Monthly Archives: January 2007

With AMD Reeling, Intel Shares Look Attractive

By Chad Brand of The Peridot Capitalist

Since I already shared my thoughts on Advanced Micro Devices (AMD), it seems logical to take a look at Intel (INTC) as well. I was pretty neutral on this stock but after thinking about it some more, I think large cap investors might see some things they like in INTC shares.

If the company really is able to take it to AMD during 2007 and regain lost market share, There seems to be upside to the stock. Current 2007 estimates are around $1.10 per share, so investors are dealing with a 19x P/E ratio and a dividend yield of more than 2%. Profits are expected to jump more than 20% in 2008, to $1.35 per share.

Obviously the microprocessor landscape shifts quickly, and predicting margins right now for calendar 2007, let alone 2008, is tricky. That said, if we assume current projections for Intel will likely prove inaccurate, would you feel better taking the "over" or the "under" relative to today’s expectations?

I would think the odds are better than Intel can beat these numbers, given that AMD is on the ropes and Intel is closing the gap technology-wise. Intel was lagging behind for a long time, but now they seem to have turned the corner. As you can see from the chart below, the stock has done nothing for a year.

For large cap growth investors who are looking for nice combination of dividends and decent upside price appreciation potential, Intel stock might be worth a close look.

Full Disclosure: Long INTC Jan ‘09 $10 LEAPs

http://www.peridotcapitalist.com/

Posted on: January 31, 2007 – 11:41 am in Semiconductor

SLAB: Silicon Labs Disappoints Investors

By William Trent, CFA of Stock Market Beat

Silicon Laboratories (SLAB), which designs semiconductors used in wireless handsets and other devices, reported earnings this morning that came in below analyst estimates. Guidance was also weaker than expected. Of course, given the trend of disappointing results from companies in the semiconductor industry and the wireless handset food chain one wonders why the expectations were high to begin with.

According to the company:

During the fourth quarter, the company experienced strong demand for its Broadcast products, in particular FM tuners and satellite receivers. The broad-based mixed-signal business experienced a slight decline on a sequential basis due to lower modem shipments.

The mobile handset business performed within the company’s guidance for the fourth quarter. Silicon Laboratories experienced a decline in the total GSM/GPRS transceiver shipments, which was largely offset by the increase in EDGE transceiver shipments, initial AeroFONE(TM) revenue and FM tuner growth.

We highlighted the FM tuner line, as well as the transition in mobile handsets, in earlier posts. What concerns us now, however, is the very high expense related to stock option compensation, and concern over whether investors will still be inclined to ignore them now that they have been included on the income statement for a full year and year/year comparisons can be made based on GAAP earnings. (Side note: given that GAAP stands for Generally Accepted Accounting Principles, why is it that non-GAAP – presumably not accepted – numbers are those most commonly quoted?) The company says:

GAAP net income for the fourth quarter was $5.2 million, or $0.09 per fully diluted share. Non-GAAP net income, excluding certain charges, was $13.5 million, or $0.24 per fully diluted share.

The only difference between GAAP and non-GAAP is stock-based compensation, and for the full year the difference was more than 50% – GAAP earnings were only $0.56, while non-GAAP came in at $1.14. Even after this morning’s selloff that places the company’s valuation at a hefty 27x non-GAAP numbers, and an outrageous 55x GAAP earnings for a company that just guided for a year/year sales decline in the first quarter.

Caveat emptor.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Plantronics (PLT) put options

http://stockmarketbeat.com/blog1/

Posted on: January 31, 2007 – 11:25 am in Semiconductor

Has Eastman Kodak Turned the Corner?

Eastman Kodak (EK) posted its first quarterly profit in 2 years this morning.  The company made $0.06 EPS on revenues of $3.821 Billion.  The actual numbers before items on EPS was $0.59 for the quarter, above the FirstCall estimate of $0.55; and revenue expectations were $3.95 Billion.  In the same quarter last year it posted -$0.16 on revenues of $4.197 Billion.  The reason for the sales drop is from margin improvement targets in higher end and digital models, although there is also they issue of the divestiture that could have played a part. 

This is supposedly the last year of a digital retreading and what has felt like a perpetual restructuring, and more than 23,000 of the proposed 27,000 jobs have been cut.  Overall digital sales were down almost 5% to $2.45 Billion; film, paper, and other traditional revenues were up 92% to $271 million.  Film and photofinishing revenues dropped 15% to $1.01 Billion; Graphic communications sales rose almost 3% to $974 million.

Let’s hope the digital sales drop as a sacrifice for higher margins is a strategy that will pay off, but this is something to watch since digital is the future.  Go ask the US-auto industry and the regional economies around their hubs how pleasant of a process it is by trying to shrink yourself to profitability. 

Antonio Perez, Kodak’s Chairman & CEO may have saved his neck, but the key word is MAY instead of SAVED.  The verdict is still out, but he was one of our top 10 CEO’s that need to go from December; two of the 10 have already been axed.  If he can keep the company profitable and grow its digital business then he’ll get to stay, if not he’s gotta go.  The company needs to finish its restructuring much faster than it has been doing, and it needs to still consider swiping their balance sheet over some of these online photo storage providers.  The rest of the strategy the company can hire us for with their money and we’ll show them how to become a growth engine, but based on us listing the CEO as needing to go we won’t wait by the phone.  Most of these "have to go" calls actually have a path for each CEO to save themselves and their companies, so it isn’t an absolute (except for Nardelli, Scott, and Pressler) and usually is a guide.

At almost 11:09 AM EK shares are up 1.45% at $25.89; and the 52-week trading range is $18.93 to $30.91; on DEC14 when we posted the CEO needing to go the shares closed at $26.32 on that day.

Jon C. Ogg
January 31, 2007

Posted on: January 31, 2007 – 11:12 am in Consumer Goods, Earnings, Management Change, Shareholder Issues

VZ: Are More Access Line Deals in the Works for Verizon?

By William Trent, CFA of Stock Market Beat

When Verizon (VZ) announced a deal to swap some of its access lines for shares of FairPoint (FRP), we wondered if investors were getting a fair shake. At $1,800 per access line, the deal appears to be in line with recent transactions, and serves to take another slug of debt off Verizon’s balance sheet without incurring taxes for shareholders. However, small shareholders could come out of the deal with a handful of FairPoint shares worth little more than the commissions that would be incurred in selling them.

Raymond James is out with an excellent analysis of the deal and its implications for additional similar deals. According to Raymond James:

The FairPoint deal offered a few advantages for both parties. By diversifying into a larger base of customers
and lowering its FCF payout ratio, while divesting its wireless minority partnership, we believe FairPoint shed
some risk it had previously borne, while expanding its presence in one of its largest states (Maine). For
Verizon, however, it would appear to us to be the best possible offer it could have structured. Had the
company sold the property for cash (presumably at a multiple higher than the 6.3x it sold to FairPoint), then
paid taxes, we believe Verizon would have netted a multiple below 6x. We believe the assets are close to if
not fully depreciated, thus requiring a multiple higher than 7.5x which does not appear rational or likely for
these properties. Thus, a spin out to FairPoint appears to be the best option for Verizon to maximize value,
even if the multiple appears a bit low. A third option, would have been for the company to spin the properties
out to shareholders as a new company, but that would have destroyed value in the process as a
management team and company infrastructure would have to be created, leaving Verizon’s shareholders
with an asset likely worth less than 6.3x. Again, this makes the announced structure appear to be the
rational choice, in our opinion.

Why Smaller ILECs will be Advantaged in These Sales. We believe the apparent tax adverse nature of
Verizon will lend itself to doing (or at least attempting to re-produce) a FairPoint-type deal in order to unload
additional former GTE lines….

We do not believe these would be large enough for the usual access line aggregators due to equity
limitations, leaving an interesting group of suitors, such as Iowa Telecom, Consolidated, Alaska Communications Systems, and Cincinnati Bell.

The Raymond James research piece is well worth reading, as it offers a concise summary of how the deal is structured and why it limits the pool of potential acquirors.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Starbucks (SBUX) call options; Landstar (LSTR) put options; Plantronics (PLT) put options;

http://stockmarketbeat.com/blog1/

Posted on: January 31, 2007 – 11:09 am in Telecom

Largest 50- and 200-Day Moving Average Spreads

From Ticker Sense

Below is a list of the S&P 500 stocks currently trading furthest above and below their 50- or 200-day moving averages.  AMD clearly leads the pack of losers.

50200

Add to del.icio.us • Digg This!

http://www.tickersense.typepad.com/

Posted on: January 31, 2007 – 11:07 am in Research

24/7 Wall St. Break Up Analysis: 3M Worth More Than Shares, Ebay Worth Less

Edited By Douglas A. McIntyre. Stories by Ryan Barnes.

Over the next several days, 24/7 Wall St. will look at the break-up values of a number of large cap companies. Firms with market caps of over $100 billion have been kept off the list because they are likely to be too large for private equity buy-outs. But, the companies on this list may well end up as targets. Check here for the full methodology.

Ebay (EBAY) is actually worth less broken up as its is as a whole. In pieces, the company is worth about $28, and its trades for about $32. The PayPal operation pulls overall value up. But, then there is Skype. Full analysis.

3M (MMM) on the other hand is worth much more than the current share price. It has a break up value of $109 versus the stock at its present $75. Recent earnings were poor but  The company’s consumer and electro groups drag the value down. Dump them, and the share price improves. Full analysis.

Another company worth much more than its current share price is Burlington Northern. The company trades for $79, but is worth closer to $100. It has 24,000 miles of track and that is worth a ton. Full analysis.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 31, 2007 – 10:02 am in Mergers and Buy Outs

Why GE Shareholders Hate Siemens

Siemens (SI) is as close as a conglomerate gets to General Electric (GE). Siemens has a power generation and power transmission unit. It has an automotive components business and a group that does industrial automation. Siemens also has a medical products operation and businesses in the building and light and financial services fields.

Sounds like GE without the TV network and movie studio. Siemens’s revenue over the last four quarters is about $107 billion. GE’s is $161 billion.

Of course, Siemens is involved in a bribery scandal and the German authorities are all over the company. In the meantime, GE meets its financial targets and forecasts solid growth. And, the market seems to believe that the conglomerate’s purchase of the Abbot Labs (ABT) diagnostics business is a good move.

And, that is what drives GE shareholders up the wall. Over the last year, Siemens shares have handily outperformed GE’s, even though the stock in the US company trades near multi-year highs. Over the last six months and the last three months, the comparisons are even worse.

It must be the NBC unit.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 31, 2007 – 9:31 am in Conglomerates

Analyst Notes (JAN 31, 2007)

ABD cut to Neutral at Credit Suisse.
AFL raised to Buy at SunTrust Robinson Humphreys.
AHG started as Sell at Deutsche Bank.
ALV cut to Underperform at Baird.
AMED started as Buy at Deutsche Bank.
AXL cut to Underperform at Baird.
CCL cut to Equal Weight at Lehman.
CHRW raised to Overweight at JPMorgan.
CLMT cut to Neutral at Goldman Sachs.
DA cut to Peer Perform at Bear Stearns.
DKS cut to Neutral at Credit Suyisse.
EFII cut to Neutral at Oppenheimer.
GENZ started as Buy at Stifel Nicolaus.
GIB raised to Outperform at RBC.
HGSI started as Buy at Stifel Nicolaus.
KCI raised to Buy at Deutsche Bank.
KYPH raised to Buy at Citigroup.
ODP cut to Neutral at Credit Suisse.
ORLY raised to Outperform at Credit Suisse.
RCL cut to Equal Weight at Lehman.
RE raised to Buy at Citigroup.
SMOD started as Outperform at Cowen.
SSP cut to Neutral at Goldman Sachs.
SVVS started as Overweight at Lehman.
TKLC cut to Hold at Jefferies.
UL started as Outperform at Bear Stearns.
URI started as Outperform at CIBC.
WBSN cut to Neutral at Susquehanna.

Jon C. Ogg
January 31, 2007

Posted on: January 31, 2007 – 8:13 am in Analyst Calls, Pre-Market Activity, Research

Pre-Market Stock Notes (JAN 31, 2007)

(ABK) AMBAC $1.71 EPS vs $1.83e.
(ADZA) Adeza Biomedical receives Orphan Drug designation for Gestiva.
(AL) Alcan $1.26 EPS vs $1.28e.
(BA) Being trading up over 1.5% on beating earnings and guiding up.
(BLTI) Biolase gets FDA clearance on its EZLase soft tissue diode laser.
(BOT) CBOT $1.03 EPS vs $0.99e; this after merger partner CME missed earnings yesterday.
(CRDN) Ceradyne receives $113M ceramic body armor order for U.S. Army.
(CTEC) Cholestec $0.15 EPS vs $0.14e.
(CYMI) Cymer traded up after beating expectations.
(DOV) Dover $0.76 EPS vs $0.72e.
(EIG) EIG Mutual Holding Co. priced 26.75 million shares at $17.00 per share in its IPO.
(EP) El Paso and Xcel Energy announce joint venture for development of pipeline and storage infrastructure in Colorado.
(GLBC) Global Crossing Supports Global Caribbean Network to promote development of Caribbean region.
(GOOG) Google reports after the close today.
(HES) Hess $1.13 EPS vs $1.12e.
(JNPR) Juniper traded down 2% after not reporting EPS with in-line revenues.
(LLY) Eli Lilly $0.85 EPS vs $0.82e.
(MYL) Mylan Labs announces tentative Approval for Valacyclovir Hydrochloride Tablets
(NMX) NYMEX $0.46 EPS vs $0.39e.
(NYX) NYSE is detailing its alliance with Tokyo Stock Exchange.
(PHRM) Pharmion announces FDA acceptance of IND for Oral Azacitidine.
(PTN) Palatin in obesity study.
(RPRX) Repros Therapeutics priced 2.6M shares at $13.75.
(SAIA) SCS Transportation $0.45 EPS vs $0.43e.
(SFUN) Saifun $0.25 EPS vs $0.21+e.
(SLXP) Salix Pharma announces the issuance of a patent for "Colon Cleaning Compositions and Methods."
(SNDK) SanDisk trading down 9% after earnings beat but guided lower on metrics.
(SNE) Sony sees gaming losses expanding in 2007.
(SPIL) Siliconware Precision $0.22 EPS vs $0.18e.
(TSRA) Tessera Tech to acquire Eyesquad for $18 million in cash.
(TWX) Time Warner $0.22 EPS vs $0.22 to $0.23 est; R$12.5B vs $12.49e; sees 2007 at $1.00 vs $0.99 to $1.01 estimates.
(WBSN) Websense traded down 10% after lackluster results and lower guidance.
(WWW) Wolverine $0.40 EPS vs $0.39e.
(XMSR) XM Satellite announces extension of agreement with Toyota as factory-installed satellite radio provider.

Jon C. Ogg
January 31, 2007

Posted on: January 31, 2007 – 8:11 am in Pre-Market Activity

24/7 Wall St 2007 Break Up Values Burlington Northern $100 (Current Price $79)

By Ryan Barnes. Edited By Douglas A. McIntyre

Burlington Northern is the largest U.S. freight carrier, operating on nearly 34,000 miles of track in the U.S. and Canada.  While they have various assets in the form of logistics centers, maintenance facilities, and freight cars, the real key to the value of the company is the track itself – 24,000 miles of it owned by the company itself.  Consider the simple fact that over 75% of the Capex budget goes towards just maintaining their existing lines; everything is geared towards making the track as quick, efficient, and safe as possible.

Railroads are a decidedly non-sexy industry, with low margins, volatile earnings, and just awful debt loads.  They have performed well of late because of constrained supply of carriers and high fuel costs which have priced trucking out of many supply lines.  If BNI were to be broken up, it would be all about the track, and our goal in this analysis is to estimate the value of that 24,000 miles of company owned track.  Based on values per track mile in previous deals, Burlington could pare off their track for just over $15 billion. 

That leaves us with the rest of the balance sheet, which includes a hefty $27 billion in PP&E, but also $15b in debt and deferred tax liabilities which would have to be paid upon asset liquidation.  Netting out all these items brings the total breakup value to a nice round $100/share.  Keep in mind that full-scale liquidation is highly unlikely given the supply constraints within the railroad industry itself.

Ryan Barnes

Ryan Barnes has over 10 years’ experience in portfolio management and investment research, covering equities, fixed income, and derivative products. Ryan spent the past 5 years working as an institutional trader & manager for high-net worth investors, working with Merrill Lynch, Charles Schwab, Morgan Stanley, and many others.  Ryan is currently working as a writer and financial modeling consultant on hedging and capital appreciation strategies, and does not own securities in the companies being covered.

Methodology

Posted on: January 31, 2007 – 6:34 am in Mergers and Buy Outs

24/7 Wall St. 2007 Break Up Values: 3M $109 (Current Price $74.70)

By Ryan Barnes. Edited by Douglas A. McIntyre

3M Corporation (MMM – $74.70; Breakup Value $109)

3M is a company that has prided itself on ingenuity and innovation to drive earnings growth, and that spirit has generally served shareholders well over the years.  The downside of that strategy, however, is that the company has to make a few whiffs before they connect for a home run.  As such, the company has 50,000 products, but many barely add a penny to net earnings.  Management has already stated that they are committed to selling off slow-growth businesses in an effort to streamline their focus.  For shareholders, this should ideally translate into a higher earnings multiple, which is currently held down by the lackluster performance of a few of their operating segments. 

The company has 6 designated segments, ranging from industrial products to healthcare.  The segment investors know best is the Consumer & Office Products group which produces such items as the Post-It and Scotch Tape.  While this division may be the public face of the company, its slow revenue growth is holding back the company from what it could be.  The same can be said for the Electro & Communications group; both have shown low single-digit revenue growth for several years. 

If 3M were to sell of the latter and spin off the Consumer group as its own stock, two important things would happen.  First, the 3M that would be left over would still have nearly 75% of its revenues intact and could earn a P/E reflective of their high technology initiatives such as LCD displays, RFID, and nanotechnology.  Secondly, they could retain a partial ownership in the new “Post-It stock” and work innovative products to it as they think them up, retaining their image as a consumer-friendly think-tank.

The sale and spin-off, if valued at market multiples, would fetch a combined $15 billion.  The remaining 3M should then be able to move from a current 9.6x operating income to a more technology-oriented 14x operating income over time, placing the value of the stock at $109 per share.

Ryan Barnes

Ryan Barnes has over 10 years’ experience in portfolio management and investment research, covering equities, fixed income, and derivative products. Ryan spent the past 5 years working as an institutional trader & manager for high-net worth investors, working with Merrill Lynch, Charles Schwab, Morgan Stanley, and many others.  Ryan is currently working as a writer and financial modeling consultant on hedging and capital appreciation strategies, and does not own securities in the companies being covered.

Methodology

Posted on: January 31, 2007 – 6:30 am in Mergers and Buy Outs

24/7 Wall St. 2007 Break Up Values: Ebay $28 (Current Price $32)

By Ryan Barnes. Edited by Douglas A. McIntyre

Ebay, Inc. (EBAY)

Ebay’s main property is obviously their flagship marketplace site, which generates revenues from listing fees collected on the user base, which currently stands at over 200 million.  The other 2 company-designated segments are Payments (Paypal) and Communications (Skype VoIP).

Ebay really can’t be sliced up any way other than spinning off the Paypal unit to realize the profit they’ve made on the deal, and selling Skype outright.  The Skype deal is less than 2 years old, but for the sake of analysis we will include the value of the purchase at cost as the technology is too new to provide much of a dent in current revenues at Ebay. 

Net income growth is still in very impressive territory over at Ebay, and the same goes for Paypal, which is clocking 30% plus income growth currently.  A stand-alone stock for Paypal could trade for 20x operating income very easily, which would value the unit at just over $10 billion.  Valuing Ebay’s core business is difficult because nobody knows for sure when the top-line growth will slow down to “normal” rates.  Ebay still deserves a premium valuation, so we’re giving it a multiple of 25x operating income, which would put the PEG ratio at about 1.2, bringing the total breakup value to $28 per share.  A company like Ebay should trade for more than its breakup value, as the brand, intangibles, and high barriers to entry are what give the company much of its value.  Still, with the recent troubles in the stock it is clearly close to entering “value investor” territory.

Ryan Barnes

Ryan Barnes has over 10 years’ experience in portfolio management and investment research, covering equities, fixed income, and derivative products. Ryan spent the past 5 years working as an institutional trader & manager for high-net worth investors, working with Merrill Lynch, Charles Schwab, Morgan Stanley, and many others.  Ryan is currently working as a writer and financial modeling consultant on hedging and capital appreciation strategies, and does not own securities in the companies being covered.

Methodology

Posted on: January 31, 2007 – 6:26 am in Mergers and Buy Outs

China Stock Market Bubble: An Ill Wind From The East

Even the Chinese are anxious about their surging stock markets. Officials at the Shanghai Stock Exchange are voicing concerns that their infrastructure cannot handle the rising volume and volatility.

A high-level government official has gone so far as to say that the market has developed a "bubble" and investors may be behaving "irrationally" The mainland stock market rose 130% last year. There are even stories about the Chinese borrowing against their homes to put money into stocks.

While a collapse in the Chinese markets could clearly do damage to the country’s economy, the fall-out would not be limited there. A number of stocks in Chinese-based companies trade on US exchanges. This list begins with several internet companies including Chinese search giant Baidu (BIDU), online media site Sina (SINA), Netease (NTES), Sohu (SOHU) and Tom Online (TOMO). Aside from US individual investors, institutions like Morgan Stanley, Fidelity, and Vanguard have money in these shares.

The same holds true for some of the large China telecom and financial firms. China Mobile (CHL) trades on the NYSE and currently has a market cap of over $191 billion. That’s much higher than Google’s (GOOG). China Netcom (CN) and China Unicom (CHU) also trade on the NYSE. China Life (LFC) is traded in the US.

A big China market collapse could burn investors outside the big Asian country and US investors will not be immune.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: January 31, 2007 – 6:22 am in International Markets

Europe Markets 1/31/2007 Reuters, Vivendi Down, Bayer, Vodafone Up

Stocks:  (BCS)(BP)(BT)(GSK)(PUK)(RTRSY)(UN)(VOD)(BAY)(DCX)(DB)(DT)(SAP)(SI)(ALU)(AXA)(FTE)(STM)(V)

Markets in Europe were down modestly at 5.45 AM New York time.

The FTSE was down .2% to 6,233. Barclays fell .3% to 750. BP rose .2% to 538. BT was flat at 305.25. GlaxoSmithKline was down .3% to 1383. Prudential was down 1.3% to 686  Reuters was down 1.8% to 433.75. Unilever was down .6% to 1391. Vodafone was up 1.3% to 149.

The DAXX fell fell .4% to 6,759. Bayer rose 2.4% to 44.57. DaimlerChrysler fell 1.1% to 47.95. DeutscheBank was down .6% to 106.83. Deutsche Telecom was down 1.5% to 13.39. SAP was down 1.3% to 35.58. Siemens was down .7% to 84.9.

The CAC 40 fell .7% to 5,607. Alcatel-Lucent fell .6% to 35.79. AXA was down .8% 32.32. France Telecom was down .7% to 21.15. ST Micro was down 14.26. Vivendi was down 2.2% to 31.56.

Data from Reuters.

Douglas A. McIntyre

Posted on: January 31, 2007 – 5:44 am in International Markets

It’s The Last Day of The Month

From Ticker Sense

As we have noted in the past, during the current bull market returns on the first day of the month have been extremely positive. What about the last day of the month? We always hear stories about how "window dressing" at the end of the month tends to be supportive of stocks. However, the reality does not live up to the hype, as cumulative returns on the last day of the month during this bull market have been modestly negative.

Last_day_of_the_month

Add to del.icio.us • Digg This!

http://www.tickersense.typepad.com/

Posted on: January 31, 2007 – 5:29 am in Research

Earnings Analysis by Sector

From Ticker Snnse

Yesterday, we highlighted how the S&P 500 as a whole is performing this earnings season.  Below we break it down by the ten major sectors.  As shown, health care and technology (which from the consensus has a lot to live up to) are beating estimates the most, while financials, consumer staples and industrials are beating the least.  Telecom shows that 100% have beaten estimates but that was based on just one company. 

We also look at how the stocks within the sectors are reacting to earnings beats and misses.  Materials and technology stocks have had the largest one-day gains on earnings beats, while health care, materials and energy stocks that miss are getting pummeled.

Be sure to check back weekly for updates.

Sector

Add to del.icio.us • Digg This!

http://www.tickersense.typepad.com/

Posted on: January 31, 2007 – 5:28 am in Research

Analyzing Procter & Gamble’s (PG) Quarter

By Yaser Anwar, CSC of Equity Investment Ideas

  • P&G reported 2Q results which were up 17% YoY with EPS of $0.84 ahead of Street estimates. The key driver appears to once again be strong top-line growth, which were aided by moderating input costs, favorable FX conditions, Gillette integration and robust product activity. Investors should expect a strong year for the industry bellwether and sustained sales and margin expansion.
  • Total sales for the quarter increased 7.6%, with organic growth up 5%. Organic growth came in below Street expectations due to slightly worse than expected trends in Baby and Family Care and Duracell, but Fabric and Home Care business continued to outperform ahead of US laundry detergent compaction in September. Developing markets grew more than 10%, with broad-based growth across the developing regions, led by China and Russia.
  • Snacks sales slowed down to +2% because of share losses by Pringles and in pet food, which is growing at 5+% due to strong brands Iams and Eukanuba. Management believes it has competitive innovation as for Pringles and pet food to regain traction.
  • Management also noted that although commodity costs are expected to increase once again in 07, the impact on gross margin should be below the 100+ bps of downward pressure exerted in both 05 and 06. While the environment is clearly improving, the full impact of moderating commodity costs is likely to take several quarters to flow through in the cost of goods line.
  • Interest expense of $340 million was up 13% from year ago levels, on higher debt levels and increased share repurchases subsequent to the merger with Gillette. Average shares outstanding in 2nd Q to $3.4 billion.

    "Both P&G and Colgate said revenue growth was affected by intense competition and aggressive pricing from rivals as they fought to defend the market share of some product mainstays. P&G noted the competition its Pampers and Luvs diapers faced against private-label brands that have resisted raising prices despite high pulp prices. Meanwhile, Colgate highlighted its intention to continue to defend its Total toothpaste against P&G’s new Crest Pro-Health brand." (S: WSJ)

  • Duracell’s problem with the distribution center was temporary and the issue is whether the price increases in alkaline batteries gain traction as to offset higher zinc costs. The 6% price increase is in place since early January and going forward, the level of promotions and changes in market share are key for sustainability.
  • The demographics are favorable as markets such as Central and Eastern Europe, China, Southeaster and Southern Asia and Latin America have the highest birth rates and growth in household formation, per capita consumption and disposable income.
  • Management noted that 1 billion consumers bought a PG product for the first time over the last six to seven years and that it expects to reach another 1 billion in the next three to five. Sales momentum in emerging markets will likely determine whether P&G comes at the upper end of or exceeds its top-line targets.
  • The Street expects that price increases to recover commodities and the Gillete integration could have weighed on these trends and given the solid macros across most key emerging markets, I expect sales to accelerate.
  • P&G also raised its 07 guidance, with EPS now expected in the range of $2.99-$3.03. Contributing to this upward guidance revision is continued top line momentum, as well as progress on the Gillette integration, with dilution trending toward the low end of guidance in the $0.12-$0.18 range.

According to Prudential: There are risks to our PG investment thesis. Though the integration of Gillette almost complete, there is still some risk, remote, we believe, that P&G does not generate the revenue synergies that would have justified the purchase price of 17 times EV/EBITDA (or the 14.5 times “synergized” EBITDA that P&G likes to use).

In addition, falling commodity costs could translate into falling prices on store shelves and an increase in promotional activity as competitors vie more for market share gains than profitability. Finally, the “compaction” of liquid laundry detergent could lead to uneven quarterly earnings growth in FY08 as the new industry standard is implemented.

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

Posted on: January 31, 2007 – 5:26 am in Consumer Goods

Activision Deactivates 15 Years Of Financials

From AAO Weblog

And they’re not the only ones setting the controls of the WABAC machine for the early 1990’s.

Sherman and Mr. Peabody, the dog and his boy who went back in time to fix mistakes in history with the aid of the WABAC machine (as in “wayback”), would be busy with backdating right now. If they were around.

In this nonreliance 8-K, game maker Activision took its financial information from 1992 to 1996 out of service. No hints as to the amount of compensation adjustment, nor tax effects, nor specific years that were most affected by improper dating. Just the promise of restated financials ahead. Instead of “back to the future,” we’re looking “forward to the past.”

Also spending time with the WABAC machine: Trident Microsystems. According to this 8-K, they’ll be restating from 1994 to 2006, adding an estimated $40 to $50 million of incremental compensation expense. Actual results may vary.

Another trip forward to the past will be taken by Actel. In this nonreliance 8-K, they outline their plans to restate from 1996 to 2006. No clues as to amounts.

This will be a pretty taxing annual report season for some analysts. Not only will there be plenty of current history to digest, there’ll be tons of rewritten history to chew on as well.

http://www.accountingobserver.com/blog/

Posted on: January 31, 2007 – 5:24 am in Accounting

Tuesday’s Top Biotech and Medical Stocks

From BioHealth Investor

Biotechnology

PIPEX PHARMACEUTICAL [PPXP.OB] +42.50%
BIONOVO INC [BNVI.OB] +15.87%
NEUROBIOLOGICAL TECH [NTII] +13.93%
REPROS THERAPEUTICS [RPRX] +10.24%
OBAGI MEDICAL [OMPI] +9.90%

Diagnostic Substances

LEXICON GENETICS I [LEXG] +8.50%
GENELABS TECH INC [GNLB] +6.21%
EZ EM INC [EZEM] +5.59%
SURMODICS INC [SRDX] +4.06%
OSTEOLOGIX INC [OLGX.OB] +4.00%

Drug Delivery

COLUMBIA LABS INC [CBRX] +4.57%
FLAMEL TECH SA ADR [FLML] +3.14%
DELCATH SYSTEMS INC [DCTH] +2.79%
EMISPHERE TECH [EMIS] +2.12%
K V PHARMA CL A [KV-A] +1.73%

Drug Manufacturers

ATHEROGENICS INC [AGIX] +13.77%
EXEGENICS INC [EXEG.OB] +9.38%
NITROMED, INC. [NTMD] +7.69%
ALTAIR NANOTECH INC [ALTI] +6.54%
REGENERX BIOPHARM IN [RGN] +6.19%

Medical Appliances & Equipment

THERAGENICS CORP [TGX] +27.17%
ALIGN TECHNOLOGY I [ALGN] +21.21%
REGENERATION TECH [RTIX] +7.88%
EDAP TMS SA ADR [EDAP] +7.88%
ZIMMER HOLDINGS INC [ZMH] +5.92%

Medical Instruments & Supplies

BIOFORCE NANOSCIENCE [BFNH.OB] +12.50%
HEMOSENSE INC. [HEM] +5.70%
UROPLASTY INC [UPI] +5.43%
KENSEY NASH CP [KNSY] +4.00%
VASCULAR SOLUTIONS [VASC] +3.97%

Medical Laboratories & Research

PREMD INC [PME] +4.79%
MEDTOX SCIENTFIC INC [MTOX] +4.00%
ERESEARCHTECHNOLOG [ERES] +1.91%
NATL DENTEX CP [NADX] +1.80%
OSI PHARMACEUTIC [OSIP] +1.55%

http://www.biohealthinvestor.com/

Posted on: January 31, 2007 – 5:23 am in Biotech

Companies Banking on Anti-Smoking Trend

by H.S. Ayoub
BioHealth Investor.com

During the November elections three states, Ohio, Arizona and Nevada, passed tight smoking bans. Arizona’s anti-smoking laws will be enforced in May, Ohio is proceeding through the final legal drafts, while Nevada has been challenged in the courts after the state exempted Casinos from the recent regulations (no surprise there!). The three states have now joined 12 other states in banning smoking in all restaurants and bars.

The recent tightening of anti-smoking regulations has given momentum to a brand new industry. Large Pharmaceuticals and smaller firms alike have jumped on this health conscious trend. The National Bureau of Economic Research Inc. suggested in a report issued last year that companies selling smoking cessation products saw total annual sales almost reach the $1 billion mark, with total advertising spending exceeding $100 million.

While GlaxoSmithKline Consumer Healthcare, a division of GlaxoSmithKline (GSK), has been selling its popular Nicorette gum and NicoDerm CQ patch for many years, sales have especially surged lately in states where tighter anti-smoking regulations have passed into law. GSK has also seen a surge in sales of Zyban, the prescription drug of choice for smokers looking to kick the habit.

Laser Innovations, a provider of laser systems, has been receiving more interest lately according to company president Ray Tucke. The company utilizes laser beams on various parts of the body to help smokers quit. It seems that this company is betting big on both the anti-smoking and medical laser health trends

No one could better gauge this recent trend than QuitSmoking.com, a company dedicated to selling all kinds of smoking cessation products, including “No Smoking” signs, nicotine reduction filters, and artificial cigarettes. The company’s president declared that sales of the above mentioned products have increased tremendously during the previous year.

The trend is surely to increase, as MarketResearch.com estimates that products designed to aid smokers in quitting will grow to $809 million in the U.S. alone.

It is not clear if that estimate includes the recent surge in hypnotherapy sessions designed to help smokers quit.

http://www.biohealthinvestor.com/

Posted on: January 31, 2007 – 5:22 am in Biotech