the open flames at fin. institutions and is now moving on to support the consumer. While the markets yesterday took this as a negative signal, I do believe this is really the prudent step. You can't support the whole system from one end alone.

Oh and, btw - Goldman's Conviction Sell for Dell (NASDAQ:DELL) is just silly. This thing has $2 in EPS power in better times.

Bring it on, Rally Monkey!

Wednesday, November 12, 2008

Wyeth (NYSE:WYE) : Added to Conviction Buy List at Goldman Sachs

Goldman Sachs is adding Wyeth (NYSE:WYE) to their Conviction Buy list on the significant gap between the current share price and break-up value of $50.

Wyeth’s strength in biologicals and vaccines and the lack of extreme patent exposure make it one of the most attractive fundamental stories in Pharma. These assets are underappreciated due to the overhang of WYE’s core Pharma business. Recent biotech price-tags reflect the industry’s willingness to pay a premium for these assets. Management has recently signaled a commitment to its growth assets, de-emphasizing primary care research. Firm's 12-month price target is $46, yielding 39% potential upside.

Notablecalls: These things tend to move.

Las Vegas Sands (NYSE:LVS): LVS raises dilutive capital but eases balance sheet strain - Goldman Sachs

Goldman Sachs is out positive on Las Vegas Sands (NYSE:LVS) after the co announced an additional capital raise of $2.1bn.

Firm is maintaining their Buy rating on the shares but acknowledge that it will take time for full value to be realized and in the near term exogenous factors (visa restrictions loosened in Macau/broader global macro travel environment) and non core factors (condo sales in Macau) will drive operating results and share performance. The reason they are maintaining their constructive view is that at this point much of the bad news is in the stock and there is significant “option” value if trends recover and future growth opportunities (additional development in Macau) rematerialize.

Goldman is lowering their 12-month price target (based on sum-of-the-parts) to $9.50 from $25 based on lower estimates and to take into account the dilution from the capital raise.

Notablecalls: I suspect the stock is ready for a bounce here. It broke the $5.50 pricing yesterday in a hurry but given the fact they have avoided insolvency at least for the time being, big money operators will be looking to shake out the shorts.

PS: Note Jefferies is also out in defense of LVS saying they still believe in the co. LVS. The capital raise keeps LVS solvent in the near-term, and the long-term value is substantial with company forecasted 3.0x leverage in '12 (EBITDA $3.5bb). Firm's new target comes to $19 vs. $44, to reflect the dilution from yesterday's securities issuance and significant model revisions.

Tuesday, November 11, 2008 (NASDAQ:PCLN): Estimates cut below consensus at Morgan Stanley

Morgan Stanley is out rather cautious on (NASDAQ:PCLN) taking their estimates way down.

Firm notes they would remain on the sidelines as global economic conditions deteriorate. The consumer spending slowdown, higher gas prices over the past year, the hassle factor for flying, airline capacity cuts, airline price increases and possible airline consolidation, and the reversal of foreign exchange benefits may weigh on results for the foreseeable future. Their updated model trims estimates to reflect these macro forces. Morgan maintains Equal-weight rating and is removing their price target given the lack of visibility.

Priceline beat expectations across the board, demonstrating its ability to take market share as the value brand in a weakening global economy. PCLN’s share of gross bookings hit 20% among the major online providers vs. 15% a year ago. Management referred to global economic conditions that deteriorated near quarter’s end, however, and international weakness that became particularly pronounced in late September and October, caused in part by FX. As such, the company warned of greater variability ahead for financial results given “the velocity of economic change.”

For 4Q08, firm's gross bookings estimate drops to $1.3 billion from $1.7 billion on the weak travel environment. Their revenue estimate drops to $375 million from $440 million million, and EPS estimate to $0.59 from $0.89.

For 2009, revenue estimate drops to $1.9 billion from $2.3 billion, and our EPS estimate to $3.88 from $4.89.

Notablecalls: Compare MSCO's estimates to consensus and you will see the firm now stands way below. I suspect PCLN will get hit today on this and the fact MSCO has removed their price tgt on the name. This means they no idea how to value the co.

Monday, November 10, 2008

General Motors (NYSE:GM): Deutsche cuts to Sell, $0 (zero) price tgt

Deutsche Bank is out with a major call on General Motors (NYSE:GM) downgrading the shares to Sell from Hold, lowering tgt to $0 from $4.

At this point, without external government intervention, their work shows GM may not be able to fund its U.S. operations beyond December. Even if GM’s suppliers do not change the company’s commercial payment terms, GM’s U.S. cash position will likely decline to less than $5 bn by late December, and the firm believes that this level could be overwhelmed by payables coming due in early January.

A government bailout not likely to help shares; lowering GM to Sell (PT zero)
Even if GM succeeds in averting a bankruptcy, Deutsche believes that the company’s future path is likely to be bankruptcy-like. They believe that the U.S. may ultimately need to provide GM with at least $10 bn in loans to keep the company afloat through 2009/2010, and potentially as much as $25 bn to fund GM’s cash burn and restructuring. While they believe that that GM’s secured creditors may get a par recovery, unsecured creditors may get very low recovery. Equity shareholders are unlikely to get anything. Firm is lowering their target on GM equity to $0.

Notablecalls: $4 level will be broken today. If you can find shares to short, GM is prolly headed toward $2.5 in the n-t. It's THAT bad. End of an era.

Las Vegas Sands (NYSE:LVS): Tug of War

There will be a tug of war today in Las Vegas Sands (NYSE:LVS) as two pieces of news are out:

- Merrill Lynch is downgrading the stock to Underperform from Neutral while lowering their tgt to $7 from $15. LVS needs to raise capital to cure US covenants, which it expects to violate in 4Q, and to fund growth projects. In base case scenario – building only Cotai sites 5/6, Singapore, Four Seasons condos and a reduced PA casino – Merrill estimates LVS needs to raise $2.75bn ($750mn to maintain covenant compliance, $2bn to fund growth). Their $7 PO assumes a common equity offering at $5.62, a 20% discount to the 11/7/08 close.

Capital raise, growth pipeline curtailment necessary
Firm estimates LVS will need to raise $750mn to $3.5bn in the form of convertible bonds, common/preferred equity, PIPE, or subordinated debt. This range encompasses sufficient capital to maintain US covenant compliance and: 1) fund its full growth pipeline, 2) proceed only with Cotai Sites 5/6, Singapore, the FS condos, and a scaled down PA casino, or 3) cancel all projects. See pages 4, 5, and 6.

Covenant issue, not a maturity issue, but default risk high
If LVS fails to raise sufficient capital to regain covenant compliance, it would need to seek amendments/waivers to its US credit agreement. If LVS were unable to secure amendments/waivers, its US subsidiaries would be unable to draw down on any available borrowings and it would be in default on its US facilities, airplane financings, convertible senior notes and senior notes. In a worst case scenario, there is a risk of bankruptcy.

- On the other hand NYT Dealbook is out with the following:

Casino giant Las Vegas Sands will detail its plans to handle its debt crisis early next week, according to a person close to the company, a development that may ease bankruptcy worries and could include another capital infusion by billionaire founder Sheldon Adelson, The Associated Press reported, citing a person close to the company.

Notablecalls: I think MLCO is way late to the game here. Not saying LVS is a buy here but I suspect it's not going to be an easy short around the $7 level.

FYI - so you know its out there.

Friday, November 07, 2008

Wells Fargo (NYSE:WFC): Squeeze?

WFC: hearing two things:

- Barclays out saying S&P will have to buy 46.5 mill shares of wfc for a rebal today

- 75% of the 11b went to top 25 holders

Notablecalls: 46.5M shares is more than 10% of the offering size. 75% of the 11B going to big holders takes the flippers out of the equation.


Wells Fargo (NYSE:WFC): FBR reits Underperform, lowers tgt to $20

Friedman Billings Ramsey is reiterating their Underperform rating on Wells Fargo (NYSE:WFC) noting that following its $11 billion capital raise, WFC's tangible common equity to assets ratio is just 3.3%. Given this low level, and their expectation that WFC will have to come back to the market and raise more capital, they reduce their price target to $20 (from $25). Target equals to 2.0x 3Q08 tangible book value.

Why is tangible common equity important? It is the most important measure of a company's capital, as it is in a first loss position, and is a significant driver of a company's share price. If common equity is reduced by losses, book value shrinks and a stock will trade lower, regardless how much preferred equity is outstanding. FBR considers 3.3% tangible equity to assets a level of considerable leverage, particularly when faced with deteriorating credit quality, merger integration risk, economic weakness, and increased regulatory scrutiny. They also reduce 2009 operating EPS estimate to $1.70 (from $2.15), which largely reflects higher provision expense, based on WFC's guidance for approximately one-third of expected losses on Wachovia's loans to occur after the transaction closes. Firm initiates a 2010 operating EPS estimate of $2.65. Wells Fargo is clearly among the best depository franchises in the nation, and its position is only bolstered by its acquisition of Wachovia. While the acquisition makes strategic sense over the long run, they can't get comfortable with its near-term capital position or the shares' premium valuation.

Notablecalls: So now FBR slaps a $20 tgt on WFC. Can the shorts in WFC really have it this easy? I mean everyone was short the name yesterday in anticipation of a low pricing.

I don't think the shorts will wiggle out of this that easy.


Thursday, November 06, 2008

Notable Calls Network (NCN): Las Vegas Sands (NYSE:LVS)

We caught some nice moves in Las Vegas Sands (NYSE:LVS) on Notable Calls Network (NCN) today:

- Around 7:42 AM ET this morning a top NCN member pinged me with the following snippet from LVS' 8K filing:

'..If the capital raising program is unsuccessful and the Company does not have access to the available borrowings under the U.S. senior secured credit facility, the Company would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives. These factors raise a substantial doubt about the Company's ability to continue as a going concern..'

Knowing how sensitive the the Casinos have become to negative credit comments, I immediately distributed the snipped to all available NCN members with an added comment - 'This could potentially kill the stock'

There was ample size to be had short above the $10 level.

The stock quickly started to decline in pre mkt trading as the news of the 8K filing spread among trading desks.

Les than 15 minutes later the stock was already trading sub-$9 level and then sub-$8 level 30 minutes later.

- Around 8:25 AM ET another very knowledgeable NCN member pinged me with the following:

'..LVS sounds horrible but being told this is standard language in the 8k for Sarbanes, and could see TIER 1 to defend big soon..'

The stock was trading around $8 (or lower) and was clearly starting to find some buyers. So I distributed the comment to other NCN members as fast as I could, adding only a 'FYI ONLY' to the comment , implying it would be a somewhat risky bet.

The comment did make some sense, so I felt a heads up was in order.

The stock continued to zig-zag around the $8 level (+/- $0.50) until open when indeed we got some defenses from tier-1 firms.

The stock shot up $1+ in the first 15 minutes of trading offering a nice exit for the brave ones who had taken some long in pre mkt.

- It didn't take long for the fear (and general market weakness) to set in. The stock got crushed again over the next hours breifly hitting the low of $6.5 around noon.

- Around 1:10 PM we got word that Jefferis & Co was out defending LVS:

'..Jeff out with strong defend on LVS - particularly attractive on the recent massive sell-off. Shorter-term, we remain confident as we expect additional funds to be raised soon and news allowing vacation..'

As you can see, around $1 worth of upside was up for taking on this call. Mind you, in my humble opinion, Jeffco has one of the worst track records in the space but the call did work (for some reason). Guess people tend to forget & forgive after all :)

This is how Notable Calls Network (NCN) works - sharing the flow. We catch them every day.

Not all calls are this good (we get many wrong as well) but NCN is for the pros. You decide which calls to take and which one's to leave.

Want to be part of NCN?

It's easy. Just 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.

Wednesday, November 05, 2008

Auto Zone (NYSE:AZO): Downgraded to Underperform, $110 tgt at FBR

Friedman Billings Ramsey is out with a major downgrade on Auto Zone (NYSE:AZO) taking their rating to Underperform from Mkt Perform while lowering tgt to $110.

At a minimum, the firm does not think that AZO's stock price will be able to keep up with its peers, nor with the overall equity market. As with other retailers, sales have likely slowed for the sector since the end of AutoZone's fiscal year (August, 2008). When AZO had last reported, comp store sales were +0.6% and had been helped for that period by the tax stimulus. At Gabelli's after-market automotive conference yesterday in Las Vegas, the firm found most companies generally cautious about current sales trends. Therefore, they estimate that AZO's same-store sales are currently tracking at -2% for 1Q09E.

Separately, they are concerned that competitive pressures will accelerate for AZO, with AZO currently operating at hardline retail sector-high operating margins (EBIT) of 17.1% (LTM), which are up from 14.5% in 2002. Competitor O'Reilly Automotive (ORLY) vows to step up its investment in both inventory and price within its newly acquired CSK stores. This investment is also slated to take place in key markets for AZO (namely, the West Coast).

FBR has revised down their AZO earnings estimates;

Notablecalls: Talking to a especially well connected senior NCN member who thinks this one will kill the stock. He thinks a $10 haircut (towards $110-$112 level) may be in the cards here. - FYI

Southern Copper (NYSE:PCU): Downgraded to Sell, $10 tgt at Deutsche Bank

Deutsche Bank is out with a groovy downgrade on Southern Copper (NYSE:PCU) to Sell from Hold. According to the firm, the downgrade is based mainly on valuation and the stock's impressive rally - PCU has gained 70% in 6 trading days since hitting a low of US$9.84/share on October 27th compared with a gain of 18% for the S&P500 (and a 39% rally for competitor Freeport-McMoRan and a 14% move in LME copper prices). DB's Price Target of US$10/share continues to be based on 9x 2009E EPS of US$1.08 and, with PCU's stock at US$16.77/share, PCU trades at a rich 2009E PE of 15.5x, or ~2x the multiple of its peer group (7.3x).

Notablecalls: PCU has had a nice run since that Actionable call from Citigroup last week. I feel the stock needs a breather and DB's downgrade will bring just that. I see it coming back towards sub-$15 level in the n-t.

Microchip Tech (NASDAQ:MCHP) downgraded to Sell at Goldman Sachs

Goldman Sachs is out with a interesting downgrade to Sell on Microchip Tech (NASDAQ:MCHP) noting their checks indicate the market is starting to shift away from its core strengths, leading them to reevaluate the story. Firm says they have done extensive field work on the microcontroller market, prompted in part by Microchip’s proposal on October 2, 2008, to acquire Atmel’s MCU business. They have conducted more than a dozen meetings and calls with industry participants and contacts. They also spent two full days at the Embedded Systems conference in Boston on October 27-28, meeting with dozens of companies in the MCU ecosystem to garner insight into the state of the market. The slowdown in Microchip’s core growth and impact from increasing competition in MCUs is at the center of the downgrade to Sell from Neutral as well as a reduction in estimates and price target.

GSCO expects Microchip’s growth to be negatively affected by the following three points:

1) checks suggest an increasing pace of upgrades away from 8 bit to 16 and 32 bit, driven in part by ARM-based products;

2) Microchip is underexposed to fast-growing applications such as touch control and ultra low power;

3) Increasing competition, especially from large diversified companies (STM, TXN Freescale), which may lead to pricing and gross margin pressure in addition to slower growth. These factors, combined with what they view as an unwarranted 20% premium valuation in MCHP relative to its peers, lead the firm to a more negative stance on the stock. Firm adds that MCHP has outperformed the SOX by 20% in the past year and by 40% from the market low in 2002. They are lowering 6-month price target to $21 from $26.

Notablecalls: This is a pretty strong downgrade from Goldman. They went out and gathered new info. That's what every analyst should do. Goldman's tgt is way below current mkt price - I suspect the stock will get hit today.

How big of a hit?

Well, that depends on the market. If we are in a pull-back mode MCHP could see 7-8% downside today.

Tuesday, November 04, 2008

Nitrogen Expectations Reset, Upgrading AGU, CF and TRA to Buy - Citi

Citigroup is upgrading AGU, CF and TRA to Buys from Holds following the recent share price declines. Due to price volatility, their risk assessment is Speculative. While they lowered '09 estimates stand below consensus, which the market already views as too high, valuation on all three stocks seems attractive. Firm believes the majority of the fertilizer and corn price declines may be behind us and continue to prefer Top-Pick POT due to production discipline in potash.

Deep Recession Scenarios – While not base-case, Citi estimates that the '09 global grain stocks-to-use ratio could rise to 18.4% from 17.0% if corn use in ethanol remains flat YoY and could climb to 19.0% if feed demand also plateaus.

Stocks Discount $2.75 Corn – Revised '09 fertilizer price forecasts imply that the average retail cost to a US corn farmer would total $0.98 per bushel of corn grown, a historically high level, while the equities discount fertilizer cost falling to roughly $0.60/bu, which would be more consistent with a $2.75/bu corn price.

Ethanol Points to $4 Corn - Near-term, Citi sees corn prices continuing to track ethanol, since the marginal bushel of corn appears to be consumed in fuel production, with a high YTD correlation of 0.93. Firm estimates that ethanol plants can breakeven at $4.27/bu corn.

Cattle Points to $3 Corn - Longer term, the sustainability of $4/bu corn will depend on meat prices. Live cattle futures of $0.94/lb support $3.09/bu corn and they estimate cattle prices need to rise to $1.21/lb to support $4/bu corn.

Despite the strong bounce from the "bottom" over the past week, the North American fertilizer producers have still traded down by over 50% since nitrogen and phosphate prices began to decline in late September. While the equities never baked-in record spot prices and margins, the stocks suffered nonetheless, regardless of whether the company produces nitrogen, phosphate or potash, which have vastly different supply characteristics and margin structure.

Notablecalls: I really don't know how investors or traders should go about this call. Remember the morning Citi downgraded CF end of Sept? The stock took a 20pt+ dumper. Will we now see a 10-15pt rally in the name on heels of the upgrade? I just don't see it.

Give me some feedback.

Monday, November 03, 2008

Goldman Sachs (NYSE:GS): Ladenburg lowers to tgt $80 from $140

GS (SELL $80) NEW PRICE TARGET $80,, WAS $140..The problem in the short run is valuation. The company has as a policy the purchase of distressed assets. In the past this has proven to be a very successful strategy generating an estimated $10 billion in revenues. Today this strategy is falling under the new mark to market accounting rules. These rules are forcing write downs of the acquired assets and this may harm earnings.Additionally, the value of the Industrial and Commercial Bank of China holding may have been lowered by as much as 30%.

Notablecalls: Ladenburg's Dick Bove is among the Axes. Looks like GS is headed lower.

Goldman Sachs (NYSE:GS): Merrill Lynch calling for negative Q4 EPS

Merrill Lynch is out with a big slash on Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS):

GS 4QE (Nov) to -$0.49 from $2.98 and MS 4QE to $0.36 from $0.72. Key driver is terrible recent global equity market performance. Effect magnified at GS by significant exposure via prop, Pvt. Equity businesses, though equity rebound by 11/30 could change picture. Also, MS may have more comp. leverage given better 2H result, larger YTD accrual.

Trading volume surges on de-lev’g, but marks outweigh
Fixed Inc. trade volumes up sharply as de-leveraging triggered trading activity across Treasuries (+20%), MBS (+29%) Inv. Grade (+10%). But spreads gapped significantly from previous highs as credit markets seized in Sep: High Yield spreads +723bps and Inv. Grade spreads, +193bps QTD. Equity mkts have fallen sharply (S&P 500: -25%, NASDAQ: -27%), on very strong volumes (NYSE: +43%, NASDAQ: +22%).

Inv. Banking hurts as M&A weak; Debt U/W abysmal
M&A closings down 25% sequentially to $472bn, Anncts. also down following marquee deals last quarter (-18%). Annc’d/Completed ratio for 4Q is running 1.4x, indicating pick-up in backlogs. M&A fee backlog now $7.3bn, up 2.3% from 3Q end, but down 7.6% from last month, and off 21% from Oct-07. Equity U/W running down 43% QTD (-55% YoY), with Int’l driving weakness (-74% seq.). US up 52% on weak 3Q, though lucrative IPO business fell to zero QTD. Debt U/W extremely weak.

Goldman Sachs (NYSE:GS) price tgt is cut to $100 from $159. Morgan Stanley (NYSE:MS) tgt remains at $25.

Notablecalls: Phew, this is a BIG cut. One has to embrace the fact MER is calling for negative EPS in Q4 for GS. Yes, n e g a t i v e!

I see GS going below $90 level today.

Apple (NASDAQ:AAPL): iPhone production forecast is now under pressure- FBR

Friedman Billings Ramsey (FBR) is out with a very negative call on Apple's (NASDAQ:AAPL) iPhone demand:

Our most recent checks suggest to us Apple's iPhone production forecast is now under pressure. While our previous checks indicated that iPhone production would fall about 10% sequentially in calendar 4Q, our new checks indicate that iPhone production could fall more than 40% sequentially in 4Q. We believe asimilar amount of production was removed from the calendar 1Q build forecast, though there is still plenty of time to modify that forecast should further revisions be necessary ( - firm sees this neg for BRCM, MRVL, LLTC).

Notablecalls: Note that at the beginning of Oct Apple said iPhone builds remained healthy. Looks like iPhone demand has deteriorated over the past weeks. This is going to hurt AAPL.

Friday, October 31, 2008

PharmaNet Development (NASDAQ:PDGI): Shares are 98% off annual highs; Upgrade to Outperform, $7 tgt - Baird

Baird is out with a pretty interesting upgrade on PharmaNet Development (NASDAQ:PDGI) raising their rating to Outperform with a whopping $7 tgt saying they believe that PDGI is increasingly likely to successfully address the convertible debt-related liquidity concerns by early 2009. While fundamental performance is poor and market trends not fully certain in the near-term, they believe that resolution of bankruptcy risk fears may drive materially higher valuation, despite PDGI's ongoing challenges.

Massive valuation reset. PDGI shares are 98% off annual highs, due partly to unprecedented performance and bookings volatility and abysmal 3Q trends (preannounced 9/11), market-wide and CRO sector pressures. However, the firm believes current price is severely discounted for bankruptcy fears.

Liquidity issues. Before 3Q reporting, PDGI held $52M cash, looked cash flow negative for
2008, substantially slashed guidance on 9/11, and as the shares imploded the global financial crisis heightened and capital markets activity ground to a halt. Not good, given PDGI's $143.75M
in 2.25% convertible notes, which are putable at $41.08 on August 15, 2009.

Believe PDGI can remedy this crisis. PDGI hired advisors to explore 1) cash tender, 2)
xchange offer, and/or 3) open market repurchases, among other options. Baird believes that
ncreased cash position ($63.3M), A/R collection potential ($124M), $14.1M FCF in 3Q, and
growing interest from outside sources and particular importance of this deal to the advisers lends confidence. They see a range of potential solutions, most of which will be highly dilutive, but resolution should lift the shares sharply off the floor.

This is a highly speculative call, and financing resolution wouldn't remedy all of PDGI's issues. Firm slashed future estimates for f/x risk, unique mix and market risk, a poor bookings profile and implied dilution from any financing venue. While they see PDGI earning its current share price in 3-5 years, they applied deeply discounted multiples (7.5x P/E, 5.6x EV/EBITDA, ultra-conservative DCF) to arrive at $7 price targe.

Notablecalls: Well I'll be damed if PDGI doesn't trade towards $2.50 level soon. I think Baird's wording is strong and will generate some speculative interest in PDGI in the n-t.

Thursday, October 30, 2008

Energy Conversion (NASDAQ:ENER): Margin pothole in mid-2009; Initiate with Sell, $17 tgt - Citigroup

Citigroup is initiating coverage of Energy Conversion (NASDAQ:ENER) with Sell and $17 target. While the stock is already well off its high, they think it can still go lower as they foresee a big margin "pothole" in mid-2009 against broad expectations of margin expansion. C2009 and C2010 EPS estimates are about 1/2 of the Street, and trading at 18x C2010 EPS estimate, if they are right, the stock still seems to have further downside. F2009 EPS $1.61 (consensus $1.65), F2010 EPS $1.35 (consensus $3.39). $17 target is based on 10x C2010 EPS of $1.71.

Thin film solar — ENER has two primary business: thin-film solar uniquely suited for rooftop installations (specifically building-integrated applications where subsidies in some regions are more favorable), and a materials segment principally focused on commercializing NiMH battery technology.

You can run, but you can’t hide — Citi acknowledges ENER's small scale and niche end market (BIPV) in regions like France + Italy may provide some near- term pricing cover, but those mkts are still not big enough to provide much headroom. Meanwhile, collapsing prices for competing x-Si modules should overtake its pricing umbrella by CQ1:09. These floodwaters should force it to get more aggressive on pricing or curtail capacity expansion. Further, unlike x- Si which may count on cheaper silicon as a margin offset or FSLR who can use scale + profitability to take share, ENER appears to have few near-term offsets.

Notablecalls: This call is going to hurt ENER.