Fastenal (NASDAQ:FAST): Downgraded to Sell with a $22 tgt at FTn Midwest

FTN Midwest is out with a very neg call on Fastenal (NASDAQ:FAST), downgrading the shares to Sell from Neutral and lowering tgt to $22 from $40.

Firm's 2009 and 2010 EPS estimates assume -6.9% and -1.0% revenue growth, 3.2% and 5.0% store growth and 51.0% and 51.5% GM, respectively, down from 52.8% in 2008. FAST expects to temper store growth and headcount in 2009 which is factored into our OM estimates of
15.9% and 16.2%, respectively, vs. 19.7% for 2008.

FAST reported more negative leverage in the last cycle than FTN is modeling, but with a different cost structure. Also, many companies are better equipped and more experienced to handle cycles than in the past.

While they do not use historic or peer P/E multiples for valuation, FAST has ranged from 18x-41x over the past 10 years. FAST is currently trading at 18.3x current 2009 consensus vs. its distribution peers at 11.1x.

Conclusion:

While they neither believe history will simply repeat nor are modeling their coverage to mirror their respective fundamentals of the past recession, the firm attempts to account for macro change and fundamental impact. Their downgrade of FAST reflects their belief that the market has not yet priced potential negative trends similar to what is estimated and priced into other distributors.

Notablecalls: FAST should get killed on this.

General Electic (NYSE:GE): ’09 Expectations Still Too High; Placing Short-Term Sell Rating on the shares - UBS

UBS is out negative on General Electic (NYSE:GE) saying ’09 Expectations Still Too High; Placing Short-Term Sell Rating on the shares; lowering tgt to $12 from $18.

Believe reserves are too low and ’09 credit losses will exceed guidance
USB is reducing their ‘09 estimates for Capital Finance to break-even vs. GE’s guidance of roughly $5B (prior UBSe ~$3.2B). They believe GECS reserves are too low, and expect credit losses to far exceed GE’s forecast. Firm views GE’s guidance of $5B in Capital Finance earnings as a nearly “best case” scenario.

Credit rating and dividend at risk, and could drive stock lower
If their estimates are correct, UBS believes that GE’s ‘AAA’ rating is at risk, and that GE might have to consider either cutting its dividend or raising additional capital. They also believe that GE’s commitment to its dividend could result in underinvestment in its industrial businesses. Despite a sharp drop in the stock’s price over the last week, they expect declining consensus estimates, coupled with an intensification of the discussion about the dividend and credit rating, to drive the stock lower over the next few months.

Reducing earnings estimates, primarily to reflect weaker GECS outlook
New EPS estimate for 2009 is $1.05 (was $1.40) and for 2010 is $1.40 (was $1.50)

Notablecalls: It looks like UBS' 09 EPS of $1.05 is the new Street low (prev. $1.20). Also, their $12 tgt is the Street low.

The call reads ugly, but one must admit the stuff discussed here is not new in nature. There has already been ample discussion regarding GE's credit rating and dividend.

I would not be surprised to see the stock trade down on this, though.

Ralph Lauren (NYSE:RL): Downgraded to Sell at Goldman Sachs

Goldman Sachs is downgrading Ralph Lauren (NYSE:RL) to Sell from Neutral with a reduced price target of $37 (vs $51 previously), reflecting 10% potential downside, as they see the following unfold:

1) likely next aspirational laggard to join this peer group (TIF, COH, JWN and EL) which have all negatively preannounced,

2) fundamental EPS risk on the horizon and a likely cautious outlook well below consensus, and

3) multiple contraction much like in past periods of slowing EPS and returns. 2008/2009/2010 estimates are moving to $3.79/$3.09/$3.35 from $3.88/$3.34/$3.68 to reflect a tougher outlook for RL’s retail division.

Goldman sees an on-gong shift in consumer spend from aspirational to desperational. RL has bucked this trend with impressive inventory and expense management; however, they believe the shift worsened over the past few months and will prove more challenging for RL to withstand. As such, when RL reports Q3 EPS on Feb 4th, they expect signs of weakened fundamentals across wholesale, retail, outlet and its European business as deep discounts were likely needed to drive sales. Given downside risk versus consensus expectations, shares are likely to be pressured. If EPS growth slows and returns see pressure, investors could even push valuation back to recent 8x lows which would compound the stress on the shares and potentially drive 20- 40% downside - well beyond $37 target. Firm notes RL saw similar valuation over 2001-2003 when returns and growth last slowed.

Notablecalls: This Goldman Sachs call makes RL a short. My only question is - will RL fall below $39 level today or will it take 2 days. I suspect it's going to happen today. Going sub-$38 is a real possibility.

Research in Motion (NASDAQ:RIMM): Upgraded to Outperform at RBC Capital

RBC Capital is out with a big call on Research in Motion (NASDAQ:RIMM) upgrading the shares to Outperform from Sector perform while raising tgt to $75 from $45.

Firm notes their prior Sector Perform rating was based on 1) reduced margin visibility; 2) execution issues; 3) recession-related growth headwinds. RIM has corrected 28% since Q2 results; they now forecast new upside, based on: 1) improving margin visibility; 2) recovering execution; 3) performance exceeding lowered expectations.

Improving Margin Visibility. In Sept/08, RIM's sharp downward GM outlook (down 670bps F10) surprised investors, on a consumer-related margin downshift and early Storm/Bold costs. On improved mix and cost structure, the firm sees hardware margins stabilizing (32-34% hardware, 41% reported) F10/F11, improving sentiment regarding LT margin trends. They also see RIM benefiting from Op Leverage F10/F11.

Recovering Execution. Execution challenges (delays, quality, shortages) and unfavourable reaction to the Storm also pressured RIM's valuation multiple. Carrier and other feedback suggests RIM's execution may improve F10 as they move up manufacturing and supply experience curves. Firm believes future consumer launches will avoid repeating Storm's stumbles, advancing RIM's consumer momentum and share gains.

Revised Estimates. RBC's F09 estimates remain unchanged; F10 estimates become $15.8B and $3.90 EPS (15% Y/Y) (prior $15.8B, $3.84). They are introducing F11 estimates for $19.2B rev (21% Y/Y) and $5.00 EPS, with 28% Y/Y EPS growth.

Multiple Recovery Expected. Valuation declined 69% since June/08, faster than peers (down 28%) and Nasdaq (down 38%), and trades at 14x, below peers (19x). Firm sees RIM's valuation multiple converging to peers, on alleviation of execution and LT margin concerns. They have been prudent regarding their target multiple in consideration of near-term valuation volatility risks and ongoing recessionary headwinds.

Notablecalls: I like this call as RBC is the Axe in the space. Also:

1) RIMM has a nice upward sloping chart hinting further upside to come.

2) The call itself is a game-changing one. RBC sees improving margin visibility and recovering execution.

I think the stock can do $53+ in the near term.

State Street (NYSE:STT): 8-K filed: Very Large Increase in Unrealized Losses, Proforma TCE Ratio with Conduits Under 1%? - JPM

JP Morgan is out with some negative comments on State Street (NYSE:STT) that filed an 8-K after market close on Friday to disclose very large increase in unrealized losses in its securities portfolio and in its conduits.

By firm's estimates, proforma tangible common equity ratio with the conduits would likely fall from an already thin level of 3% at 9/30 to below 1% at 12/31/08. TCE ratio for its on balance sheet assets would be about 3.5% including deferred tax benefit, down from 4.8% at 9/30.

STT also disclosed a $78 mil securities impairment charge in 4Q08. 4Q results will include previously announced $450 mil charge for managed accounts. There was also a charge of $160 mil in 1Q08 for these managed accounts.

Unrealized losses in its $78 bil securities portfolio rose to about $9 bil pretax from $5.3 bil at 9/30, and unrealized losses in its ABCP conduits rose to about $6 bil pretax from $3.5 bil at 9/30.

Analyst notes they are very surprised by the timing of the filing, as STT is scheduled to report earnings Tuesday morning before market opens, and this filing will raise concerns about capital adequacy.

Notablecalls: It looks like State Street (NYSE:STT) is going to get clobbered tomorrow morning regardless what the headline numbers are going to look like.

I don't have many previews handy but a quick glance shows Barclays expected unrealized losses on STT's $78B securities to exceed $4.5B ($3.3B AT in 3Q), while losses on its $25.5B ABCP conduit to exceed $3B ($2.1B in 3Q). They also expected consolidated TCE ratio fall below 3% (reported should be over 4%).

Judging from this it looks like the unrealized losses are 2x larger than expected. Were it Citigroup, it wouldn't be a surprise but in State Street's case I suspect the market will react in a rather painful manner.

Waterpistol to the head, I think $32 level could be breached in the very n-t.

PS: Congrats to those few who managed to short STT stock around $36 level Friday after market close. Just 10,000 shares, but hey you are in the money!

Apple (NASDAQ:AAPL): Downgraded to Underperform at RBC

RBC throwing in the towel in Apple (NASDAQ:AAPL) downgrading the stock to Underperform from Sector Perform and lowering their tgt to $70 from $125.

They see a revaluation in Apple shares towards the market multiple, on reduced earnings growth expectations and near-term uncertainty re leadership.

Leadership Void. CEO Jobs' unexpected leave of absence raises near-term uncertainty re leadership. Jobs is widely viewed as Apple's chief innovator, dealmaker, leader, deeply involved in minute decisions, inextricably tied to Apple's brand. Jobs' being sidelined for 6 months or more and unavailable day-to-day -- with no clear successor -- in RBC's view raises risks to Apple's sustaining its stellar record of innovation going forward.

Declining Visibility to Growth. Proprietary data indicates further deterioration next 90 days in consumer electronics and Apple-related spending; January RBC IQ / Changewave survey data (3,500) shows only 28% of respondents planning to purchase a Mac laptop next 90 days, down from 33% Nov. Separately, 30% plan on buying iPhone 3G in Dec, down from 34% in Sept.

Lowering Financial Estimates, Q1 Preview. On deteriorating demand, F09 estimates become $36.2B rev and $5.00 EPS (prior $38.1B, $5.07). For Q1 (reporting Jan 21), they expect $9.8B rev (up 2% Y/Y) vs $9.9B street on 4.5M iPhones, 2.5M Macs, 20.4M iPods. GAAP EPS is expected at $1.48, vs. $1.39 street.

Notablecalls: Just wanted to let you know it's out there. No trade here, in my opinion (Even if there was one I probably wouldn't take it).

Also, note that RBC is the most negative firm out there this morning with other Tier-1 firms defending AAPL.

Catepillar (NYSE:CAT): Risk/reward has tilted more negative - Morgan Stanley

Morgan Stanley is out uber negative on Catepillar (NYSE:CAT) this morning saying risk/reward has tilted more negative for CAT shares.

Recent comments by the CEO of competitor Hitachi Construction—who has “never before experienced seeing sudden, simultaneous drops in worldwide demand” and is seeing global demand down 25-30%—support their bearish view on the shares. MSCO's 2010 EPS estimate of $2.57 is 40% below consensus ex-MS. CAT has held that emerging markets revenues would grow in 2009; they’ve argued for a steep fall but allowed for the possibility of upside. Upside now seems very unlikely.

Differentiation from consensus:
First, they doubt stimulus will have much of an impact on equipment sales, especially in 2009.
Current talk in DC still supports around $85bn in infrastructure, with half contracted within the year, and a likely multi-year spending curve. The resulting math does not mean much in a trillion dollar construction market. And China loader sales continue to decline through December despite the announced stimulus there. Second, they believe 2010 will be weaker than 2009. Construction and project planning timelines are just too long, and a recovery in 2010 is highly unlikely. Finally, they are concerned that mining, oil and gas revenues could turn substantially negative in 2009. Rig counts are falling sharply, with room to the downside, and mining capex constraints may outweigh the effect from fleet renewal.

Reiterates Underweight and $31 tgt noting their Bear Case is $16 as synchronous fall in virtually all markets leads to earnings troughing at $1.05 in 2010, well below CAT’s internal goals but in line with last downcycle. Cancellations of oil and gas rigs through 2011 depress earnings in an extended downcycle, accentuated by dealer inventory swings and a slow curve to cutting expenses.

Notablecalls: I think CAT stock will see selling pressure on this. Imagine being long the name and seeing this comment from Mother Morgan - would you sell? I think I would.

CAT's a short this morning.

The most interesting tid-bit from the call is that MSCO now thinks 2010 will be worse than 2009. That's certainly out of consensus.

Southern Copper (NYSE:PCU): Downgraded to Sell at UBS

UBS is downgrading Southern Copper (NYSE:PCU) to Sell from Neutral while moving their tgt to $12 from $18.

As we move into 2009, Cananea remains shut down and they believe Southern Copper will disappoint on both volume and costs. The dramatic fall in copper and moly prices will take its toll on early 2009 results, but also on Q4. Firm is cutting their 2009 and 2010 earnings estimates by 56% and 62%. In their view, 4Q08 results should be very weak, as they forecast provisional pricing sales will drive Q4 EBITDA to $4m and to a loss of $67m. The stock has outperformed copper and some of its peers (GMEX, FCX) and they are cutting PT from $18 to $12 and downgrading the stock to Sell. They prefer exposure through Grupo Mexico.

Copper and moly prices under pressure
While they remain bullish on copper’s long-term outlook, due to supply issues, they are more bearish on the commodity in the short-term. Prices have declined significantly and they expect copper to average $1.30/lb in 2009. We see a modest recovery in 2010. Firm also believes moly prices will remain low. They now forecast moly to average $8/lb in 2009. Weak commodity prices will contribute to the significant cash flow declines they are forecasting for PCU in 2009 and 2010.

Notablecalls: PCU has had its bounce - now its time to come back towards the $13-$14 level. UBS' call will make that happen. Will not break $14 today but will come close.

Palm (NASDAQ:PALM): Goldman Sachs reits Sell and $0.40 tgt - now

Goldman Sachs reits Sell rating and $0.40 tgt... based on a 0.25X EV/S multiple applied to our
CY2009 sales estimate of $756mn... fundamentally challenged to successfully compete in the fast, growing smartphone market.

Notablecall: Wanted to let you know its out there. Could take PALM to $5 today.

Energizer (NYSE:ENR): Downgraded to Underperform at Merrill/Bac

Merrill Lynch/Bank of America is out with a downgrade on Energizer (NYSE:ENR) to Underperform from Buy, lowering tgt to $59 from $74.

Firm notes the downgrade is consistent with a shift toward more defensive companies with less leverage for ’09, and is based on the following: 1) further macro deterioration and related risk of retailer inventory de-stocking, 2) the 75% run the shares have seen, and 3) the fact that ENR no longer trades at a deep discount to the bottom of the household products / personal care (HPC) group.

Lowering EPS ests to $5.29 for ’09, $5.82 for ‘10
Firm is lowering their FY09 EPS est to $5.29 (-13% y/y) from $6.01, based on a 40bp cut to sales growth, a 70bp cut to operating margin, and higher interest and other expense. They are now assuming that ENR fails to hold EPS flat y/y in FY09, which the company noted would be “a challenge” in its Q4 press release. So despite a slight pullback in the US$ and easing commodity costs since ENR last report, the worsening macro setting drives them to advocate taking some profits for those who bought at the bottom. FY10 est is now $5.82 (+10% y/y), down from $6.53, based on a lower base year and a higher y/y growth assumption.

Notablecalls: ENR is a big mover and I suspect the stock will take a fairly sizable hit on this MLCO downgrade. I'm guessing the stock will trade pretty close to $50 level in the n-t.

Amazon.com (NASDAQ:AMZN): Downgraded at Amtech to sell, $35 tgt

FYI: Wanted to let you know Amtech is out with this major call right now.

Sigma Designs (NASDAQ:SIGM): Sigma to retain 100% of Microsoft IPTV service platform (Actionable Call Alert) - BWS Financial

BWS Financial is out with an Actionable Call on Sigma Designs (NASDAQ:SIGM) saying the co would retain 100 percent market share position in Microsoft (MSFT) platform IPTV service since the firm learned Motorola (MOT) could delay field trials of second generation set-top boxes until the fourth quarter 2009, and for commercialization not to occur until first quarter 2010.

The comments were made to BWS analysts by a MOT representative during the Consumer Electronics Show (“CES”) in Las Vegas. While MSFT seemed more excited of the service being available via Xbox 360, and Broadcom (BRCM) only commenting that the program “remained on track”.

The threat of BRCM being a competitor has created a cloud of uncertainty for SIGM shares. The delay in the rollout would be welcomed news not currently priced into SIGM shares and earnings forecasts.

Firm believes the new timeline would present an opportunity for SIGM to outperform the current consensus estimates and for the Street to revalue the shares based upon the delay in competition.

SIGM shares should start to move higher.

Reiterates Buy and $15.50 tgt on SIGM.

Notablecalls: This is what I call research - going out there and getting new info. I suspect we will see SIGM shares trade up 5-7% today if the general market plays ball.

Calling it Actionable.

BWS is a small firm and I suspect the majors will catch up with their comments later on.

Alcoa (NYSE:AA) : Downgraded to Sell ahead of earnings release

Deutsche is out with a gutsy call on Alcoa (NYSE:AA) downgrading the stock to Sell from Hold while lowering tgt to $8 from $10.

Firm is revising their earnings model for DB’s revised commodity estimates and the recently announced production cuts (among other measures) to weather the economic downturn. They believe these factors will likely lead to significant net losses for Alcoa in the short term and note the downside from current prices, near-term negative FCF and large net debt position support their Sell rating.

As a result of DB’s lower aluminum price forecasts (USc63/lb for 2009, -26% vs. prior, and USc70/lb for 2010, -32%). and recently announced volume cuts, they have slashed Alcoa EPS estimates to a US$0.85 net loss for 2009 (vs. prior earnings of US$0.04) and US$0.27 loss for 2010 (vs. previous US$1.00 gain), below Bloomberg consensus of US$0.35 and US$1.05, respectively. On January 6, Alcoa announced additional curtailment in smelting output of 135,000 mtons and that it will cut its workforce by 13,500 (13%) by the end of 1Q09. Capex for 2009 should be reduced to US$1.8bn (50% lower YoY).

Diluted EPS loss of US$0.93 for 4Q08
Based on a sharp sequential drop in aluminum prices, the firm expects Alcoa to report 4Q08 diluted EPS loss of US$0.93, lower than Bloomberg consensus of US$0.08 loss, and vs 3Q08 earnings of US$0.33/share. After excluding the after-tax impact of ~US$900m (~US$1.15/share) due to one-off charges (restructuring, impairment and special charges), normalized diluted EPS stands at US$0.17.

Notablecalls: AA is set to release its quarterly tonight, making DB call a gutsy one. If they are right, Alcoa won't be able to sustain its current dividend.

Not saying short into $10.30 in pre mkt but one to keep on the short radar.

Robert Half International (NYSE: RHI): Added to Top Picks Live as a Sell - Citigroup

Citi is out with an interesting call on Robert Half International (NYSE: RHI) adding it to their Top Picks Live (TPL) as favorite Sell idea within their Business & Professional Services universe.

Why Now? — Over the past couple of months, evidence has mounted that deteriorating economic conditions are wreaking havoc on professional staffing and permanent recruiting firms such as RHI. Even then, we’ve witnessed an unjustified run up in the stock (creating a rich valuation). Citi believes economic data (incl Friday’s US employment report) could continue to disappoint and that the timing is right to highlight RHI as their top Sell idea on TPL.

Cutting Ests and PT — Given the host of negative data points of late and RHI's exposure to severe negative leverage in its Perm segment, they are cutting their forward estimates again. For 2009, the firm now projects $0.52 in EPS, down 35% from $0.80 and $0.09 (15%) below consensus. They are also cutting 2010 estimate by $0.28 to $0.62.

Price target goes down by a lesser 13% to $13 from $15 as they increase their targeted multiple range as we are now closer to trough earnings and they give RHI credit for its sizable cash balance.

Bottom Line — Many staffing firms have cut or suspended guidance of late due to weak results and poor visibility, and RHI should be no different. Off of their freshly cut estimates, the stock is trading for ~38x forward earnings, which is almost 3x the multiple of MAN (1H) and 2x the multiple of KELYA (3S).

The firm believes this premium is undeserved, particularly because RHI is the staffer most exposed to negative leverage effects as the recession drags on. They do not foresee a near-term recovery in these trends and expect RHI to suffer.

Notablecalls: I like this one for 3 reasons:

1) The chart - looks like this one wants to go down.

2) The valuation - 38x forward EPS? Any takers? Thought so.

3) The catalyst - tomrrow's employment report. Also, as Citi hints RHI may have to suspend guidance.

How much should it go down?

Would not be surprised to see the stock around $18 in the n-t.

Satyam (NYSE:SAY): The Short Story - First Global India

First Global India has a nice comment on SAY this morning:

Let’s say one thing upfront: we think Ramalinga Raju is an amateur. He is not the first promoter in the world to have cooked the books. Nor will he be the last.

But the weird mea culpa letter is something that is bizarre to say the least. This is not the way professional scamsters work. We doubt if there has ever been an instance of a promoter sending in a letter like this, right upfront. Jeff Skilling didn’t do it. Bernie Ebbers didn’t do it.

So, Mr.Raju was neither a good promoter nor a good scamster. And that is the final writing on his epitaph.

What happens to Satyam now?

It’s history.
The stock could go to zero or near-zero.

After all, no US IT major will go near it to sniff at Satyam’s books. They will need to hire one of the Big Four Accounting firms for a due diligence! Think about that…

No. Satyam is way too risky a deal. Clients will walk. Key employees will walk. There is no cash worth the name, on the balance sheet. And the so-called “genuine” is .loss making. As stated in Raju’s letter, Q2 FY09 had an OPM of only 3%...which means the overall business of Satyam is loss-making, at the net level. And is also cash negative, as is clear from Raju’s letter that he was pledging stock to raise money to keep Satyam’s operations going.

So all holders out there: get out while you still can. This stock has a bottom that you don’t want to see materialise.

Notablecalls: What can I say? High five to ABN Amro for upgrading SAY to Buy from Sell yesterday!

AK Steel (NYSE:AKS): Upgraded to Buy, added to Conviction Buy list at Goldman Sachs

Goldman Sachs is upgrading AK Steel (NYSE:AKS) to Buy from Neutral and adding it to the
Americas Conviction Buy List. They recommend AKS for near-term to medium-term investors primarily due to its high sensitivity to steel prices. Its electrical steel segment should remain highly profitable and should get a boost from global stimulus packages, particularly in China. Firm's new 6- month P/E and EV/EBITDA based target price of $15 (increased from $9) implies the highest potential upside in their coverage of 34%. It should also benefit from lower iron ore prices next year.

Goldman notes they see steel prices at an inflection point
They remain positive on the steel sector in the near-term owing to impressive supply discipline exhibited by the industry around the world which has helped prices to bottom at a significantly higher level than other commodities. Firm estimates that HRC prices will bottom in January at $525 per ton, then increase to $625 by April before declining again. Scrap prices, which generally lead steel, are already on the rise.

Swapping Steel Dynamics for Nucor on Conviction Buy List
Given their expectations for a near-term increase in steel prices, the firm believes Steel Dynamics offers a higher potential reward than Nucor, which has historically been a defensive name that has not outperformed in steel market uptrends. They have therefore added Steel Dynamics to their Conviction Buy list in place of Nucor. However, they continue to rate Nucor as a Buy.

Notablecalls: AKS has a nice chart and with GSCO bumping it to a Conviction Buy the stock will fly. I see $12 in cards as soon as today.

Apple (NASDAQ:AAPL): Upgraded (again) at Oppenheimer

Oppenheimer is out with an upgrade on Apple (NASDAQ:AAPL) to Outperform ($135 tgt) from Sector Perform following yesterday's disclosures about Jobs' health. While the letters from Jobs and Apple's board raise more questions than they answer, they allay the central concern they raised two weeks ago: the risk of a hasty, unplanned leadership change.

Firm notes they don't know what ails Apple's CEO, and they're not ready to assume that a problem with a "relatively simple and straightforward" remedy is a problem that is itself "simple and straightforward." Still, it seems unlikely that Jobs, the board, and its counsel would disclose the prognosis of a six-month recovery if it were at odds with doctors' expectations. While that is no guarantee, they are satisfied that a sudden change of leadership is not imminent.

In short, while the leadership risk is not eliminated, it has become less acute and allows them, following this note, to refocus on the heart of the Apple story: the Mac share gains, the iPhone revolution, the cash in the bank and the cash that's still flowin.

Notablecalls: So you know it's out there. Remember how Opco downgraded the stock on Dec 17? Well, the stock is now higher when they downgraded it. I know it pays to be flexible and I really have respect for analysts that have the ability to quickly change their mind when proven wrong.

Still, leaves a bad taste in your mouth, doesn't it?

This upgrade is the one you need to fade.

Also note there's a story in LA Times saying Jobs' hormone imbalance could be caused by a tumor.

Yeah, fade anywhere above $96.70 (I see it trading there this AM)

PS: BMO making negative trading call on AAPL.....thinks company will guide March quarter revenues in the range of $7.1B-$7.5B and EPS to a range of $0.75-$0.85.....street at $8.4B/$1.15....."we believe the magnitude between March quarter guidance and current Street estimates is likely to pressure the shares near term"...they lower FY09 EPS estimate to $4.60 from $5.11

NC: My question now is - Will AAPL see red today?

Satyam Computer (NYSE:SAY): Two tier-1 firms out negative - expect stock to go down

We have two tier-1 firms out cautious or even negative on Satyam Computer (NYSE:SAY) this morning:

- UBS notes Satyam stock has rallied more than 25% over the past week on increased probability of a management change. While they think a smooth management change would be positive for the stock, the market has not factored in a potential disruption to business caused by uncertainty by the management/ownership change, in firm's view. New contract wins will be the first to be impacted; additionally Satyam faces competition from TCS/Infosys Technology (INFY) in its existing client base in an already challenging demand environment.

Among Satyam’s large accounts, TCS also has a meaningful relationship with General Electric, Citi, Merrill Lynch, Applied Materials, Kimberly Clark and Qantas, and INFY has meaningful relationships with Telstra, Reuters and Citi. UBS sees higher risk to Satyam where TCS is also a vendor, as Satyam and TCS pricing differential is lower then Satyam and INFY pricing differential. A prolonged period of uncertainty would be detrimental to Satyam.

UBS also notes Satyam underperformed TCS and Wipro by only about 6% in 2008, despite negative implications of the aborted Maytas transaction. They see higher risk to Satyam’s earnings in FY10/11, compared with INFY/TCS/Wipro. Reiterates Sell rating on Satyam.

- JP Morgan says that while they have not heard of any specific instance so far, they believe that Satyam could see some business pull-back from top global customers if the corporate governance issues continue over the next few weeks. Further, they believe that Satyam employees are uncertain over future leading to low employee morale and several people are looking for options to exit the company.

They are reducing FY10/FY11E revenue estimates by 10-11% and EBIT estimates by 17%/13% respectively.

Satyam’s stock has rebounded sharply over the last couple of weeks largely due to cheap valuations and possibility of new promoter emerging. However, fundamentals remain weak and the firm believes that confidence in management would be difficult to rebuild - they see a new management team with new promoter as the only quick way to restore investor confidence.

Reits Underweight.

Notablecalls: The shares are reportedly trading down 4% in India, mostly due to concerns over renewal of existing contracts by clients.

A local analyst is quoted saying, "Concerns over corporate governance issues at Satyam might make its existing sourcers and vendors jittery before renewing their contracts."

This spells trouble for Satyam in my opinion.

Must say I would not be surprised to see the stock retrace some of the recent bounce gains.

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.

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

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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.

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.

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

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.

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:

WHAT WE KNOW
- 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

JEFFERIES RECOMMENDATION – WHEN TO OWN SEMIS AND WHAT TO OWN
- 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
Xilinx.
- 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.

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.

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.

Baidu.com (NASDAQ:BIDU): Added to Conviction Buy List at Goldman Sachs

Goldman Sachs upgrades Baidu.com (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.

Catalyst
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 Alibaba.com 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.

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.

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.

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.

General Electric (NYSE:GE): MAJOR NEGATIVE CALL FROM JP MORGAN!

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.

Catalyst
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

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.

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.

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.

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.

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.

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.

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

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?

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.

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.

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.