Daily Archives: November 23, 2006

Fresh Bait Shop Updates to Takeover Names (FINL, WDC, ATK, BEAS, IMAX)…Happy Thanksgiving

Stock Tickers: FINL, WDC, ATK, BEAS, IMAX, VAIL, UVN, YCC

By Jon C. Ogg
November 22, 2006

Yesterday we made several free public BAIT SHOP updates for a small fraction of our BAIT SHOP MEMBERS.  The BAIT SHOP isquite simply a group of companies that 24/7 Wall St., LLC feels couldbe acquired by either private equity funds, other public or largeprivate companies, and even by turnaround managers……Hence, they are takeover bait !!!  We send outsome fairly regular updates for free on various names that are on ourbuyout candidate list.  Please read the disclaimer at the end to seeour policy on this, but send an email to jonogg@247wallst.com if you would like to get on the free email distribution list.

BAIT SHOP UPDATED COMMENTS ON:

Finish Line (FINL)
Western Digital (WDC)
Alliant Techsystems (ATK)
BEA Systems (BEAS)
IMAX Corp (IMAX)

What a difference a year makes.  You have CNBC daily asking if thereis a private equity bubble.  Jim Cramer has gone from saying theequivalent of "I won’t go after a stock just because it may be a takeover target, because that’s not my game.  I look for growth!"to now recommending a new "buyout candidate" almost every day.  The WSJthis morning ran an article about WHO’s NEXT?, Barron’s has picksregularly, the New York Times has the New York Times runs its Dealbook,and so on.  With a myriad of multi-billion deals coming in every Mondayand half of every other weekdays this is not a surprise.

So for free today we’ll update some of our BAIT SHOP stock picks with new commentary (all prices as of mid-Morning Wednesday):

Finish Line (FINL):  FINL was a name that was addedto the BAIT SHOP with a 1/3 to 1/2 Position after the weekend of June30 at $11.83, and the rest of the position add came in August (Aug. 25)at a $10.87 close after it had briefly dipped under $10.00.  So if youhad an average purchase price of $11.30 to $11.50, this is time to takethe money off the table.  This addition to the BAIT SHOP was after FootLocker (FL) was looking more and more like it was about to be gobbledup and FINL was a better play in my opinion all around from valuationsto size to everything.  There was a short period where this requiredsome fortitude to stick by, but now we think it is time to unload theshares.  Any chance of a Foot Locker deal appears to be toast, and ifthat one doesn’t fall then the odds that FINL needs to be bought fallsdrastically.  This should have been recommended last week when thestock was around $15.00.  At $14.00 the valuations just aren’t anydifferent than on FL, particularly with the dual class of ownership andinsiders being THE stop.  There is just no reason to fight this, sojust take the profits and run.  As a reminder, this was only looking atthe company as a related buyout candidate, so we are not making anyfundamental call here that the company is done nor are we saying thereis something wrong with Finish Line.  There is just very little chanceof a takeover occurring now.

Western Digital (WDC):  We added Western Digital as a full BAIT SHOP member at $18.20 on September 29, 2006
Rightnow, we see no reason to make any change to this stance that it shouldbe acquired.  The price appreciation from $18.20 up to today’s $21.00is more symptomatic of the PC-related and tech/storage environment thanit is a buyout, and this can still be acquired by private equity firmsor by a myriad of foreign players that could go after Seagate’s (STX)sharp dominance.

Alliant Techsystems (ATK): ATK is on that has beenbaffling to me as to why it is still independent.  I have thought thiswould be acquired back in 2003, then 2004, and even re-noted this THEdefense sector stock to buy on January 18, 2005 at $66.18 and again on March 17, 2006at $75.76 closing price. It sits today at $78.00 and has traded overthe last 52-weeks at $84.90.  Now that L-3 (LLL) is potentially up forgrabs, this may not be THE next M&A target in defense and defensetechnology but it should still be acquired down the road.  The companyis just too valuable for its full spectrum of what the company productoffering is, and its low $2.57 Billion market cap would make it asimple acquisition.

BEA Systems (BEAS):  Still neutral on this oneafter having had huge profit taking opportunities.  Last night it ranback up after Jim Cramer on MAD MONeY said that it could be acquired.We have had it on a buyout list in the past but recommended thatinvestors take profits because BEAS is a name that is always a targetthat may never really be targeted (is that a paradox?).  This had beena BAIT SHOP name forever and was listed at $8.00+ originally, and thenat $7.50, and then again at $9.00.  Back on March 16, 2006I noted that this should be time to sell half since it had gone over$12.00 and at least write CALLS on the other half.  This would be avery attractive company to a myriad of buyers, BUT at $5.5 Billion andwith its valuations where they stand now I think Cramer’s new "Chasebuyout candidates" may be too optimistic and too much of a flavor ofthe day call.  I fully admit that the stock did march much higher toover $16.75 this year, but that was not on buyouts.

IMAX Corp. (IMAX):  We are NOT yet adding IMAX backonto a formal list at all, but this is starting to feel like it isbecoming worth at least putting IMAX on a WATCH LIST again as one tobegin re-researching since the valuations have come way in.  Last yearI recommended this when it was under $8.00 and recommended taking profits on 65% or 75% of the sharesback when this was in play to be acquired (at $10.75).  After itstarted petering out it was time to sell.  We didn’t bother looking atthis after that and certainly didn’t look at each stock drop as abuying opportunity because its fundamentals were changing.Unfortunately this one requires a turnaround specialist now, and thatis much different than a private equity buyer that is looking for somelow-hanging fruit that can easily be plucked.  Shares today are atroughly $3.50, and while it "sounds" cheap there is obviously a wholelot of work to do before I can feel comfortable telling you this couldbe a worthwhile buyout target after it has eroded its fundamentals somuch.

We are publishing this as a sample of our work only, because much ofthis analysis for an overall BAIT SHOP has been provided to privateclients in the past.  We do not publish our full list of buyoutcandidates for free on the web at all, and now that we have the newwebsite platform we will be making some of the data available to thepublic on a subscriber basis.  Please inquire for details or stay tuned in the coming weeks for details.

Here are three BAIT SHOP full member stocks that have been acquired this year: Vail Banks (VAIL), Yankee Candle (YCC), and Univision Communications (UVN).

We email out many special situations to clients and to a publicemail list that pertain to buyouts, backdoor plays into upcoming IPO’s,and many other special situations.  If you would like to be on a FREEprivate distribution email list, please send an email to jonogg@247wallst.com toget on the list.  As we respect privacy, we do not share our emaildistribution list with any outside partners or vendors and do notengage in selling or sharing private emails with any outside parties.

Happy Thanksgiving!

Jon C. Ogg
November 22, 2006

DISCLAIMER: Informationhas been taken from sources deemed reliable, but no assurances can bemade to the accuracy of any figures, claims, or opinions. This is forinformational purposes only and is not to be interpreted as investmentadvice or a recommendation to buy or sell securities. It is the soleresponsibility of each individual to do their own research and formtheir own opinions. Neither 24/7 Wall St., LLC nor its officers assumeany responsibility or liability for investor gains or losses, andneither holds any material knowledge that any merger in any form willoccur. The writer of this does not hold any securities in the companiesmentioned, and has not been compensated by outside parties to portraythis situation in any particular manner.

Posted on: November 23, 2006 – 11:32 am in Mergers and Buy Outs

Catalysts That Make Apple (AAPL) A Buy

By Yaser Anwar, CSC of Equity Investment Ideas

There seems to be a lot of buzz around the release of Apple’s new products, especially iPhone, which everyone believes will be announced in Jan 07. Recently Apple’s shares hit a new high, so I thought let’s analyze the catalysts that make it a buy, even up here.

  • The completion of the Intel transition, hefty store traffic, and successful Mac advertising could continue to spur momentum in the Mac business. Hence, investors should expect Mac share gains accelerating.
  • In the September quarter, Apple’s share gains began to gain significant momentum, with Mac shipments growing 30% versus market growth of 7%.
  • Although the Apple stores will continue to play a key role in capturing new users for the Mac platform, management has said that the expansion of third-party retail distribution for Macs could be a critical incremental growth driver as well. Relationships with Best Buy and Circuit City appear to be going well, and I believe these relationships will expand rapidly in coming quarters as Apple releases more quality stuff. i.e. iPhone
  • I believe that the new widescreen video iPod and the Apple-branded cell phone will be launched in early 2007, providing a sustainable boost to the iPod story, especially if its unlocked.
  • AAPL’s management said that incremental growth is likely to come from Mac share gains, iTV, and “new product categories.” In fact, management mentioned unnamed new products as a key driver of growth.
  • 2007 could mark an important rebound in product innovation from AAPL & I believe the widescreen video iPod and the Apple-branded cell phone aka iPhone represent two of the most likely new products for the upcoming calendar year, and of course, there will likely be some other unexpected products as well.

Now a few notes from a UBS report detaling their talk with AAPL management.

Key takeaways from UBS’s meetings with management include:

(1) While other tech companies may be worried about a potentially sluggish holiday season (e.g., Vista pause), Apple didn’t seem too worried at all. Apple continues to be upbeat about its share gain potential in Macs, especially as it adds 40 more retail stores in FY07 (from 174 currently).

We believe Mac demand continues to be strong and the company continues to roll out new products such as the new MacBook Pro units featuring Core 2 Duo processors announced on October 24.

(2) While providing no details, it is clear that Apple has a robust pipeline of new products expected for 2007. The flow of new products is likely to start at Macworld in January where we will also see another glimpse of Leopard, Apple’s OSX Operating System, and iTV, Apple’s answer for the digital home.

(3) Margins were a key discussion point as Apple recently reported GAAP gross margins of 29.2% (70bps above our estimate) due to benefits from higher margin Mac sales offset by declining iPod pricing and iPod mix. For 1Q07, Apple currently expects GAAP gross margins of 28.25% (-90bpsq/q) due to the impact of continued iPod strength, a full quarter of shipping the new iPods with lower ASPs, and contribution from the $79 iPod shuffle, which will be on store shelves November 3.

While Apple obviously did not reveal any new products, management still seems very confident in its market position and its ability to drive the “multiplier effect”—the longterm tone was very upbeat with confidence in the product roadmap.

  • UBS believes that Mac sales will benefit near term from the delay of Microsoft’s Vista and strong acceptance of new Intel Macs. In FY07 and beyond, we expect new software from Apple (Leopard) and Adobe (CS3) should stimulate further growth in Mac sales.
  • UBS continues to expect new video iPods (new media players) with bigger screens and more content deals, pretty much like the rest of Wall St., for films to come in the upcoming months; however, we still do not expect any new video iPods until early 2007 after Macworld.
  • These devices are included in our assumption for 51 million iPods to be sold in FY07, but we are not expecting a significant amount of this product in the 11.6 million we expect for 2Q07. If this product ships in bulk before March, there could be upside to these estimates as long as nano sales remain robust.
  • In the UBS report there were details about how they expect iPhone to boost Apple’s share and revenues. Due to its length I’m unable to post though I’ll try to do so ASAP. Stay tuned

In the end, I continue to believe solid Mac sales will drive margin expansion throughout fiscal 07 and investors should remain confident in the company’s ability to generate solid growth from iPods and music accessories.

http://www.equityinvestmentideas.blogspot.com/

Posted on: November 23, 2006 – 3:24 am in Uncategorized