Daily Archives: March 6, 2007

Chrysler: The Unions Watch For The Squeeze Play

The head of DaimlerChrysler told the Financial Times that he did not like the treatment his company is getting from the UAW. Dieter Zetsche, Daimler’s chief executive, branded the unions’ attitude “totally unacceptable”. The German executive wants the same deal that GM (GM) and Ford (F) are getting. Because the two US car makers were close to the brink last year, the UAW was willing to cooperate on healthcare costs and buyouts.

But, Chrysler has a rich parent. Daimler had over $2.7 billion in operating profits last year. Not so GM and Ford.

The UAW has enough problems trying to convince its members that it can get them anything more than pink slips when negotiations for new contracts begin this Fall.

What Dieter does not want to admit is that the UAW may not want to treat all car companies the same. There is nothing wrong with soaking the rich so that the poor can get a break.

At this point, GM is doing better than it was a year ago. All the union has to do is look at the share price, which is up 55% over the period. Ford may need some real relief, but, unlike negotiations in the past, one size may not fit all.

Daimler would like the GM and Ford management to be good guys. They can all negotiate together and put the strong arm on the UAW. Strike one of us, strike all of us. See how long you can pay your guys while they are out on the picket lines.

Daimler’s problem is compounded by the fact that private equity firms appear to be interested in buying Chrysler. The only operations richer than big international corporations are funds with billions of dollars sitting around collecting fees for their managers.

The UAW would like to get their hands on some of that cake. And, why not?

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

Posted on: March 6, 2007 – 8:00 pm in Autos

Cramer’s 4% Yield Screen Stocks

Cramer also said on CNBC’s MAD MONEY tonight that he had run some stock screens out of the 4% dividend yield club and came up with 13 names, but he has 2 names that really stood out:

Packaging Corp of America (PKG-NYSE) was a name that he thinks could have private equyity interest, it has room to grow margin, energy costs look down for it, and it is a keeper.  This is his second favorite in the screens that he was surprised about.

The last name was BP plc (BP-NYSE/ADR) and he was surprised with a 4.1% yield.  It is the cheapest and most hated name in big-oil and the best in alternative energy in the group.  It replaced 11% of its reserves and Goldman Sachs has finally come out with some hope on it. He thinks it can go higher now that its problems are farther behind it.

Puget Sound, Nicro (GAS), and AGL (ATG) were some of the ones from before but they didn’t make the top-list of the 4% stocks.

Jon C. Ogg
March 6, 2007

Posted on: March 6, 2007 – 6:52 pm in Cramer

Cramer on Financials & A Cable Maker

Cramer on tonight’s MAD MONEY on CNBC said a rumor about insolvency at CIT (CIT) or MBIA (MBI) and Wells Fargo (WFC) were going too far.  Cramer said these have bottomed along with a lot of other financials.  They are not overexposed to sub-prime.  Cramer said the second-third of the market is trying to show you it is putting i a bottom in the financials today.

Cramer also reviewed General Cable (BGC) as one that was battered before even though it blew out earnings.  Even after today’s big bounce, Cramer thinks that today should be a buy on it.  This company is one Cramer has reviewed before and is the beneficiary of electric, nuclear, and almost every other cable that is used across the company.  It also makes fiber optic cable for Triple Pay and VoIP.  Cramer said that the copper that is the major cost is now in ample supply and much cheaper than before.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 6:25 pm in Cramer

Biotech Implosion: CV Therapeutics (CVTX)

CV Therapeutics (CVTX) just showed Ranexa study for chronic chest pain (angina) that aren’t what investors were hoping for.  The Phase III clinical trial studying the drug for other uses as a treatment of coronary syndromes did not meet its primary study goal for effectiveness for "FIRST-LINE" treatment, but it is already approved for second-line treatment for chronic angina.  Here is the issue: But the "safety" results gathered from the study could support expansion of the drug into a first-line treatment.  Full results will be released March 27 at the American College of Cardiology Scientific Session in New Orleans.

Shares of CVTX were up $0.10 to $12.30 in regular trading, but shares are now down 27% at $8.92 in after-hours trading.  This will mark a 52-week low if this level holds.  THe 52-week range is $9.45 to $25.36 and the company still loses money.  Before this the company has street EPS projections of -$3.30 for 2007 and -$1.65 for 2008.

As of the $12.30 closing price it had a market cap of about $730 million and had cash and equivalents of more than $300 million.  Total assets are $421 million but total liabilities after a $399.5 million long-term debt come out to $467 million.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 4:52 pm in Biotech

Wal-Mart’s Free Shipping, Maybe Amazon Should Follow

The management at Wal-Mart (WMT) has come up with something to replace fighting with its unions and firing its marketing brass. Free shipping of tons of products that consumers buy on its website to store outlets where they can be picked up. The program will be in 3,300 stores by mid-year.

So clever. It would appear that the new program gets customers to show up in stores and spend more money while they are there. Nice way to move up same store sales.

Since many of the items are only available online, store sales are not hurt much, if at all.

Wal-Mart needs something smart and customer friendly to get more people into the stores. Pulling them in with free shipping may just be the ticket. As long as some of them buy something to offset the shipping costs.

Companies including Amazon (AMZN) offer free shipping. Unfortunately, they don’t have stores where people can be encouraged to buy additional items.

Maybe Amazon will open some outlets to take advantage of the Wal-Mart idea.

Douglas A. McIntyre

Posted on: March 6, 2007 – 4:38 pm in Retail

Heely’s Drops a Heel After Strong Earnings

Heely’s just posted its highlights for the qaurter and for the fiscal 2006: Net Sales Increased 377% to $71.1 million versus $14.9 million a year ago;  Net Income Increased 700% to $11.5 million versus $1.4 million a year ago; Diluted Earnings Per Share Increased 633% to $0.44 versus $0.06 last year (estimates were only $0.29 on EPS).  FISCAL 2006 Highlights: Net Sales Increased 328% to $188.2 million compared to $44.0 million in fiscal 2005; Net Income Increased 571% to $29.2 million compared to $4.3 million in the prior year; Diluted Earnings Per Share Increased 582% to $1.16 compared to $0.17 for fiscal 2005.

Mike Staffaroni, President & CEO: "We are very pleased to have concluded a record year for our Company across the board with a fourth quarter in which we posted significant increases in net sales and earnings. Our results were fueled by robust demand for our portfolio of wheeled footwear here in the United States coupled with higher net sales in several key international markets. Over the past 12-months we have made progress increasing our brand awareness through additional advertising and marketing programs while at the same time expanding our manufacturing capacity in order to better serve our retail partners and position the Company to capitalize on the opportunities that lie ahead."

The Company does not offer specific guidance for quarterly or annual earnings, but does have a stated objective to provide annual net sales and net income growth of 20-25% over the next several years. As a reminder, the share count in 2007 will be higher than the reported 2006 share count as a result of the December 8, 2006 IPO.  If we were going to make a minimum target here based on objectives that would yield at least $35 million in net income (hard to calculate EPS because of share count increase) and revenues of $225.6 million if they both came in at 20% growth.  The company is still young and fresh, but it may want to address this"no guidance" policy since Wall Street tends to trust very fewcompanies that engage in this practice. 

Tomorrow we’ll get to see how the street covers this one, and that is far from known: J.P.Morgan and Bear Stearns both have outperform ratings, Wachovia is at a Market Perform rating, and CIBC is now at a Sector Perform rating.  All ratings went on back in mid-January, so there is really no history to go on and there is no way to see how they will react based on history.  Based on the numbers alone, it looks like it will be hard for the analysts to be negative unless they are severely unhappy about the "no guidance" policy keeping them a bit in the dark.

If you don’t think these shoes are popular, you haven’t hung around any young kids lately.  That makes this a fad stock and a potential cult stock if it ever implodes, but it sure sounds like we are a long ways off before speaking about either scenario.

This one looked originally like traders and investors who boughtyesterday were going to think the nick name was "Hell Yeah!’s" but thatwas before the "Sell the News" crowd came in.  Shares jumped initially by 3% after the report but are now down 1.8% at $35.00 in after hours trading; shares closed up 5.7% at $35.64 on the day and have traded between $30.00 and $40.09 since its December IPO.  As of February it had 2.445 million shares listed as being in the short interest, which is about 6.4 days to cover.  Its IPO and overallotment were only 7.388 million shares.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 4:27 pm in Earnings, Retail

The 52-Week Low Club

McClatchy (MNI) In the case of this big newspaper chain it is "may I have another, please, sir". A regular visitor here, the stock price hit $35.59. The 52-week high was $54.31. Maybe they should not have bought Knight-Ridder.

YouBet (UBET) The online gaming company was downgraded by Brean Murray after predicting a big loss in the fourth quarter. Hit $2.32 today against a 12-month high of $5.62.

ECC Capital (ECR) Nice REIT and mortgage company. Bad week for that business. NYSE even sent a non-compliance notice for days traded under $1. Dropped to $.61 today from a high of $1.65 over the last year.

TranSwitch (TXCC)  Big work force lay-offs. Provides semiconductors for voice and video. Low of $1.22. The 52-week high was $2.85.

Avanir Pharma (AVNR) What a hair cut. Down to $1.26 today against a 52-week high of $18.14. According to The Associated Press: "At the request of federal regulators, Avanir Pharmaceuticals said it will conduct additional research on a treatment for a neurological disorder that causes involuntary laughter, crying and other emotional outbursts." The estimated time for the review–two years.

Viewpoint (VWPT) The internet marketing tech company’s shares fell to $.52. The 52-week high was $1.93.

Honorable mention: BP plc (BP) Hit $58.89 today, not a 52-week low, but so close given how well other big oil companies are doing. The 52-week high was $76.85.

Douglas A. McIntyre

Posted on: March 6, 2007 – 4:15 pm in HI/LOW

YouBet.com From The Stock Masters

Stock Tips The Market is having a nice day today, the sun is out and the Bulls are out in full-effect. So with stocks moving up, who’s moving down? YouBet.com (UBET) hits a new 52-week low today, their shares are trading around $2.85. When your company hits a new low on a day like this, after a horrible decline in the market, you just have to ask one question? What can possibly be good about being the biggest loser of the day? The answer. Absolutely nothing. Sir CharlesYouBet engages in the provision of technology-based wagering products and services for the horse racing industry. Can’t stay away from the tracks, like throwing your money away on horse races? YouBet is your solution. YouBet reported yesterday that it expects Q4 losses to be bigger than expected and lowered its 2007 guidance. The downgrades have become to come in and this horse is being put to sleep. However once a gambler, always a gambler (right Charles Barkley?) and if somehow betting on horses becomes the newest fad, they’ll cash in. But horses also make good glue, and some of that glue should be used to put YouBet back together. But is it too late? The Masters will admit, their website and ability to gamble on horse races is impressive. However does it make sense to be a public company? What can shareholders expect to gain from buying shares? Is there growth? Where’s the value? Maybe if we talk to Mr. Ed. That’s it, he’ll have the answers. A horse is a horse, of course, of course…

http://thestockmasters.com/index.asp

Posted on: March 6, 2007 – 2:56 pm in Internet

Cramer’s STOP TRADING (March 6, 2007)

On today’s STOP TRADING segment he said he couldn’t help but notice the market up on Paulson’s comments.  Paulson is a treasury secretary like Rubin that can calmly show that the world isn’t ending.  On FNM & FRE Cramer thinks that these will win if the democrates come back into power and will be empowered again.  As fas upgrades on CIT and MBI, Cramer thinks these are decent upgrades and he’d buy them.  Cramer thinks that Cerberus or Blackstone could go out and acquire Chrysler from Daimler, if Goldman Sachs doesn’t.  Cramer likes Archer Daniels (ADM) as well because of it being entrenched in Washington.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 2:48 pm in Cramer

What happened to DexCom, Inc.? The Britney Spears story

From The Stock Masters

DexCom, Inc. (NASDAQ: DXCM) hit it big last summer after they received approval from the U.S. Food and Drug Administration (FDA) for its short-term continuous glucose monitoring system (DexCom STS). DXCM shares hit $25 in May and everything looked beautiful for the company just like Britney Spears in the early 90’s. Then as time moved forward the public lost its love for the bright new star and both DexCom and Britney now are at 52-week lows.
DXCM 1 YEAR CHART
DexCom has everything riding on it’s STS continuous glucose monitor and investors have bailed since last year. These days with the market looking like Britney’s latest haircut, why would you want to bet on a one-trick pony?

For people living with diabetes, their portable monitoring system is a blessing that provides real time glucose measurements every 5 minutes. You insert the STS sensor pad on your skin and you’ve got instant access to your glucose stats for up to 3 days. There are over 6 million people in the U.S. are unaware they have diabetes. An additional 54 million people have pre-diabetes, which puts them at the greatest risk for developing type 2 diabetes unless they make major lifestyle changes. Among the primary risk factors for type 2 diabetes are being overweight, sedentary, over the age of 45 and having a family history of diabetes (according to the American Diabetes Association). So you can see why people would get excited about cashing in on diabetes, with all the millions of potential customers, DexCom was singing "hit me baby one more time". So what happened?

K-Fed CDWall Street has punished DexCom with disapproval, just how the public trashed Britney after she married Kevin Federline. No matter how great that technology is, if you are not a profitable company, Wall Street doesn’t care. It’s tough love, but it’s just the world we live in and last month DXCM reported a net loss of $46.6M for 2006. Despite sales totaling $11M for the year as compared to zero for 2005, investors don’t seem to care. It appears the DexCom STS is selling as good as K-Fed’s CD "Playing with Fire" (don’t worry, no link provided here) even with that Parental Advisory of Explicit Lyrics. Just goes to show you, being hardcore isn’t as easy as it looks.

So of course both DXCM and Federline defended their products, let’s see how:

On DXCM’s annual report their CEO Steve Kemper said:
"We are pleased to report revenue of $835,000 for the fourth quarter of 2006 and $2.2 million for the year ended December 31, 2006, after launching STS in late March of 2006. Although we were supply constrained through much of the quarter we increased sensor revenues 23% when compared sequentially to our third quarter revenue".

K-Fed to defended his CD by saying:
"The record is everywhere. It’s definitely going to be kind of a dance club record. The inspiration and meaning behind the title ‘Playing With Fire’ is self explanatory. I’m excited about this album and am looking forward to continuing my promotional club tour in support of it and seeing the first-hand reaction of my fans listening to my songs for the first time. My album is sure to set the dance floors across the world on fire!”

Wow, and set fire it did, right into a stellar career that has lead to…well, something. Much like K-Fed and Britney’s damaged careers, DXCM cannot provide any assuring words to bring it to stardom. DexCom’s annual report (which will take you only 3 minutes to read) is full of risks and challenges that face the company such as a lack of acceptance in the marketplace by physicians and patients of their DexCom STS and the expenses with producing the device. What gets me is that DexCom just doesn’t provide enough information about the benefits of investing in their company stock. If they don’t do that, how the heck can they expect people to run out and buy their stock? More importantly, DXCM share holders are gambling with their holdings, just like Britney’s management team, praying for a turn around but unsure about what will happen next.

BritneySo is there hope?
You have a better chance with DXCM than you do with Britney. No one is excited about investing or buying more stocks these days. Everyone is down on the market right now and there’s good reason for that, it’s too unstable. Just like Britney doing emergency haircuts at a minutes notice, doesn’t she look lovely? Consider that the short percentage of DexCom shares when compared to the Float (as of 12-Feb-07) is 19.30%. So there are plenty of people betting DXCM is going to fail. There’s not much to go on here Masters and despite how much there could be to gain by sales of the DexCom STS, I just can’t get excited about it.

Sinead and the PopeSo what’s next, will Britney with her shaved head go the Sinead O’Connor route and rip up a picture of the Pope to get attention? Maybe she’ll start a new "Bald is Beautiful" campaign or fill in on Letterman for Paul Shaffer? I do hope that DexCom, Britney, and K-Fed can get things together. In March last year the DexCom STS was considered to become widely used as a single method to monitor blood sugar levels. The device, in the eyes of some experts, threatens to upend the $6B global glucose monitoring market. Millions of people suffer from diabetes and if the STS starts to sell, shares of DXCM won’t stay in the $6 range for long. Let’s face it, if Britney can make a comeback, so can DexCom.

Article written by: Phil McCallister
Article posted on: March 6th, 2007

Disclaimer: The Author does not own any stock or long/short positions of the securities mentioned in this publication.

http://thestockmasters.com/index.asp

Posted on: March 6, 2007 – 2:45 pm in Research

Why UnitedHealth’s Filing Catch-Up Doesn’t Matter

UnitedHealth (UNH-NYSE) has finally become current in its SEC Filings as of this morning, but this shouldn’t be that big of a surprise.  The company did go back and restate earnings over stock option grants to reflect a $1.55 Billion reduction in earnings for 2006 and prior years to 2003.  This has been perhaps the largest of the telegraphed options cases out there and this should be no surprise.

The truth is that as long as Bill McGuire, the CEO that backdated options to a monstrous personal empire-building tune, didn’t pilfer actual funds and didn’t get involved in off-balance-sheet transactions that this was really more of media frenzy than it was a shareholder fiasco.  To prove this, there have actually been NO calls for the company to dissolve strangleholds in certain markets and there have been NO true shareholder revolts other than the attempt to get some of that money back after forcing McGuire out.  Its prized AARP deal was never really deemed at risk either.

It is ridiculous that the board let that man get away with so much, even if he has relinquished (or will have to) some of that money.  He isn’t the founder and he grew that company through major acquisitions.  Has the consumer been a beneficiary of fewer healthcare choices? Yeah right.  Have the shareholders made that much since the Pacificare merger?  No, in fact they are down.  There is a silver lining: the shares are actually up roughly 20% since the 2006 lows and this really was limited.

The company has grown to where it will be difficult for it to do more than smaller regional
mergers at this point.  They are up 1.7% to $53.85 on the day; and its 52-week trading range is $41.44 to $57.86.  Volume is already close to double its average daily volume and now sits at 11.5 million shares just after 2:00 PM.  The company had already telegraphed that it was "becoming current" in its filings on more than one occasion.

The good news is that this removes the "investability" issue for those who are barred from investing in companies which are either not current in SEC Filings or in companies that have excessive "unknown risks" for litigation.  Mr. McGuire may still have some pain to take, but this at least gets the current company back to operating on its own merits.

It will be interesting to see how the company performs in a year where premiums are expected to be low ahead of the 2008 election cycle, as many insurers tend to lighten up on their "increased insurance premium trends" ahead of shift changing elections.  How much of that is "opinion-based" rather than statistical?  Ask health insurance brokers who are friends or family. 

The last bit of good news is that after the earnings came in, it can now resume its share buyback now that it has resolved its delinquent filing issues.  It has 130+ million shares available under the current buyback plan when it resumes, and it would probably be prudent to assume that the company will begin some accelerated buybacks.

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 2:21 pm in Annual Report, Corporate Governance, Earnings, Medical, Restatements, SEC, Shareholder Issues

Yahoo! Gets The Cart Before The Horse

Yahoo!’s (YHOO) Terry Semel says that his company is "fixed". By that he means that the overhaul of the company’s technology is done and its new advertising platform will begin to pay dividends later this year. According to Reuters: "I think you will really see these things come alive over the next year or two," he said. 

Semel may have forgotten that Google (GOOG) owns half the search market. Or Microsoft which has both the capital and inclination to improve its own search and internet presence, is prepared to push further into that market.

Recapturing growth is a bit like putting a ship in a bottle. It is hard to do and rarely works. Yahoo!’s quarterly revenue growth rate started 2006 at 39%. It dropped to 34% in Q2 and 26% in Q3. The fourth quarter was its slowest at 19%. The company forecasts even slower growth in 2007.

Today, Semel has the Wall St. gods on his side, but that is often temporary. His stock is up almost 20% this year. But over the last two years it is still down while Google (GOOG) is up almost 150%.

The forces from on high are fickle. Last year, Semel was the goat.

As they used to tell Roman generals, "Remember, Thou art mortal."

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

Posted on: March 6, 2007 – 1:45 pm in Internet

Capital Research Cops Out

From Investment Intelligencer

Cg_logoCapital Research & Management is one of the smartest, best-run, and most successful mutual-fund management firms in the business (Capital runs the American Funds).  In yesterday’s WSJ story on mutual-fund streaks($), however, a Capital vice president invoked some weak logic when explaining a fund’s performance relative to that of the benchmark:

"We don’t manage the fund with the objective of trying to beat the benchmark," says Drew Taylor, a vice president at Capital Research & Management Cos., which oversees the American Funds. The objective, instead, is to deliver, "over long periods of time, current income and growth to shareholders."

There is no shame in trying to provide "current income and growth to shareholders."  The cop out comes from the pretense that it is doesn’t matter how the fund performs relative to the appropriate benchmark.  Given the wide availability of low-cost passive funds designed to track almost every conceivable benchmark, the only reason for fund customers to pay higher fees for active stock-picking services (such as those provided by Capital Research) is to try to beat the appropriate benchmark.  If an active fund fails to do this, it has cost the fund-holder money relative to the cheaper passive product, no matter how much "income and growth" it has generated. 

The fact that most mutual-fund buyers don’t understand this allows most fund companies to fall back on an intellectually weak defense ("It’s okay that we lagged the benchmark, because we weren’t trying to beat it.")  This, in turn, allows the active fund industry to continue to coin money while its stock-picking services actually subtract value from most clients’ portfolios. 

There is no fraud or subterfuge here: Active fund companies are just taking advantage of fund-customers’ ignorance to set low success hurdles for themselves.  But make no mistake: Because the vast majority of active funds underperform low-cost passive funds, the most client-oriented move for most fund managers would be to fire themselves and put their clients in passive funds.  For obvious reasons, few will do so.

Posted by Henry Blodget on March 06, 2007

http://www.investmentintelligencer.com/

Posted on: March 6, 2007 – 1:06 pm in Mutual Funds

DFA’s Davis: Why Most Mutual Funds Lag

From Investment Intelligencer

DartboardIn this summary paper, Dimensional Fund Advisors’s James Davis reviews the academic research on equity mutual-fund performance from 1969 to 2001.  With some minor exceptions, the research shows the following:

  • The vast majority of actively managed funds lag passive benchmarks.
  • Some fund managers do have above-average stock-picking skill, but usually not enough to allow them to overcome the costs of their own trading and compensation.
  • Almost all fund performance can be explained by four "factors": the market’s performance, the relative size of the stocks in the portfolio, the relative valuation of stocks in the portfolio, the relative "momentum" of stocks in the portfolio.  These factors have little to do with traditional "stock-picking."
  • The market is not perfectly efficient, but its inefficiencies are not large or regular enough to exploit consistently.

In short, the vast majority of mutual funds lag the market.  They do this not because their managers are stupid but because beating the market is hard.  Fund buyers who want to give themselves the best chance of success should therefore choose among low-cost passive funds.

Posted by Henry Blodget on March 06, 2007

http://www.investmentintelligencer.com/

Posted on: March 6, 2007 – 1:05 pm in Mutual Funds

Devil’s Advocate Short List: Urban Outfitters (URBN)

If the markets revert to selling pressures again and add to losses from last week, the high-flying retailers are a group that could see increased selling pressure and short interest.   The apparel industry averages right now are about what we would expect, with trailing P/E’s around 19-20, P/S between 0.8 and 1.0, and operating margins between 7% and 10%.  Most companies in this space, especially the younger ones, are running on record earnings and peak margins.  This doesn’t mean that companies who are growing their sales and their margins will automatically stop if the economy or consumer spending “takes a breather.”  But any time a retailer miscalculates inventories or miscalculates on the demand (brand popularity) margin gains will be eroded or go the other way. 

There are already various levels of concern for consumer spending ranging from mild to major.  In an environment like this, companies with the highest relative valuations to their peers need to really shoot the lights out of their comps and margins to avoid being brought back down to industry norms. 

A devil’s advocate review on Urban Outfitters (URBN) reveals what could be a short-sale highlight film given the right conditions, and with earnings due out Thursday (for fiscal year ending 01/31/07), this is a good time to evaluate the company ahead of earnings.  We should simultaneously get the February same-store-sales and some sort of preliminary guidance for the coming quarter.

URBN stock currently trades for 27x forward earnings (36x trailing) and over 3x sales.  The company earned this premium by having double-digit level comps and a strong wholesale business for the past few years.  But comps have been showing weakness, with 4th qtr. same-store sales down 5% versus an 8% gain the year before.  The wholesale segment’s sales growth remained strong, but that won’t be enough to support the stock without improving its comps.  The retail channels still supply well over 75% of total revenue.

Analysts haven’t made any major changes to estimates since the beginning of the year.  Current estimates call for 18% revenue growth and 25%+ net income growth, both very lofty targets that could soon prove difficult with one or two more bad months of comps.

Keep in mind that this stock was a split-adjusted 2 bucks per share back in the spring of 2003, giving shareholders a nearly 800% return in four years.  It’s now a $4 billion cap company, which is a heavyweight in the apparel space.  Urban Outfitters is also closely held and has an already-sizeable 7% short position (as of mid-February).   At $24.85 Urban Outfitters has also managed to climb back up well off of the $13.65 to $15.00 lows and much closer to the $27.00 highs over the last 52-weeks.  This is more on hopes than it has been on raw performance in its stores.  In late 2005 this traded north of $30.00, so it has already seen one fall from grace for the retail trend investor.

It has managed to pull some misses in its retail offerings compared to its barnstorming homerun lineup it enjoyed for more than 3 years. The devil’s advocate would say that all of the conditions are there for some rain to return to return, as this stock could very easily fall down to industry-level valuations should they continue to underperform on their comps OR if consumer spending weakens.

We are still screening other names and sectors that we’ll be publishing in the coming days.  If further signs of weakness occur in the broad markets occur, having three or four “At Risk” names ready to go would be a good strategy, just to appease the devil’s advocate in all of us. 

Written by Ryan Barnes, edited by Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 12:57 pm in Retail

Companies Management Can’t Fix: Gateway (GTW)

In PC-land, investors can talk Dell versus H-P all day long, but the one company that would be the absolutely hardest to fix in the sector is Gateway (GTW-NYSE).  This may be the easiest one to kick and it is one that has been down for a long time. There are at least some positives in the company, but Gateway can’t just be reliant on an upgrade cycle to fix the company.

Back before this company acquired eMachines, it made a horrible decision or at least failed to make an obvious decision that could have locked-up all the PC business of many Americans for two upgrade cycles.  The company at the time of September 11, 2001 was actually the ONLY entirely "MADE IN THE USA" PC maker.  Sure the parts are global commodities as in all electronics, but they company could have gone with a "Buy American" or something and they could have replaced the black cow patches on the box with blue and red.  Now that it owns eMachines and since eMachines sells in so many retail outlets the company cannot claim that.

Its initiatives elsewhere have failed to deliver.  The retail box stores were so bad that even Apple was reluctant to expand because of how large a failure Gateway Country Stores were.  Then when the company went for the corporate push it apparently never received the memos that tech departments and corporate buyers make fun of Gateway.  Its commercials never won the hearts of technophiles. 

There used to be a balance sheet that offered a floor, but now that is gone. If you back out the company’s Goodwill, Intangibles, and "other" it has $1.36 Billion or so in stated assets before you begin questioning how solid the plant values and the receivables really are.  Its current liabilities are $1.018 Billion and it carries a ‘stated total liabilities’ after long-term debt of $1.387 Billion. 

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Posted on: March 6, 2007 – 10:49 am in PC Companies, Shareholder Issues, Technology Companies

Topps Acquired by Eisner-led Group (TOPP, CLCT)

One merger that seems very peculiar this morning is that of Topps (TOPP-NASDAQ).  This is the baseball card and sports and non-sports card and memorabilia producer that almost all males in the US have known at some point in their lives. 

Michael Eisner’s Tornante Co. LLC and another private equity firm Madison Dearborn Partners LLC have agreed to pay $9.75 per share to acquire the company.  Topps’ board has approved the transaction and the groups are looking for a third quarter closing date. Other brands owned by Topps other than a stranglehold on sports cards are Bazooka bubble gum, and candy brands Ring Pop and Push Pop (it previously tried to sell its confectionary operations but had no buyers at acceptable prices).

One issue that the company has is just how it can add value back into collecting.  Most of the mass produced cards made are now worth more when they are issued than they are 10-years later.  That was not the case in the past but now every kid and collector knows that the cards have to be kept in pristine condition and these aren’t thrown out as kids’ garbage when the kids go away to college like in the generations before. 

The shares are up 11% at $9.95 pre-market, above the $9.75 offer, because the shares have traded higher than these levels in the recent past.  Rumors have been out there before on TOPP being a buyout candidate as well, so there could be faint hopes that others may try to come to the table.  The 52-week trading range is $7.50 to $10.00 and this one has been up to $11.00 a couple of times over the last few years.  Unfortunately the stock has never been able to command its old $15.00 to $20.00 range back in the earlier 1990s. 

This is a fairly small deal with a current $385 million market cap, and there shouldn’t be any regulatory issues.  The company trades roughly at 30-times earnings.  Its entire liabilities are only $74.9 million, so even if you account for $80 million of its $278 million total assets being “goodwill, intangibles, and other” it is a very doable deal.  This goodwill and intangibles actually has quite a bit of value to it because of the library and copyright.

Topps is the only public company of its sort, but there is one more company that could be considered a related play: Collectors Universe (CLCT-NASDAQ).  Collectors Universe actually authenticates and professionally grades sports cards, non-sports cards, historical items, memorabilia, autographs, publications, and even diamonds.  Its market cap is merely $113 million and both companies have been discussed before as potential acquisition candidates, so who knows. 

Jon C. Ogg
March 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: March 6, 2007 – 9:47 am in Consumer Goods, Mergers and Buy Outs

IPO Filing: Flagstone Reinsurance

Flagstone Reinsurance Holdings Limited has filed to come public via an IPO under the "FSR" ticker on NYSE.  It has noted $175 million in share sales to be the amount, but that is for filing purposes only.  The underwriting group is rather large with Lehman & Citigroup as the lead underwriters and others in the syndicate are as follows: JPMorgan, Credit Suisse, Wachovia, KBW, Dowling & Partners, Fox-Pitt Kelton, & Cochran Caronia Waller.

This Bermuda-based re-insurer writes primarily  property, property catastrophe and  short-tail specialty and casualty reinsurance.  It diversifies its risk zones by geographic diversification as well.  It claims that substantially all of its reinsurance contracts contain loss limitation provisions such as fixed monetary limits to our exposure and per event caps; and specializes in underwriting low-frequency and high severity risks where it has enough data to justify the coverage. Its specialty lines include aviation, energy, accident and health, satellite, marine and workers’ compensation catastrophe.

Flagstone has raised approximately $850 million through three closings of a private placement of common shares and the issuance of debentures. Through the year ended December 31, 2006, it had $302.5 million in gross premiums written, of which $219.1 million was property catastrophe reinsurance.  A.M.Best has affirmed an "A-" credit rating (excellent) to its insurance exposure and financial strength.

Lehman (LEH-NYSE) owns some 22.1% of the company, but since Lehman has a market cap of over $30 Billion you cannot really consider this a true backdoor play or a huge "unlocking of value" for Lehman that would make a significant ‘investable’ contribution to its balance sheet.  Other key ownership is followed by Haverford wiuth 13.9% ownership, and followed by Silver Creek entities with 13.7% ownership.

Jon C. Ogg
March 6, 2007

Posted on: March 6, 2007 – 9:12 am in Brokerage Firms, Business Services, Financial Stocks, IPOs

LSTR: Landstar Accident Could Result in Charge

By William Trent, CFA of Stock Market Beat

Small Cap Watch List and Mid Cap Watch List member Landstar System (LSTR) Says 5-Cent, 1Q Charge Possible: Financial News – Yahoo! Finance:

Landstar System Inc.’s chief executive said Monday the transportation logistics provider could book a charge for a fatal crash last month involving one of its owner-operators.In a Webcast updating the company’s mid-quarter performance, CEO Henry H. Gerkens estimated Phoenix-based Landstar’s charge in the first quarter from the event could amount to $5 million, or 5 cents per share, which is equal to what the company self-insures for such incidents.

Other than the accident, the first quarter is progressing as expected, which was for $0.37-$0.43 in EPS. Landstar makes serious efforts to maintain a strong safety record, but despite the best intentions accidents will happen. The company had a similar incident three years ago, and to its credit encouraged analysts and investors to treat it as a normal (if not frequently recurring) operating expense. Back then the charge caused investors to sell the shares. This time, it appears they have learned from that mistake, as the company remains one of the best transportation provider investments.

http://www.stockmarketbeat.com/

Posted on: March 6, 2007 – 8:47 am in Earnings

Now That’s Oversold

From Ticker Sense

With yesterday’s additional 94 basis point decline, the S&P 500 now hangs 2.9 standard deviations below its 50-day moving average.  This ranks as the third lowest reading since 2002.  In the chart below, we highlight this and the two other occurrences during this bull market where the market reached a more oversold level.

29_stdevs_below_50day

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

Posted on: March 6, 2007 – 8:45 am in Research