Calls of Note Part 3

- FBR notes negative headlines surrounding Amgen (NASDAQ:AMGN) may come sooner than expected. Firm contacts tell them that cuts to Medicare Part B may be proposed by the Democrats in a proposal to expand the State Children's Health Insurance Program (SCHIP). The expansion may need $50B in offsets over 10 years. Firm expects to hear that two AMGN- relevant areas may be discussed as places for Medicare savings: follow- on biologics and ASP+6%. They are maintaining Market Perform rating and $77 price target.

FBR's Washington contacts tell them that the Democrats - in response to the State of the Union address - may propose an expansion of the State Children's Health Insurance Program (SCHIP) totaling $50B over ten years. To offset the cost of this expansion, Democrats are expected to propose cuts to other CMS programs. With respect to biotech drug reimbursement, they hear that Medicare Part B may be a target of cuts.

A proposal to accelerate follow-on biologics may be part of the proposal, and ASP+6% reimbursement seems to also be a target. Both of these proposals may weigh on Amgen, since its blockbusters Epogen and Aranesp could get hit both on follow-on biologics (following Epo's patent expiration in 2013), and on a reduction in ASP+6% in the nearer term (since these are somewhat discretionary drugs for doctors, who may end up losing money on these drugs if ASP+6% is reduced too much).

Notablecalls: I don't think these comments will hurt AMGN today. Just wanted to let you know the call is out there.

Calls of Note Part 2

Bear Stearns is positive on Sandisk (NASDAQ:SNDK) saying that although they expect demand/pricing for flash-based devices to be weak in the early part of 2007, at current levels they believe SanDisk stock is already pricing in the near-term pessimistic outlook. Specifically, the firm believes the stock is pricing in an ASP decline in the 30% range for 1Q07, and they believe guidance would have to be lower than this level for the stock to react unfavorably in the near-term. They believe the stock's current valuation, at 18x their 2007 non-GAAP EPS (including dilution from the M-Systems acquisition) presents a great opportunity for investors to accumulate the shares.

Firm remains comfortable with their 4Q06 EPS estimate of $0.80 (this excludes impact from M-Systems). They are estimating bit growth of 73% QoQ for the quarter, above guidance of 50-60% QoQ, and ASP decline of 23% QoQ, slightly below the low end of the guidance range of 15-20% QoQ. Firm believes SanDisk benefited from a strong increase in densities driven by the price cuts in 3Q and 4Q, as well as strong microSD demand in the quarter.

Maintains Outperform but lowers tgt to $65 from $72.

Notablecalls: Not holding my breath for a bounce.

MasterCard (NYSE:MA) - Tgt upped to $130 + strong chart

Prudential is upping their tgt on MasterCard (NYSE:MA) to $130 from $100 saying the revised target equates to approximately 26 times 2008 pro forma EPS estimate, up from prior target multiple of 20.

Higher long-term earnings growth fed into firm's 10-year DCF-based equity valuation model is the primary driver. They now project 16.4% CAGR of net income, up from prior estimate of 14.0%.

Firm projects that gross dollar volume (GDV) at MasterCard will grow 14% in 2007 and 13% in 2008. Our forecasts of processed transaction growth are 17% in 2007 and 15% in 2008. They believe that the competitive landscape would be relatively stable near-term, as two major card networks (Visa and Discover) prepare to become publicly- traded companies over the next several quarters.

4Q06 pro forma EPS estimate remains $0.40. Firm forecasts yr/yr net revenue growth of 18.5% in 4Q06 with GDV growth of 15.0% and transaction volume growth of 19.5%. They continue to expect a smaller than usual sequential increase in marketing expenses, as they believe that the company has allocated proportionately larger share of annual marketing expenses to 2Q06 due to the World Cup promotion.

Maintains Overweight.

Notablecalls: Love the chart. The tgt raise is big enough to create some buy interest. Going to call this one actionable here as MA is a mover.

Calls of Note Part 1

Couple of interesting comments on MEMC (NYSE:WFR):

- UBS notes they estimate that MEMC will likely meet its 4Q06 revenue guidance of $410-$415M (they estimate $415M, +2% q/q). Firm's channel checks found overall 200mm and 300mm prime semiconductor wafer prices increased, on average, 5% q/q as DRAM customer strength offset foundry customer weakness.

Firm's discussions with industry contacts found that MEMC just began selling "semiconductor grade" (higher quality) polysilicon for the first time last quarter as semiconductor wafer sales visibility remains limited in 1Q07. Channel checks found solar customers are paying $325-$350/kg for semiconductor poly (higher than the $200-$250/kg being paid for solar grade poly).

UBS' channel checks suggest 1Q07 semiconductor wafer volumes are-2%q/q and prices are +3%q/q. While MEMC likely benefits from solar wafer sales (mostly to Suntech) for the first time in 1Q07, firm's industry research found MEMC could benefit from increased market share at Intel as their discussions with industry contacts suggest one of Intel's 300mm wafer suppliers is sold out in 1Q07.

Maintains Buy and $60 tgt.

- FBR is saying they expect WFR to exceed firm's revenue/pro forma/GAAP EPS estimates of $414M/$0.58/$0.40, compared to the revenue guidance range of $410M-$415M and the consensus of $416M. Due to higher sale of poly in the spot market, they also expect the company to exceed their gross margin estimate (and guidance) of 48%.

Firm expects the solar wafer contracts with Suntech and Gintech to start contributing meaningful revenues in 2H07, although they note that these revenues will have a lower gross profit than the sale of poly in the spot market. These, combined with an acceleration of semi wafer capacity, as well as the initial capacity installation for in-house solar wafers manufacturing, are expected to lead to limited upside margin.

Investor expectations are for consensus CY07 pro forma EPS to increase to "at least" $2.80 (or so), versus FBR estimate/ consensus of $2.24/$2.55, but they this unrealistic. They applaud the company's flexibility in shifting capacity from semi to poly and vise versa, driven by the directional changes in the demand environment, but with increased industry supply and in-house overhead expenses, especially in 2H07 and beyond, they believe the magnitude of upside to consensus is limited.

Maintains Mkt Perform.

Notablecalls: I think UBS trumps FBR here. The chart looks like it wants to move higher. Check archives for further commentary.

Color on news: Gap (NYSE:GPS)

Several firms are commenting on Gap (NYSE:GPS) after the co announced that its President and CEO, Mr. Paul Pressler, was stepping down immediately:

- Goldman Sachs notes Pressler's departure has been speculated about for over a year and is not a surprise given recent results. However, there is no easy fix for GPS. A new CEO will need great vision and the ability to attract talent in order to rebuild the leadership ranks. Assuming the right CEO is hired and a turnaround is even possible, it will take time to reconnect with consumers while facing skilled competition.

This as a necessary change for Gap, but firm's reservations remain numerous. The issues confronting Gap are structural and will challenge any CEO and/or new management team, at the same time that the shares are fully valued with little upside even if a turnaround takes hold, while downside risk is high in light of on-going market share losses. Moreover, today's announcement reaffirms their view that that poor results are likely to continue given the turmoil in leadership.

Gap shares could trade-up marginally on the news and then continue to trade around current levels as investors wait to see who succeeds Pressler and what new strategies will ensue. The prospect of new leadership provides hope, but does not eliminate the secular issues Gap faces.

- Morgan Stanley sees Pressler's departure as a big step in the right direction. They expect further changes to be announced in the next month or so, including a possible sale of one of GPS' divisions (most likely Banana Republic) or an LBO of the entire company. In terms of who could replace Pressler, they think Mickey Drexler is unlikely. However, they find it interesting that Vanessa Castagna, executive chairwoman of Mervyn's and former CEO of JC Penney's stores and direct business, announced her resignation from Mervyn's and Cerberus Capital Management this morning. MSCO thinks she would be a great fit for GPS and possess the "deep retailing and merchandising experience" the retailer so desperately needs.

They expect the stock to reactive positively to the news of Pressler's departure as well as the Board's willingness to make material changes. MSCO continues to believe the stock will hit the $23-$25 range over the near term. Additional upside catalysts include a sale of one of GPS'
divisions or a sale of the entire company to a private equity player.

Maintains Overweight.

- Citigroup says that although they believe the market has been looking forward to Paul Pressler's departure, they are less constructive on the departure given that no permanent replacement was named. Furthermore, given that a search is likely to take at least 3-6 months in firm's view, they do not believe that a new CEO will be in a position to meaningfully impact the business until at least the fall or holiday of 2008. Additionally, they believe the stock's current valuation has been supported on speculation of a LBO or management change; however, with Mr. Pressler's resignation, the risk they see to the stock is that it begins to trade on fundamentals which could put downward price pressure on the shares.

Notablecalls: Looks like the Fisher family run out of patience. I suspect that firing Pressler will ignite a series of events that will prove to be beneficial for the shareholders. At least in the s-t.

Color on quarter: Texas Instruments (NYSE:TXN)

Several firms are commenting on Texas Instruments (NYSE:TXN) after the co issued its Q4 results and guidance:

- JP Morgan notes that as they hoped, there were several signs of a bottom on the call. TI's semiconductor book-to-bill decreased from 0.92 in 3Q06 to 0.89 in 4Q06, the lowest in over five years and roughly in line with firm's 0.90 estimate. In addition, the company's capital expenditures and depreciation for 2007 are both below 2006 levels.

Although revenue appears close to a bottom, TI is not lowering its inventory as the firm had hoped. TI stated it should actually increase utilization rates keeping inventory roughly flat during 1Q07, which should raise its inventory to a record 84 days. Although the company believes this is prudent, the firm finds it difficult to accept record inventory in the middle of a downturn. As a result, they believe the stock is range-bound until TI "blows up" due to its aggressive guidance and record inventory, which should occur sometime later this quarter and result in TI lowering utilization rates and inventory and bottoming its margins. JPM is maintaining their Overweight as TXN is trading near trough valuations and believes the inventory issue should be cleared up within a couple of months.

Firm is lowering their C07 revenue and EPS estimates from $13.7 billion and $1.52 to $13.3 billion and $1.45 and introducing C08 revenue and EPS estimates of $14.5 billion and $1.85. TXN stock is trading at 3.3X its C07E sales, the low end of its range of 3X-5X sales. JPM believes gross margins are bottoming soon and as a result is reiterating their Overweight rating.

- Stifel notes that with a report that created a somewhat surprising positive share reaction, Texas Instruments delivered a modest upside to recently reduced December expectations and gave cautious guidance that fell well below consensus. Although TXN doesn't appear to be largely suffering from company specific issues, they do believe the macro environment causing the March quarter reset is more concerning than the positive after hours trading might reflect.

Unfortunately, TXN's March quarter outlook suffers from the same industry issues that led to its negative mid-quarter update. In addition to revenue and EPS guidance, TXN made statements regarding inventories and factory loading which may ultimately have a larger impact on the company's shares than any near-term estimate revisions. Gross margin in the December quarter was 50.5%, a decrease of approximately 90bps sequentially, which was a lesser contraction than the firm had anticipated as the firm appears to have maintained a relatively high utilization rate. As a result of softer sales and relatively high production rates, the company's internal inventory decreased by only about $50 million sequentially.

For the March quarter TXN was indefinite as to what to expect regarding internal inventory balances as production would lessen during the first half of the quarter and then increase in the second half.

In firm's view, TXN is betting that the industry begins to return to normal by the second quarter and is relying on the flexibility of its hybrid manufacturing strategy to minimize the impact if orders remain sluggish. In the end, the risk of not having enough product may be greater than having too much inventory. However, at least until visibility shows some signs of improvement we stress
the potential repercussions to gross margin and profitability for much of 2007 should slower sales drive a need to again attempt to reduce internal inventories later in the year. Accordingly, they maintain their Hold rating.

- UBS notes TXN experienced broad-based weakness during Q4 in most of its end-markets including Wireless, DSP and Analog products. TXN's management commented that orders received in October and November were well below expectations, as it indicated during the mid-Q update, while orders stabilized in December, though at a low level. Book-to-bill came in at 0.89, down from 0.93 in Q3. Based on future expectations, TI indicated it has decided to start increasing wafer starts again during Q1, indicating to us that we have passed the trough. According to the company, weak demand in the high-end wireless segment could not be compensated by the solid low-end demand. Management reiterated that the company's LoCosto single-chip solution for the low-end handset market is ramping on track with expectations and is going well based on manufacturing yield performance. Firm expects LoCosto to start contributing to margins in 2H07 at the end of which LoCosto is expected to represent over 50% of all low-end handset shipments at TXN.

Firm continues to see valuation support for the TI shares and believes the market has largely priced in current weak fundamentals and is underestimating the potential for a solid rebound in 2H07, partly supported by LoCosto. At 14x 2008E EPS they view the shares as inexpensive and reiterate Buy rating as they believe the trough is near. Maintains PT of $38.

- Bear Stearns says they expect the mix shift towards low end cell phones to continue in 1Q07 as 3G cell phone demand remains weak. Though TI has been combating this mix shift with LoCosto, its wireless revenues continue to be pressured by the lower dollar content in these low end cell phones. It is difficult for the firm to call a bottom here on wireless as mix remains unfavorable for the foreseeable future and competition is intensifying in OMAP.

Outside of wireless, they see continued weakness in analog for 1Q07 as distributors are looking to further reduce their inventory on hand though checks indicate limited inventory builds across the supply chain. With decent sell through, they expect the current analog inventory correction to end exiting 1Q07.

This round of earnings reduction, in firm's opinion, was already priced into the stock. They reiterate the view that investors with an intermediate term time horizon should accumulate TI's shares at $29 and below given the improving risk/reward profile. However, for the near term, they expect TXN to trade sideways given the lack of immediate catalysts.

Notablecalls: It could have been worse. Management is now betting on a H107 rebound by not reducing inventory. If the rebound fails to materialize, it's going to be ugly. Currently, I see very little reason for a rebound to happen. I fully expect the stock to react positively in the s-t but the move will be faded later on.

Paperstand (SAP, TLEO)

According to the WSJ’s „Heard on the Street” column, when the CEO of SAP (SAP), Henning Kagermann, lays out the co's strategy before investors and analysts tomorrow, he will have to explain an unsettling paradox: Why big players like SAP are missing their earnings tgts when spending on business software is increasing. The scenario is frustrating for the big players b/c they haven't been able to cut themselves a larger slice of the business-software pie. Co’s are expected to spend $334bn on software this year, up 8% from last year, according to Forrester Research. Some argue SAP's slump highlights a broader shift under way in business software in which start-up co’s wield an advantage over established titans. "Increasingly, it's going to be hard for the big vendors to really outpace the industry, b/c the real growth is going to come from the more-disruptive players within software," said Brendan Barnicle, of Pacific Crest. He has a Sector Perform rating on SAP.

Barron’s Online „Inside Scoop” section reports that Dutch media tycoon John de Mol is keeping a close eye on Taleo (TLEO) as the software co emerges from its financial woes. De Mol's investment vehicle Talpa Beheer disclosed it spent nearly $11.5M to accumulate 1.12M shares of Taleo, or a 5.15% stake. Considering Talpa only recently crossed the 5% threshold requiring SEC disclosure, Ben Silverman, of InsiderScore.com, says it appears that De Mol "already bought the stock at weaker levels than now and even with his cost basis, he's up almost 30% based on the stock price today." "De Mol is certainly an interesting guy to keep an eye out," given his track record as a media entrepreneur, says Silverman. [De Mol sold Endemol, the TV production firm he founded, for roughly €5bn in ‘00.] Also, Silverman notes that international investors tend to be "somewhat selective" in building major stakes in US stocks.

Calls of Note Part 7 (Nasdaq:UNCL)

Sanders Morris Harris (SMH) out positively on MRU Holdings (UNCL). The firm is hearing from sources that student loan volume at UNCL during Dec and Jan to date has been robust, running ahead of the co's expectations. Daily loan disbursements have frequently topped $1M in recent weeks and have started earlier than anticipated. The business mix includes a solid percentage of new customers, plus returning borrowers.

SMH says that UNCL also continues to make progress on the securitization and is currently working with the rating agencies. As a result of the recent loan volume and the Feb timing, firm has boosted their est for the amount of loans to be securitized by $30M, to $150M, which subsequently raises F3Q07 EPS ests. For the current quarter and full-year, SMH now projects earnings of $0.46 and $0.40, respectively, up from previous ests of $0.29 and $0.28. Firms full-year est still assumes a second securitization in FQ4 as well.
According to SMH, UNCL is a very attractive early-stage investment opportunity given its strengthening position as the low-cost provider in the rapidly growing student loan mkt.

Analyst reiterates Buy with price tgt of $9.

Notablecalls: MRU Holdings (UNCL) is one of NC's l-t picks (See archives). Most important event for the co is surely securitization, which, as we see now, is ahead of expectations. While UNCL currently remains under-the-radar stock, I would not be surprised to see a positive reaction following the call.

Calls of Note Part 6

- Cowen is cautious on DreamWorks (NYSE:DWA) saying they expect DWA to announce a $115MM write-down to Q4:06 earnings for Flushed Away when the company reports earnings on February 27th. The film has generated roughly $163MM in worldwide box office to-date, and wthey expect minimal additional box office for the remainder of the film's run. Firm now expects a final worldwide box office of $168MM versus pre-release estimate of $269MM.

As a result, they are lowering their estimate of Flushed Away's lifetime gross revenue from $424MM to $265MM, and estimate of the film's lifetime profit from $48MM to a loss of $97MM. At the time of DWA's secondary offering in November, management announced that a write-down would be necessary. However, Cowen believes that their estimate of the size of the write-down is larger than current Street expectations. DWA will have taken write-downs on two of its last three films.

Firm notes that the Street consensus EPS estimate for FY06 is $0.58. They believe FY06 estimates are too high given the performance of Flushed Away, and expects estimates to come down significantly over the next several weeks as analysts factor in the likely impact of the production cost write-down.

While the firm believes DWA shares could trade down in the near term due to FY06 estimate reductions, the build-up to the May 18th release of "Shrek the Third" could drive the shares higher over the next few months. However, recent film performance could ultimately cause investors to reassess DWA's long-term earnings power, leading to pressure on DWA shares.

Notablecalls: I think Cowen is right with their call on DWA. The stock has run too far and now looks toppish. Given the possible magnitude of Flushed Away's write-down, I think the stock's a short here. Cowen's comments are actionable. DWA needs to rethink their marketing strategy.

Calls of Note Part 5

- Goldman Sachs is out with a call on Cisco Systems (NASDAQ:CSCO) saying they think the co is in the early stages of a multi-year product cycle that they believe will sustain double digit growth for the next 3 to 5 years. Firm's above consensus view reflects acceleration in high margin carriers sales, stable high single digit switching growth based on their proprietary model, and continued share gains in advanced technologies. Analysis points to unprecedented price stability in major product lines suggesting margins stability and operating leverage. In the report the firm detail their proprietary Cisco switching model, and a new enterprise routing model - both suggest continued positive margins.

GSCO is raising their FY2007, FY2008, and FY2009 estimates to $34.2 bn/ $1.31, $38.8 bn/$1.53, and $43.9 bn/$1.75 (excluding ESO).

Key catalysts include: 1) Early 2007 introduction of consumer electronics that speed the adoption of "video over the internet" services from Apple and Microsoft, and others will be positive for carrier spending on Cisco's products. 2) New product launches in Cisco's edge routing platform in 1H2007 should help Cisco gain further share. 3) Aggressive share repurchase should continue. 4) Firm's contacts confirmed strong demand for both corporate and carrier products in Europe in the quarter and emerging markets.

Maintains Buy and $35 tgt.

Notablecalls: Only GSCO has the power to move this mega-cap stock. I suspect we will see buying interest in CSCO today.

Amgen (NASDAQ:AMGN) - expect to see a major move in the stock today

- Bear Stearns is out with a major call on Amgen (NASDAQ:AMGN) saying that after years of mystery and intrigue, they think the answer is upon us: CERA, indeed, appears to be just PEG-EPO, according to new court documents filed late Friday. Firm thinks this means AMGN's probability of winning its patent infringement case has increased dramatically. If the market fully digests this development, they believe AMGN shares could trade up sharply today. As a reminder, when the firm upgraded the stock ~2 weeks ago, they suggested fair value could exceed $90 if CERA does not launch.

In the documents, CERA is decribed as having the same "amino acid sequence and composition" as epoetin beta. In Bear's opinion, if CERA does have the exact sequence as EPO, it is more likely to infringe Amgen's manufacturing patents & composition patents. The documents also notes that CERA has an "identical amino acid sequence and composition of the carbohydrage moiety". In firm's opinion, it will be difficult for Roche to argue that CERA's backbone falls outside the scope of Amgen's patents on Epo and believe Amgen will be able to argue CERA infringe's its patents.

Reits Outperform on AMGN.

Notablecalls: Actionable call alert. CERA has been considered a major threat for AMGN's EPO line meaning that if Bear is right the stock will go vertical today. I expect to see a sizable move in AMGN today. I would not be surprised to see the stock challenge recent highs.

Calls of Note Part 4

- Oppenheimer notes that in recent channel checks they have been unable to locate any high-end appliance dealers who are selling TurboChef (NASDAQ:OVEN) residential ovens, and very few who even know who TurboChef is. As a result, they conclude that the residential rollout will unfold a bit more slowly than they had previously forecast. Firm is pushing their residential unit shipment estimates out by a quarter, and the result is slightly lower earnings. They reduce 2007 EPS estimate from -$0.15 to - $0.25. Management was careful to comply with reg FD when they contacted them last week and so did not go much beyond what was said in the last conference call. Firm continues to expect that the residential launch will occur eventually, and would note that TurboChef does not need to sell that many units to move the needle on earnings. So they would not be sellers but do continue to rate the shares Neutral.

Opco cutting their 2007 unit shipment forecast for residential ovens from 3,700 units previously to 2,200 units now by pushing each of quarterly unit estimates out one quarter further. This results in a reduction in their residential segment revenue forecast from $14.8 million to $8.8 million in 2007. On a consolidated basis, revenue estimate falls from $97 million to $91 million.

Notablecalls: OVEN has had a nice run over the past 4-5 months and I suspect these comments will cause a pullback in the stock.

Calls of Note Part 3

Couple of firms are commenting on Qualcomm (NASDAQ:QCOM) this AM:

- CIBC notes QCOM shares have been under pressure for some time given the ongoing dispute around its licensing program. While they believe it will still take time until these issues are resolved, they see several fundamental drivers improving through 2007 and believe valuation is now better supported.

While parts of 2007 saw sluggish 3G trends, the believe recent results and comments from handset OEMs suggest increasing competition in the area in 2007 as they try to improve ASPs and margins. CIBC believes the WCDMA market can surpass QCOM's 175M unit target (firm's forecast is 178M).

Firm expects QCOM's WCDMA chipset share to rise in 2H07 as MOT slots QCOM this summer and turns more aggressive in 3G. They are raising their estimates slightly (weighted to 2H07/2008). 07/'08 EPS estimates are raised to $1.82 and $2.09 from $1.80 and $1.97. NOK is still included.

Currently, QCOM's shares are trading at 18.6x revised $2.09 FY08 EPS estimate. If Nokia is taken out,they estimate FY08E EPS would be around $1.80, reflecting a current 21.5x multiple. Either way the firm sees value at these multiples and with fundamentals improving in 2H07, they see upside.

Maintains Sector Outperformer and $45 tgt.

- UBS notes that at MOT's analyst day last Friday, MOT mgmt referred to QCOM's previously announced 3G chipset win as "significant". Checks indicate cost structure is more attractive than MOT's current Freescale soln, which could result in more meaningful mkt share in MOT's future 3G handsets than we originally anticipated. By firm's calcs, every 5m chipset upside results in ~$0.01 in EPS in FY07/08, all else equal.

MOT indicated it expects 3G (WCDMA/HSDPA) to drive replacements in 07, though likely more in 2H07. MOT also indicated 3G handset price reductions by handset vendors in 4Q06, which the firm believes is key element to adoption due to elasticity to lower pricing. While the ramp coincides w/ MOT's ramp in 3G handsets, nonetheless they view MOT's 3G industry commentary positively.

Maintains Buy and $50 tgt.

Notablecalls: Not actionable but good to know category. The comments are positive but I'm not sure it's enough to put some real fire under the stock. Overall, it's good to see sentiment finally starting to turn in favour of QCOM.

Calls of Note Part 2

- UBS comments on Dell Computer (NASDAQ:DELL) saying checks indicate large PC share losses for Dell in the US and Europe and they believe 4Q07 revenues will be even weaker than they had originally expected. 4Q07 is also anniversary of a 14 week quarter for Dell. The silver lining for Dell is that its ASPs seems to be relatively benign.

Firm believes corporate desktops and consumer segments are particularly weak in the US and they believe Dell is losing share in Europe. Also, the ramp up of sales of AMD-based systems may be slower than expected.

While the firm has been cautious about Dell's revenues for a long time, they were still surprised at the recent level of y/y PC shipment declines (both worldwide and in the US) that were recent reported from IDC and Gartner. According to IDC, in calendar 4Q06 Dell's worldwide PC units experienced a 8% y/y decline, compared to market growth of 9% and staggering growth from HP of +24%.

Factoring in views that share losses should continue, they are cutting estimates. For 4Q07 they estimate EPS of $0.28 (was $0.30) with a revenue decline of 3% to $14.7B (was $15.4B). FY08 estimate is now $1.30 (was $1.35) reflecting revenue growth of 5% to $60B (was $62B) & new FY09 estimate is $1.45 reflecting revenue growth of 6% to $63.5B.

Maintains Neutral but lowers tgt to $26 from $27.

Notablecalls: It's quite obvious UBS is late with their call. The stock has made its move. I would not be surprised to see a bounce in the s-t. However, looking at the stock l-t, it's surely going lower. Dell needs to reinvent itself and given its size that's a challenge.

Calls of Note Part 1

- JP Morgan comments on Texas Instruments (NYSE:TXN) ahead its Q406 results scheduled for today. They expect the company to post results near the midpoint of its lowered 4Q06 revenue and EPS guidance of $3.353.50 billion (down 7%-11% QoQ) and $0.37-0.40 due to weakness in its semiconductor business (95% of 3Q06 sales), in line with firm's and Consensus estimates.

Conference call should be ugly. JPM's checks indicate TI's book-to-bill remained below 1.0 during 4Q06 due to an inventory correction in its analog business (38% of 3Q06 sales) and weak demand for its DSP products (36% of 3Q06 sales). They also expect 4Q06 gross margins to decline to 50.0%, 140 basis points below 3Q06.

Expect sub-seasonal 1Q07. Due to the low book-to-bill, they expect TI to guide 1Q07 revenue to decline 7% QoQ, in line with their estimates but below Consensus (down 4% QoQ) and typical seasonality (down 3% QoQ). Firm also expects the company to guide 1Q07 gross margins to decline again to 48% due to lower utilization rates. They note some of TI's analog peers such as National Semiconductor and Linear Technology have already guided for sequential revenue declines in the mid to high single digits for the March quarter as a result of the inventory correction, well below normal seasonal patterns of sequential growth.

Margins bottoming - time to buy. Despite a rocky 1Q07, they believe TI's margins are bottoming as inventory peaked in 4Q06 and TI is lowering its utilization rates to ensure its own inventory returns to a "normal" level. Fownside risk appears minimal. TXN stock is trading at 3.2X C07E sales, the low end of its historic range of 3X-5X sales.

Reits Overweight.

Notablecalls: Looks like JPM is hedging their bets on TXN by telling investors to expect a gruesome call. A call that should mark the bottom. That will keep the stock from plummeting if indeed the call is ugly and may even generate a bounce if it's not. One for traders. Investors...beware. I suspect things will continue to deteriorate for TXN in 2007. At best, the stock is dead money.

Paperstand (SUNW, INTC, AMD, VZ, SNY, BMY)

According to the WSJ, Sun Micro (SUNW) and Intel (INTC) have been negotiating an agreement under which Sun would buy Intel chips for use in server systems. A deal, which could be announced as soon as today, may include an endorsement by Intel of Sun's Solaris OS. Sun's use of Intel chips, would be a blow to AMD (AMD), which is now Sun's exclusive source for chips based on the x86 design used in most PCs and servers.

The WSJ reports that in a move that may hint at growing economic problems in Venezuela, the country's president, Hugo Chávez ordered his telecom minister to seize control of a Verizon Comm. (VZ)-controlled telecom co before paying compensation to its US owners. Mr. Chávez's announcement threw further doubts on whether Verizon would receive fair compensation for its stake in Compañia Anónima Nacional Teléfonos de Venezuela - CANTV.

According to the “Heard on the Street” column, the Sanofi-Avnetis’ (SNY) stock price has lagged behind its peers partly b/c the co doesn't tell the mkt much about the experimental drugs it is developing. This has created a cloud of uncertainty over the co, b/c understanding the pharma pipeline is key for investors. Now, its new CEO, Gérard Le Fur, says Sanofi is ready to start talking. "I accept the criticism that we weren't good enough in this area, so we have to improve our communication," Dr. Le Fur says. Sanofi promises the first signs of its new transparency will come at its ‘06 earnings conference Feb. 13, which will include an update on R&D. According to the article, former CEO, Jean-François Dehecq, will remain Chmn until 2010. Many analysts and investors believe that Mr. Dehecq is staying on to attempt one final acquisition, possibly of Bristol-Myers (BMY).

Barron's Summary

Barron’s cover highlights stocks of co’s that benefit from rapid wealth growth. Those include: AXP - Plastic of choice for the well-heeled; COH - Madly popular high-end accessories; GD - Gulfstream jet demand soaring; FO - Golf clubs and good bourbon; IHG - Hosts to the globetrotting class; LVS - China's new rich jamming Macao; LTM - Play palaces for the suburban affluent; MER - Prime role in handling wealth transfer; MGM - Those who earn a lot often bet a lot; SKS - Stellar brand, company in turnaround; BID - Brokering culture to the hyper-rich; TIF - Those blue boxes are coveted globally; JWN - The apex of national department stores; TXT - Cessna prospering in private-jet boom; and WFMI - Selling virtue and organic kale, for plenty. Article also highlights co’s that serve a cash-strapped lower-income clientele. Those include BIG - Midwest close-out chain is on a roll; DG - Dollar stores gain share selling staples; FDO - Decent top-line growth, strong stock; EZPW - Pawn shops, sadly, are thriving; and FCFS - "Payday loans" profitable, under scrutiny.

Barron’s Roundtable members like EFA, RCS, FRA, LYO, HIG, ACGL, COF, GLW, PXD, EWS, PBR, NBR, YRCW, C, GE, RCL, FD, MEDI, BRL, BHI and SYMC.

The stock of Under Armour (UA), lately 51, is probably worth no more than the low 50s, and could fall much further if the young company stumbles. Competitors are storming Under Armour's market.

A buyout group that won the Clear Channel (CCU) auction stands to make a quick 50% return. But institutional opposition could kill the deal or force the group to boost its bid. Barron's has learned that at least two big institutional holders, including Fidelity Investments, have told mgmt that they will cast negative votes. "The LBO price is wholly inadequate," says Jeff Jacobowitz, of Robotti & Co.

The shares of Manor Care (HCR), off 6% from a high last summer, don't reflect all the improvements at the company. Jim Lane, of Tripoint Asset Mgmt sees the stock climbing 30%, to $65, over the next 18 months.

“The Trader” section highlights Tesoro (TSO), which is sitting on a treasure of cash, probably more than it needs to run the business efficiently. At the end of ‘06, the co will likely end up with about $800M in cash. FBR analyst Jacques Rousseau argues that the best use of the cash is a big buyback of its own shares, say $1bn worth, to take out some 20% of the 67M outstanding. Tesoro hasn't reduced the share count much in recent years, he says, so such a buyback would make a "material" impact on EPS, increasing estd profits about 18% this year by lowering shares outstanding. A similar move by refiner Ultramar Diamond Shamrock in ‘01 led to a 26% rise in the stock price over the next 12 weeks, he points out. With oil and refined-product prices falling, refiners will likely see share volatility in ‘07, and there will be chances to buy back the stock at prices lower than it is now.

The stocks listed here show strong fundamental business trends and above-avg short-term relative strength, which could lead to outperformance in the next few months, according to the Barron’s. SPW, IPG, AQNT, OII, LEH, ASN, MHS, KCI, GD, ADSK and CMCSA.

“Technology Trader” section discusses Cisco (CSCO), which fell 8% last week, after analysts at 3 brokerage firms downgraded the stock from Buy to Neutral. Barron’s argues that analysts jumped off the Cisco wave too early. After all, YouTube hasn't yet started stocking high-definition videos. Video traffic could grow to levels that force widespread upgrades of Internet gear. The article suggests that Cisco still has a few good quarters ahead of it.

Color on quarter: Capital One (NYSE:COF)

Several firms are commenting on Capital One Financial (NYSE:COF) after the co released its Q4 results last night. While most comments are positive in nature (COF is a former analyst darling), I suspect the calls from CIBC and Merrill Lynch make the most sense:

- CIBC notes they believe there is still a love affair going on between analysts and investors and Capital One. After all, the stock made people a lot of money in the 1990s and people remember a good thing. But COF is no longer a growth stock, in firm's view, and has even guided to flat earnings for 2007.

While at 10X their 2007 EPS estimate, the stock looks attractive to some, on value, they believe that until COF pays a competitive dividend with other banks it will trade at a 10X multiple. Currently, COF's div is just 0.14% vs. a 3.5% avg. for banks. COF cannot increase its dividend until at least 2008.

COF reported fourth-quarter EPS of $1.14 vs. $0.97, and well short of consensus of $1.24. What's worse, the company provided 2007 guidance that is effectively flat with 2006 prior guidance and actual performance. Competitive pressures, a flat yield curve, and prolonged integration expenses threw cold water on previous aspirations for higher earnings potential for this year. COF's credit outlook was pretty good: normalization but not a spike in credit delinquencies and losses.

CIBC is lowering their 2007 EPS estimate to $7.20 from $8.20 to reflect COF s transition toward lower margin and less risky businesses. They expect expense growth to decelerate through 2007 and credit losses to normalize. Firm is establishing 2008 EPS estimate of $8.50. Maintains Sector Performer.

- Merrill Lynch says COF Q4'06 results had something for everyone, as the reported EPS was below consensus and the NFB deal close added enough noise to confuse interpretation of the results. 2007 EPS guidance of $7.40-$7.80 likely disappoints, as the Street is at $8.11, though there is room for an upside surprise if credit remains good. Also, there was some speculation that guidance could be lower with investors looking for protection in the options market before the release, so COF shares could react positively to the release on relief that the guidance wasn't worse.

They think the stock could see some weakness today, though they think there is support for the shares at 9.6x 2007e EPS. COF reported adjusted Q4'06 EPS of $1.08, net of a 1x items that increased EPS by $0.06, which was well-below consensus of $1.24 and ML estimate of $1.21. The source of the miss was Bank segment under-performance followed by a modest GFS shortfall on higher expenses.

Maintains Buy.

Notablecalls: So that's why there was some buying COF in after hours! After pouring over COF's results last night I just don't see how anyone can believe management's guidance for 2007. The US Cards segement will surely deteriorate in 2007. Considering this segment makes up for most of COF's bottom line the stock continues to be radioactive here. It's a sell.

Coldwater Creek (NASDAQ:CWTR) - bounce candidate

Couple of firms are out commenting on Coldwater Creek (NASDAQ:CWTR) after the co issued sharply lower Q4 results last night:

- Banc of America notes CWTR cut its Q4 EPS guidance by nearly 40% to $0.16-0.17 (from $0.26-0.27) with the majority of the shortfall due to margins (particularly at retail). They think the timing of the announcement (given the company was at an investor conference last week) could raise concerns about management credibility.

Inventory concern against tough spring comparisons. CWTR pointed to a tough retail environment, not product issues, and plans to clear through inventory by the end of Q4. However, the firm does not believe CWTR has made adjustments to spring flows and there could be some markdown risk in Q1 if trends do not improve. They also note CWTR faces tough comparisons (+HSD-LT comps) over the next 3
quarters.

This takes 2006E to $0.59 from $0.69, 2007E to $0.72 from $0.92, and 2008E to $0.92 from $1.13. BAC expects conservative 2007 EPS guidance on 2/8, but believes the story has gone from a company that typically beats conservative guidance to one where there could be risk to numbers if weak trends persist. Thinks CWTR is a strong early stage story with a model highly leveraged to a retail rollout. Maintains Neutral but lowers tgt to $19 from $28.

- CIBC notes the EPS miss caught them off-guard given that: 1. they thought merchandise was highly appealing; 2. CWTR's promotional cadence was in line w/ LY, appearing as if inventory was moving as planned; and 3. they saw multiple margin drivers that they believed could offset modest markdowns.

While there may not be much downside from here, the firm thinks there could be an overhang on the stock near term given that investors were likely blind-sighted as well, will have to wait until 2/7 to get the 07 outlook (which is likely to trail the Street's) and 3/7 to get the critical details on 4Q.

However, LT they believe CWTR is among the best sales and margin growth stories, with still 40% three-year EPS growth. CIBC thinks the traffic issue is likely short-lived, inventories expected to be clean by end of 4Q, and the company remains on track to achieve LT operating margin goals.

Maintains Sector Outperformer. Lowers tgt to $29 from $35.

- JP Morgan says traffic was the primary reason for the company's lowered guidance ($0.16-$0.17 from $0.26-$0.27) and we see no reason to expect improvement in the near term. Despite this, however, they still believe that CWTR, with its leading sq. ft. growth and margin opportunity, remains an attractive investment-esp. given the 20%+ dip in CWTR shares aftermarket last night (SandP -0.3%).

Citing what are similar trends across the women's apparel space, the co. continues to experience declines in traffic. However, conversion metrics, units per transaction and average transaction size appear to remain positive. The worst categories include fashion-knit tops and jewelry/accessories-key categories for gifting/occasional dressing.

With strong 30% sq. ft. growth and easy margin opportunities still very much a part of the company's story, JPM believes that shares of CWTR should be able to sustain a premium valuation (similar to URBN and CHS) despite this blip. Should trends normalize, they estimate earnings power of closer to $1.50 over the next couple of years.

Reits Overweight.

- UBS says Coldwater Creek's 4Q profit warning announcement last night is a speed bump in what they believe is a unique long term growth story. A more promotional retail environment during Holiday resulted in soft traffic and margin pressure for Coldwater Creek. They do not believe the story is broken, however. They have lowered their EPS estimates and price target for CWTR. Firm's rating remains Buy.

Many of Coldwater Creek's competitors (Chico's, Talbots, and J. Jill) have already warned about 4Q falling short of expectations, due to company specific merchandising issues and subsequentaggressive promotions. Coldwater did not accelerate promotional activity pre holiday and accordingly, suffered soft traffic. Management plans to clear all remaining inventory in time for new deliveries in early February.

UBS thinks the CWTR story still represents one of the most compelling stories in the space, given 1) margin expansion, 2) 25%+ square footage growth, and 3) differentiated triple channel strategy. They would see any weakness today as a particularly attractive buying opportunity.

Target is cut to $28 from $30.

Notablecalls: I suspect CWTR is a prime bounce candidate. Firstly, the warning does not come as a surprise as several competitors have already issued negative news. Secondly, short interest continued to climb ahead of the announcement meaning there will be some short covering. Last but surely not least, the analyst community continues to be positive on CWTR, calling the news a speed bump. The 20%+ decline in after hrs seems to be excessive. Think the stock's a buy around $18.50 level.

Calls of Note Part 1

Couple of interesting comments on Whole Foods (NASDAQ:WFMI) this AM:

- Banc of America is reducing their 1Q EPS $0.02 to $0.41, FY07 $0.02 to $1.42, and FY08 $0.01 to $1.71. They now believe that WFMI's gross margin will deteriorate 25 bp in the 1Q compared to 15 bp previously. The reduction in gm estimate is due to WFMI's aggressive push to lower prices, particularly on dry grocery. Every 10 bp decrease in gm equates to approximately $0.01 in EPS.

Firm's CT pricing survey shows WFMI prices are down 3.9% from May. While observing prices in one store is certainly not conclusive, the survey seems to support company comments that it would aggressively lower prices to counter its 'Whole Paycheck' image. The survey could suggest more pressure on the gm (up to 40 bp); however, some of the lower pricing is likely being offset by the new UNFI contract and growth in higher margin prepared food items.

Theyhave also lowered comp est. to 6.5% from 7.5% as industry sources have indicated that comp stores sales remained 'challenging' in 1Q. Maintains Neutral and $45 tgt.

- JP Morgan is out defending the stock saying there is a wall-of-worry with WFMI, which, they think, is healthy and frankly makes the stock enticing at 3 1/2 year trough valuations and 52-week low.
Recent issues that have weighed on the stock reflect acceptable growing-pains, manageable competition, as well as, in firm's view, cyclical retail factors with sales. The sheer math of tough comparisons exacerbates this. The equity market over-compensates for these issues, in their opinion, while market sentiment is too negative (33% Buy ratings per Bloomberg). Reiterates Overweight. Long-term investors should start building positions.

They expect that same store sales will accelerate in the second half; the bottom will be this upcoming quarter, Q107E (6 to7% estimate).

Firm likens this investment to that of their former recommendation of food distributor, Sysco (SYY/N), which also took time to unveil during 2006 (firm's EPS estimates had been below consensus there, too). In the case of Whole Foods, free cash flow trends, as well as the addressable market, are larger, so their conviction level is higher here.

Notablecalls: While JPM's comments make perfect sense, BAC's estimate will most likely prevail in the s-t. Not saying WFMI is an outright short here but I would not want to be long the common here either.