Tuesday, March 31, 2009

First Solar (NASDAQ:FSLR): JP Morgan out negative

JPM making very negative First Solar (NASDAQ:FSLR) call...."We are reducing our C09 EPS estimate to $4.43, well below current consensus of $6.58. We are also introducing a C10 ESP est of $4.77, which is significantly lower than current consensus est of $8.38."....they give a slew of reasons why street is underestimating the scope of problems FSLR is facing.....lowering target to $92....would use recent strength from China news to lower exposure....will get chance to buy cheaper-

Notablecalls: Ouch - JPM's the first of major firms to come out very neg on FSLR following the recent rally. Don't know how to play this one, though. It's so very prone to squeeze.

Monday, March 30, 2009

Research in Motion (NASDAQ:RIMM): Revision in the count for installed base coming? - Deutsche Bank

Deutsche Bank has some interesting comments regarding Research in Motion (NASDAQ:RIMM):

Handset outlook remains challenging. Despite some recent signs of momentum, their checks continue to point to a difficult Q1 for handsets. Barring an unexpectedly strong showing from LG and Samsung, Deutsche's Q1 estimate of 243 million units may prove too high. They also see LG and Samsung continuing to make steady progress gaining on industry leader Nokia, with their combined volumes now close to 80% of Nokia’s, up from 12% seven years ago

The Storm around RIM. Firm remains highly cautious about RIM’s outlook. They think trouble in macro economy will put serious pressure on their enterprise business. They would not be surprised to see a revision in the count for installed base. Checks indicate that Bold shipments can only do so much to offset weakness of the Storm. While channel fill with Bold derivatives could prop them off for a quarter, the firm thinks its likely that they will continue their run of three consecutive quarters of disappointing earnings.

Notablecalls: This stuff does NOT read well for RIMM. It's starting to look like margins aren't their only problem. It's also the volume.

I would not be surprised to see RIMM trade down on this call.

Friday, March 27, 2009

Arbitron (NYSE:ARB): Upgraded to Overweight at JP Morgan - ACTIONABLE

JP Morgan is out with a significant call on Arbitron (NYSE:ARB) upgrading their rating to Overweight from Neutral with a $21 tgt.

JPM believes the main overhang to the stock may be removed in coming weeks if its largest client, Clear Channel, renews its contract with the company for its smaller diary markets. Clear Channel’s contract expired in December for the non-PPM markets (they estimate this business represents approx. 5-6% of ARB revenues) and is expected to make a decision on renewal before the April ratings book is released.

Potential Nielsen threat has been a significant overhang to shares. Nielsen’s surprise entry into the radio market late last year hit Arbitron’s stock hard (shares are down more than 40% since the news) as concern spread that Nielsen would go beyond the smaller ratings markets it snatched up and encroach upon other Arbitron revenues. With the diary contract for Arbitron’s largest client, Clear Channel, currently up for renewal, the firm expects to receive more clarity in coming weeks if this threat is real.

They believe a contract renewal with Clear Channel is likely. They believe it is unlikely Clear Channel will move business to Nielsen at this time and therefore believe a renewal with Arbitron is likely. Given already good growth prospects at Arbitron from the rollout of its PPM technology in large markets, the removal of this risk could result in meaningful multiple expansion, more reflective of JPM's projected ~20% EPS CAGR over the next five years.

Compelling valuation. At 5x 09 EBTIDA or 9x EPS, ARB shares have fallen dramatically from their historical averages and from last fall before the Nielsen threat (trading then at 14x EPS). Given the strong earnings profile and good visibility in this business, they would assume the stock would return to at least a market multiple if this overhang disappeared, suggesting 11x 2010 EPS or a $21 stock price, representing significant upside potential to the risk-tolerant investor.

Notablecalls: First of all, I'm calling this one ACTIONABLE LONG. Here's why:

- It was JP Morgan that downgraded the stock back in Nov 2008 on same concerns (Clear Channel/Nielsen) they are refuting today.

- The stock has been absolutely trashed, down around 6-7 pts since the downgrade (initial reaction was 10 pts)

- While the rest of the mkt seems to have put together a nice bounce, ARB has been lagging badly. Kind of similar situation to CB Richard Ellis (NYSE:CBG) couple of days ago. Not saying we are going to see a similar 50% upside move in ARB but the stock will see some serious upside in the n-t.

Waterpistol to the head - ARB can do $16 in the n-t.

Cap of 180MW Is Going to Ruin This One-Day Solar Party! - FBR

Friedman Billings Ramsey (FBR) is out with some comments regarding the Solar sector noting the stocks rallied by an average of 20% yesterday (with China-based names, such as STP and TSL, up 40%-plus, compared to a 2% strengthening of the S&P 500) following the news from the Chinese government that it will provide RMB20/watt in incentives for (most likely) ground-mounted solar PV installations. What the press release did NOT provide is any color on how such incentives will be implemented or whether there is a cap.

After extensive checks with contacts in China, it is now clear to them that: 1) there is a cap of 180MW in CY09 (RMB20/watt, total incentives of RMB2.5B, of which 70% comes from the central government); 2) not even the people in the government (that they contacted) know the details, implying that the details would still need to be worked out and no installation is going to take place tomorrow!; 3) there is a lack of color and clarity on whether this ONE-TIME incentive would be extended next year. Their industry model suggests a best-case demand scenario of 6Gwatt in CY09, with China accounting for 100Mwatt (versus 70Mwatt in CY08), implying 80Mwatt upside, which, in firm's view, will not really matter much.

Such a best-case demand scenario, combined with estimated “shippable” capacity of more than 8Gwatt, suggests that there is still a considerable downside risk to current consensus estimates. To make the point clear, FBR believes they have also learned this week that the solar PV manufacturing industry has yet to see the kind of pickup in orders (shippable and installable in 2Q) that it was “hoping” for only a month ago, when 4Q08 results were reported. This also illustrates the increased downside risk to 2Q revenue/EPS expectations across the board.

- Does this 1% potential (best-case) upside to their best-case industry estimate of 6Gwatt warrant the near-20% upside to solar stocks (from yesterday)? They say, “NO WAY!” Do names such as FSLR even have a chance of getting into the Chinese market to benefit from this 180Mwatt incentive? Again, they say, “NO Way!” Is Europe or the U.S. picking up so quickly as to soak up the current excess capacity (which is being written off every time a solar manufacturer reports earnings)? They say, “Absolutely not!”

Stock net. With their downgrade of TSL shares this morning, they encourage investors to use yesterday’s rally to take profit/short STP and TSL. The firm also expects other names under coverage, such as FSLR, QCE, SOLR, and WFR, to also trend down towards theior price targets.

Notablecalls: I've always liked FBR's approach to Solars and I know their comments carry a lot of weight among the investing community.

I'm not entirely sure though one must approach these stocks on the short side today. Momentum has a funny way of continuing beyond everyone's expectations. I may be wrong here but getting caught short in these can be a cruelsome experience.

Just FYI.

Thursday, March 26, 2009

Shanda (NASDAQ:SNDA): Downgraded to Sell at Roth

Roth is out downgrading Shanda (NASDAQ:SNDA) to Sell from Hold with a $30 tgt noting the shares hit a new 52-week high yesterday and are now up +87% from their Dec-08 lows. Firm believes the stock is ahead of itself at current levels and think there are better risk to reward opportunities in the sector.

Roth's thesis. Their downgrade is based upon the following: 1) overly optimist expectations for AION 2) operating margin pressure in 2H09 3) growing competition and 4) valuation.

AION - sell the hype. Shanda will begin limited-CB for AION today, with unlimited-CB scheduled to begin on Apr-8. We advise investors to use the recent share price appreciation - largely due to hype surrounding AION launch (and co-op announcements) - to take profits. Four key risk areas for this game/Shanda include: NcSoft's lack of a track record in China, potential hacker problems, restrictive HW requirements, and license fees.

Operating margin pressure. They believe Shanda will face operating margin pressure in 2H09 and will be unable to maintain OM's above 40% despite incremental new revenue. This is due to lower margin revenue associated with AION and increasing OpEx related to the company's expansionary efforts and new game releases.

Growing competition. Firm believes Tencent will overtake Shanda as the largest online game operator in China either this year or next year. Additionally, they believe growing competition from a number of smaller online game companies will further erode Shanda's market share position.

Premium valuation. Shares of Shanda are now trading at 12.4x and 10.9x FY09 and FY10 estimates, respectively. This represents a 25% premium to the comp group, which they believe is unwarranted. The $30price target is based on 9.5x FY09 EPS estimate of $3.17.

Notablecalls: Note that RBS is also out with a Sell call on the name today saying Shanda lacks a blockbuster game and views shares as overvalued.

Should make the latest buyers panic and others think about taking some profits. Sub-$38 anyone?

Wednesday, March 25, 2009

CB Richard Ellis (NYSE:CBG): Upgraded at JP Morgan and JMP Securities

CB Richard Ellis (NYSE:CBG) gets some love from JP Morgan and JMP Securities after announcing a credit amendment:

- JP Morgan upgrades to stock to Overweight from Neutral with a price tgt of $7 tgt saying the credit amendment was a big part of what they wanted to see to get more bullish. Two items have given them pause on this name in the past: 1) the risk of a debt covenant being busted created earnings and liquidity uncertainty, and 2) they thought a single digit earnings multiple on trough earnings would be a good entry point. The company's announced changes to its credit agreement go directly to the first point. As to the second point, CBG now trades at 6.8x JPM's again-lowered EPS estimate. The firm is hopeful that 2009 EPS will mark a trough in the company's business, but the commercial real estate environment continues to weaken considerably. No less, they have tried to incorporate very weak operating assumptions and come to the conclusion that the risk/reward and upside/downside in the stock is attractive.

- JMP Securities is raising their rating on CB Richard Ellis from Market Perform to Market Outperform and establishing a price target of $6, which indicates P/E and EV/EBITDA multiples of 10x and 7x, based on 2009 projections (trough levels, in their opinion).

On Tuesday, CB Richard Ellis announced an amended credit agreement that they believe will allow the company to weather the economic storm. As the firm had already assumed that a revised credit agreement would lead to higher interest expense, their 2009 EBITDA and EPS estimates remain at $512 million and $0.60, down 47% and 72%, respectively, from peak 2007 levels.

The new rating is due to firm's view that: 1) A large part of the bad news is behind us with the just announced revised credit agreement; 2) An improvement in the high-margin investment sales business should be a catalyst within 12 months, as they expect that credit markets will open up an inch from being completely shut down and distressed asset sales should take place. The recently announced Public-Private Investment Program (PPIP) should create liquidity and transaction activity in this regard; 3) The company’s property and facility management business provides a stable stream of revenue and represents approximately 40% of today’s EBITDA; 4) JMP's model already includes dramatically lower leasing fees, down 25% during 2009; and 5) Operating expense reductions should really kick in during 2009, softening the blow from reduced transaction fees. Looking ahead, they do believe that CBG’s position as one of two dominant global commercial real providers should enable it to continue to steal market share from providers that have a more limited product base and less geographic breadth. The stock currently trades at 2009 P/E and EV/EBITDA multiples of 5.0 x and 5.8x.

Notablecalls: CBG is one of the largest real estate brokers in the world. The stock has gotten hit so hard that the credit amendment makes it look pretty good. I suspect we will see a 10-20% upside move in the stock in the n-t. Should be a $4 stock in a few weeks time.

Tuesday, March 24, 2009

Take Profits on Banks Trade - Fox-Pitt

Fox-Pitt recommends closing their March 11 trade — a long/short strategy of long Banks and short P&C Insurance and Insurance Brokers.

At that time, their analysis was based on: 1) the depressed values of financials, and especially the Banks sector, since the Inauguration; 2) the potential run-up in Banks as short-covering, changes in Mark-to-Market rules, and plans for distressed assets benefited the stock prices over the short term; and, 3) the movement wherein banks had become strongly negatively correlated with the P&C Insurance and Insurance Brokers sector.

In their March 11 note, they also suggested unwinding the trade before April as the market braces for another bad quarter for the Banks sector. After the recent run-up, the firm believes that unwinding the trade is appropriate at this time. Short covering has probably run its course, the latest plan from Secretary Geithner has provided a substantial boost, and they believe that the next catalyst on the Banks sector is likely to be earnings reports, which should be more negative.

The results of the trade, from the close on March 10 to the close on March 23:
Banks: +43%
P/C Insurance: +28%
Insurance Brokers: +13%

A combination of long Banks/short P&C Insurance would have yielded a +15% return, while shorting Insurance Brokers instead would have yielded a +30% return. Removing HIG ($9.30- In Line) and XL ($5.69-In Line) from the P&C basket (as they are moving on the same credit and asset fundamentals as Banks) would have lowered the P&C return and boosted the long/short by an additional 6%.

Fox-Pitt's long-term sector ratings based on fundamentals continue to be:
Banks: Underweight
P&C Insurance: Marketweight
Insurance Brokers: Overweight

The P&C Insurance and Insurance Brokers continue to be negatively correlated with Banks, much more than in the past, although the correlation between Banks and P&C Insurance has become slightly less negative.

Notablecalls: Just to let you know what the analysts are telling their clients. I noticed Merrill/BAM was out with a similar call yesterday.

Monday, March 23, 2009

Flour (NYSE:FLR): Downgraded to Underperform at Merrill Lynch/BAM

Merrill Lynch/BAM throws another jab at Flour (NYSE:FLR) downgrading the stock to Underperform from Neutral while lowering their tgt to $29 from $43.

Despite a selloff in the stock, they think there’s an additional downside into ’09 as the company’s
outlook and consensus expectations remain too optimistic in firm's view. Their detailed industry capex analysis published today show that commodity-related capital spending (>60% of FLR’s revenue) is forecast to be one of the weakest in ’09, dropping double digits. BAS-ML Oil & Gas team forecasts a 20% decline in the sector’s capex, which supports Merrill's forecast of FLR’s backlog dropping ~25% in ’09. FLR’s outlook of flat backlog is based on its optimistic stance on the M. East/Asia/Russia. But their channel checks and recent $14bn Al-Zour refinery cancellation (resulting in FLR removing $2bn of backlog or 6% of total) support their expectations of capex slowdown in the region.

Margins likely to be under pressure through the downturn
Firm thinks that the E&C companies are likely to become more aggressive in bidding on pricing and contract structure to keep up utilization of its employees, which will likely result in margin erosion going into ’10. In their view, this is a particularly large risk for FLR due to its focus on large discrete projects, which is still not reflected in consensus estimates and the stock price in their view. Merrill is trimming their ’10 EPS on margin from $2.50 to $2.40, which remains the low on the Street.

Notablecalls: So now the Merrill/BAM E&C analyst joins the ranks of other tier-1 firms rating the stock as a Sell. Makes you think they all can't be wrong, eh? FLR sure has proven to be a resilient one but I do suspect Merrill's call may be the straw that finally breaks the camel's back.

With the futures pointing toward a strong gap up, I'm sure you can get some pretty decent fills early on. So make sure you don't overpay.

Thursday, March 19, 2009

US Steel (NYSE:X): Price tgt lowered to $11 at Merrill/BAM

Merrill Lynch/BAM is out with some pretty harsh comments on Steels lowering their hot rolled coil price benchmarks given the continued fall in steel prices. Revised ’09 benchmark is now $475/ton, down from previous forecast of $600/ton. They are also revising their ’10 and ’11 forecasts to $550/ton (was $650/ton) and $600/ton (was $700/ton). Firm is now assuming a 55% utilization rate for the group in 2009, down from 65%.

One of the most hardest hit names in the sector is US Steel (NYSE:X):

Cut EPS outlook, uses of cash to exceed $1bb in 2009
Given the decline in benchmark pricing/operating rates they are lowering ’09E EPS to a $6.00 loss (was $2.00 loss) and revising down ’10E and ’11E EPS as well. US Steel has an undrawn $750mm revolver but liquidity is a near term concern as bank covenants could be tripped. In firm's view, US Steel is a prime candidate to issue equity and cut the dividend near term as it looks to bolster its liquidity position. Assuming reduced revolver access, they estimate the company is facing a $700mm funding gap this year.

Decreasing PO to $11
With EPS and EBITDA at negative levels this year, they value X based on 60% of tangible book value (in line with previous trough levels). This brings PO to $11 (was $24). Based on revised PO, they calculate 35%+ downside to X shares.

Highest conviction underperform call
Merrill maintains underperform view on US Steel given the company’s high fixed cost structure, automotive exposure, and liquidity issues. Profits in all segments are under pressure and they see further downside to Street consensus. In firm's view, 2009 losses should be comparable to those seen in the 2001-03 timeframe.

Notablecalls: Merrill's $11 tgt is the new Street Low (prev. was $16). This will attract sellers. I suspect new lows are in store for X in the n-t.

PS: With USD down...any downside is going to be muted today, I think.

Tuesday, March 17, 2009

Morgan Stanley (NYSE:MS): UBS telling to short - will be sub-$20 next week

UBS on box saying short Morgan Stanley (NYSE:MS)....says street expectations have gotten too high....will likely post loss.....says stock will be below $20 next week.

Also from Doug Kass: High above the Alps, my gnome says that it is widely expected that Goldman Sachs (GS) and Morgan Stanley (MS) could announce equity offerings shortly.

Notablecalls: Rhymes with my n-t cautious view.

Morgan Stanley (NYSE:MS): Downgraded to Underperform at Merrill Lynch/BAM; $21 tgt

Merrill Lynch/BAM is downgrading Morgan Stanley (NYSE:MS) to Underperform from Buy while lowering their tgt to $21 from $25.

Firm notes they are downgrading MS to Underperform after a significant run over the past week which has brought shares in line with their price objective.

Neg. Marks from Real Estate, MS debt spread tightening expected to drag on 1Q results
In particular, they are concerned that Real Estate merchant banking losses and a negative mark related to MS credit spread tightening will be a drag on 1Q, suggesting a result well below consensus. MS has a broader exposure to Commercial Real Estate than most of its peers, since it has the largest RE Private Equity-type business in the industry, and it’s also a significant Commercial RE lender.

Lower EPS: 1QE to $0.21 fr $0.41; ‘09E to $1.70 fr $2.24
1Q cut reflects the expectation of $1.2bn in Real Estate/Private Equity marks and $300mn in marks to reflect MS debt spread tightening exacerbated by a slightly higher comp. ratio as firm continues to invest in a weak operating environment. The cut to ‘09E reflects the compensation pressure as well as additional negative marks on the expectation MS spreads will continue to tighten. Firm notes also that they expect MS to report a significant $0.50-1.00 loss for the December stub.

Cutting PO to $21 from $25 on lower ROE expectation
The shares at $23 are at 77% of BV and thus discount 7-8% ROE, while their new 09E for ROE is under 5% (1Q expectation is close to 1%). They are taking the PO down to $21, which still discounts 6-7% on the expectation that a year out the market will be looking for ROE at least that high. Still, it does indicate some downside, further explaining the Underperform rating.

Notablecalls: I think MS will get hit on this as it has absolutely ripped over the past weeks and will catch a lot of people by surprise.

Merrill's comments regarding a sizable miss in Q1 read badly. I expect the stock to go sub-$22 today.

Also note that Keefe is out with a downgrade on Goldman Sachs (NYSE:GS) this morning (to MP from OP) which will create some addnl selling pressure. Also, the WSJ article regarding the inv. banks looking for loopholes to pay their execs bonuses above the capped rate might create some nervousness.

Overall, I think all this will generate a pull-back for the general mkt today. Will be a healthy test.

Monday, March 16, 2009

Sandisk (NASDAQ:SNDK): Sell, $6 tgt at Merrill/BAM reinstated - SHORT

Merrill Lynch/BAM is out reinstating coverage on Sandisk (NASDAQ:SNDK) with an Underperform rating and $6 tgt.

Although its stock price has massively underperformed the S&P over the past three years, their PO of US$6.0 implies over 40% downside risk. They acknowledge its solid B/S (net cash) and IP (royalty revenue), but forecast large losses through 2009-10 and only a weak recovery in 2011.

Hit by excess JV capacity; needs to restructure biz model
SanDisk’s large exposure to NAND chip production capacity via its JVs with Toshiba is likely to remain a big burden, in Merrill's view. The JV’s transfer pricing for NAND chips (manufacturing cost plus mark up to generate breakeven performance or higher for the JVs) to SanDisk is far higher than spot prices (and vice versa in the case of chip shortage). This clearly indicates cost disadvantages during the downturn vs. pure OEMs. NAND industry model still indicates a glut even in 2010.

Large loss and off B/S items are negative catalysts
The firm expects negative EPS for three consecutive years (2008-10E). This is expected to lead to substantial book value erosion until 2010. Cost disadvantages (JV capacity) and potential downside risks to royalty revenue (license agreement with Samsung expires in August 2009) coupled with the NAND downturn also present risks to estimates and valuations. They also note that the lessors for the JV fabs may require earlier payments if SanDisk fails to meet its debt covenants.

New funding likely; dilution concerns linger
Merrill doesn't expect immediate cash drain, but SanDisk needs to preserve more cash for large operating losses and unexpected lease obligation payments for the JVs. They expect the company to raise about $500m from potential new equity financing in 2Q-3Q09 to meet estimates of their capex and working capital needs.

Notablecalls: Given the 10% run on Friday (and 30%+ run over last week), I think there's a trade in the short side in store. MLCO's comments will bring panic sellers.

I would not be be surprised to see SNDK retrace at least Friday's gains toward the $10 level (I may be too optimistic here as we may see lower levels.)

Friday, March 13, 2009

Research in Motion (NASDAQ:RIMM): Initiated with a Sell and $30 tgt at ThinkEquity

ThinkEquity is out with a gutsy call on Research in Motion (NASDAQ:RIMM) initiating coverage with a Sell rating and a $30 tgt.

RIMM is a great company that pioneered and became the driving force behind the adoption of mobile email. However, while RIMM remains one of the fastest growing companies in terms of sales and year-over-year subscriber growth they expect margins will continue to be squeezed due to 1) current competitive dynamics and 2) the need for RIMM to invest higher amounts to expand. Some of this has been recognized by the deterioration of the stock, but the firm believes there is still significant downside to current earnings estimates.


Revenue Growth Should Slow as ASP Pressure Intensifies: RIMM is a smart phone company (81% of revenues last quarter were hardware), albeit a highly differentiated one, which stands to see increasing competition from the number of new entrants now coming into the market. The handset sector has always been brutal where distribution is sometimes as important as the quality of ones product portfolio, but it is also facing a new wave of competition in its core market in QWERTY smartphones.

Gross Margins Will Be Increasingly Pressured : In addition to the pressure supplied to ASPs from the worsening economy and improving offerings from the top 5 OEMs such as Nokia's new E75, RIMM faces multiple new competitors into its high margin niche ranging from Apple and HTC on the high-end to Huawei (high and low-end) and down to the low-end. As a result they have been hearing that carriers are asking for price reductions across all vendors including those at the very high end of the value scale.

Operating Margins Are Also Facing Growing Pains: Up until recent years RIMM has enjoyed incredible success going after the prosumer market with its QWERTY devices and has made some traction into the non-professional consumer market. In order for RIMM to continue its growth it is becoming necessary for it to invest more money into its distribution channels in the form of bricks and mortar or via advertising. Its much larger competitors like Nokia and Samsung have invested significantly in their own distribution networks – the firm does not expect RIMM's operating margins to approach those of the big 5, but they believe that further erosion of OMs is likely.

Corporate Layoffs and Cost-Cutting May Impact Subscriber Growth & Replacements: RIMM reported last quarter that 45% of its subscribers are non-enterprise, but ThinkEquity believes there are actually many non-BES professionals using RIMM's products. It is often cited as an advantage to have so much of RIMM's customer base tied to enterprise, but given the high rate of corporate layoffs currently, they think that even RIMM with its multiple product cycles underway will have trouble growing in this environment. To combat this decreased spending environment they believe that RIMM will be forced into making more price concessions.

Notablecalls: I wanted to put this one in front of you because it's going to get attention today. I'm not entirely sure RIMM will get hit on this in any major way, though as the call doesn't say anything new.

ThinkEquity used to be good. They have lost a lot of their cred. over the past yrs, unfortunately.

Tuesday, March 10, 2009

athenahealth (NASDAQ:ATHN): C VS Looking to Scale Back MinuteClinics - UBS

UBS is out with an interesting negative call on athenahealth (NASDAQ:ATHN) saying they were disappointed to discover that CVS is planning to close about 90 of its MinuteClinics on a seasonal basis. They view the MinuteClinics as still a relatively young business model, and in light of a benign flu season and a weak economy they think CVS mgmt may be fundamentally reassessing the consumer demand for this service. Accordingly, they think this could be a negative read to the other retail clinic providers with which ATHN does business, such as RediClinics.

Scaling back of MinuteClinics may portend broader economic pressures
By itself, the firm does not believe this news requires a major reduction to their near-term earnings projections. They think the real downside for ATHN is more the general uncertainty about the prospects of the MinuteClinic model given the inconsistent statements by CVS mgmt over the past year regarding the ultimate prospects for this business. In early 2008 CVS mgmt targeted 700 clinics by year-end. InsteadCVS has rolled out 550 clinics of which only 460 will be open year around.

MinuteClinics are significant to ATHN on a marginal basis
UBS thinks that on a marginal basis the retail clinic space is key area of greenfield for ATHN. By their estimates, the MinuteClinc relationship explains over 10% of their top line growth projection for ATHN in 2009E. In order words, the firm thinks the MinuteClinic business should add about 423 basis points to ATHN’s 2009E top line growth rate -- i.e., increasing the 2009E growth from 33.0% to 37.2%.

Notablecalls: Not a huge negative for ATHN but something to keep an eye on.

FYI: As background, in May 2008 athenahealth announced that it had entered into a national enterprise contract with CVS Caremark to provide its athenaCollector service to CVS Caremark’s new retail healthcare clinics initiative called the “MinuteClinics.” These MinuteClinics provide affordable and convenient walkin healthcare for patients seven days per week. There are no physicians at a MinuteClinic; instead, each clinic employs about four nurse practitioners.

Monday, March 09, 2009

Osiris Therapeutics (NASDAQ:OSIR): President Obama to Lift Stem Cell Research Ban; Osiris is Top Pick in Space - Piper

Piper is out pumping Osiris Therapeutics (NASDAQ:OSIR) as their favourite Stem Cell play this AM after speculation over the weekend President Obama is expected to lift the ban on the use of federal money for funding medical research with human embryonic stem cells at a White House ceremony at 11:45AM ET. The move reverses a 2001 policy enacted by former President Bush limiting federal funding to existing cell lines.

Piper notes they do not believe lifting the ban will have any immediate benefit for the majority of publicly traded stem cell companies since most federal research funding is directed at earlier stage projects carried out primarily in academic settings.

They further point out that the ban only applied to research on cells isolated from human embryos. A majority of publicly traded stem cell companies access stem cells from other sources.

That said, they view the move as a longer term positive for stem cell companies generally. In addition to lifting the research ban, the Obama administration has also increased funding for basic science research at the National Institute of Health (NIH) by $10.4 billion through the economic stimulus package.

Piper's top pick in the stem cell space remains Alpha List Osiris Therapeutics (OSIR), the leading adult mesenchymal stem cell play. Osiris has a busy 2009 with results from 3 pivotal trials for Prochymal. They believe Osiris is on track to file a BLA for Prochymal in refractory graft-versus-host disease (GvHD) late this year with approval likely by mid-2010.

Reiterate Buy rating, Alpha List rating and $27 price target for Osiris.

Notablecalls: Given how much the usual suspects (GERN; STEM; ASTM) are bid up in the pre mkt, I wanted to put this one in front of you as a possible pop candidate. Don't overstay your welcome, though.

Friday, March 06, 2009

Quest Diagnostics (NYSE:DGX): Added to Conviction Sell list at Goldman Sachs

Goldman Sachs is adding Quest Diagnostics (NYSE:DGX) to Conviction Sell list while lowering their tgt to $38 from $45.

Downside to DGX on valuation, volumes and health reform
Following relative outperformance since 4Q08, they expect Quest shares will underperform their coverage, with valuation at risk of market-relative convergence to other healthcare services names. DGX’s >10% premium to peer LH (7.1x vs 6.2x EV/EBITDA) is not justified given less balance sheet flexibility; in addition, they’ve highlighted downside risk to its outlook for 3% revenue growth this year in light of macroeconomic trends.

Finally, the firm highlights potential downside to Medicare lab reimbursement as healthcare reform discussions advance (esp. given emerging pressure in the US Senate for deeper healthcare spending cuts as a partial alternative to tax increases). They see 15% potential downside to their 6 month target of $38.

Notablecalls: The way below market price tgt from Goldman Sachs will probably attract sellers in the stock.

Thursday, March 05, 2009

Alcoa (NYSE:AA): Target lowered to $3 at Merrill/BAM

Merrill Lynch/Banc of America is out neg on Alcoa (NYSE:AA) lowering their tgt to $3 from $6 after reduced EPS outlook. Their rating continues to be Underperform.

Based on a $0.59/lb aluminum price (was $0.88), they are revising down our 2009e EPS to a $1.50 loss (was $0.20 loss). 2010e EPS is revised down to $0.00 (was $0.90) based on a $0.79/lb metal price.

Cash burn situation is the key issue
AA should be able to bring its costs down to ~$0.80/lb in 1H09 ($0.99/lb in 4Q08) but metal prices are expected to remain below breakeven over the near term. Based on lower metal price assumptions, the firm forecasts AA will burn $2.5bb of cash in ’09 if metal prices do not recover (assuming no dividend cut). In their view, a dividend cut could ease AA’s cash burn situation but does not buy much extra time. They believe AA has sufficient liquidity to fund operating losses into mid-’10.

BAS-ML adopting more bearish commodities stance
Today, the Global BAS-ML Commodities Team lowered its price assumptions for aluminum, copper, nickel and zinc (Metals Strategist, 4 March 2009). Aluminum consumption has declined by 15-20% over the past months, but production curtailments have only been about 12%. Aluminum inventories are expected to build and the market is expected to remain in surplus over the next 3-4 years. The surplus is forecasted to reach 807k mt (was 607k mt) in ’09 and recover slightly in ’10 to 514k mt (was 386k mt). This market imbalance will likely keep aluminum prices under pressure over the next 2 years.

Notablecalls: The $3 tgt (50% downside to tgt) reads ugly for Alcoa. I think we are going to see some more downside in the name today.

Wednesday, March 04, 2009

Lack of posts?

Sorry for the lack of posts past 2 days. It's just that the market has been so manic-depressive that taking a stance on any individual names may have ended in a bit of a disaster.

Absent the slide in General Electric (NYSE:GE), the large cap banks and life insurers, I'd be willing to call a bottom here.

Hope to be back tomorrow with new stuff.

Monday, March 02, 2009

Harris Corp (NYSE:HRS): Downgraded to Underweight at JPM

JP Morgan is out with a substantial call on Harris Corp (NYSE:HRS) downgrading the shares to Underweight from Neutral while lowering tgt to $27 from $37.

The firm believes RF sales growth could seriously disappoint as soon as the June quarter, and their estimates are well below consensus for each of the next three years. Relative to other defense companies they follow, Harris is less diversified and enjoys less visibility yet still trades at a premium.

RF could roll over as soon as Q4. Six-month sales in RF have typically been ~85% of the backlog at the start of that period in recent years. However, in order to reach RF sales growth guidance, 2H sales must be >130% of the December 31 backlog, making an FY09 miss likely in firm's view. They assume that HRS achieves RF sales of 114% of its 12/31/08 backlog in 2H, meaning that orders need to pick up materially and soon for it to achieve even their estimate. FY09 order performance has been poor due to a slowdown at DoD, and as the new Obama defense team is still coming together and Harris has announced only $68 mln of orders since 12/31, the firm does not believe substantial order activity has resumed. Moreover, the company postponed its analyst meeting from March 18-19 to May 11 last week, saying a new date and location would facilitate higher attendance. They believe management may also want additional time to monitor order activity at RF.

Notablecalls: This call reads ugly. HRS has always the poster boy of DoD related spending and JP Morgan's comments will take some of that shine away.

HRS is set to report on Apr 29 but given the comments from JPM, I think one has to consider a warning from the co a real possibility. I'm now defense expert but it sure looks like there is very little HRS can do to meet current estimates.

I suspect this one may have 2 pts+ downside today and 3-5 pts worth of downside in the coming weeks.

PS: They did announce a $600M buyback this morning to counter the JPM call but I think the market will see right through it.