Daily Archives: May 10, 2007

What Can 24/7 Real Media Fetch in a Buyout?

24/7 Real Media (TFSM-NASDAQ) is a stock that is sitting in a good position as a takeover candidate or on its own.  We have already reported and shown an idea of what the company could be worth in a post Gooogle-DoubleClick online banner ad world.  There could still be plenty of juice left to this one. 

The company boosted revenue guidance from a $255 to $265 million range to what is now $265 to $275 million.  This is only a 5% boost but could be just the beginning with its new overseas venture in Japan.  The company only maintained pro forma operating earnings of $0.50 to $0.55 for the year, but the valuation may be cheap with a forward P/E ratio of about 22 and as the “Google Checker” for any of the other online ad firms.  The company also said “we are assessing strategic alternatives” and that it hired Lehman Brothers as its financial advisor.

We had reported about the interest that should come into the name.  WPP Group in London may be interested and Microsoft (MSFT) may be interested.   But beyond this, who would really be able to work this?  There are many firms that could play the land grab here, and these are merely the US-traded names:   Microsoft (MSFT) is a natural fit and they could outbid almost anyone; Time Warner (TWX) could expand its already strong ad interest; Comcast (CMCSA) as it moves into more content; Yahoo! (YHOO) could but they may pass; IAC/Interactive (IACI) could step up its efforts here; aQuantive (AQNT) could decide this would broaden their base; and ValueClick (VCLK) could eat a competitor and strengthen its base.

There is also the angle that advertisers themselves could steal an instant presence in the online ad world and diversify from their traditional businesses: WPP Group (WPPGY) has already been fingered as a potential buyer. Other ad agencies could make the play too: Omnicom (OMC), Publicis Groupe SA (PUB), and Interpublic Group (IPG).  You might even be able to make the argument that Lamar Advertising (LAMR) could jump from the billboards straight into the online world in one swoop here.

So what is the company worth?  Talk was originally putting WPP interest at $600 million and then after the DoubleClick-Google tie up word came that Microsoft or others may pay up to $1 Billion.  The company has only $73 million in total liabilities and most of those are just current liabilities, so there would not be the need to alter the equity figures by much. 

TFSM had a market cap of $569 million based on an $11.20 stock price and shares already went up as high as $13.00 on the higher bid interest.  $600 million would only be a 5.4% premium to the $11.20 price, which would only be an $11.81 implied price.  That might have been enough a year ago or more, but that probably wouldn’t cut it today.  But a $1 Billion price tag would imply a 76% premium to today’s price, so that would imply $19.75.  Based on where the stock has been on its own and based on any recent history at all that number is still probably too high.  The truth lies somewhere in the middle, but you can at least now quantify what some of this would be.  $11.81 might be a “starting bid value” and the halfway mark in between would be just north of $15.00.

If a buyer does not emerge and based on the current prices and our past articles, an implied “no takeover play” valuation on this name is probably now closer to $9.50 to $10.00.  The online ad world is just worth more than it was just a short time ago.  If this truly does get gobbled up then $15.00, or $800 million, does seem feasible and seems a level that shareholders might not be able to fight too much.  It is very possible that since it has just hired Lehman that the review would take some time.  It shouldn’t be expected that this happens overnight, and today’s drop to $10.72 is evidence that Wall Street doesn’t think this will happen immediately.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 7:05 pm in Internet, , , , , , , , , , , , , ,

Bracing for Lucent-Alcatel Earnings (ALU)

Alcatel-Lucent (ALU-NYSE) will have reported earnings most likely by the time most of us are half way through our sleeping in the US on Friday morning.  As a reminder they gave us guidance at 2:25 AM EST back on April 24th that was under expectations.  The company said it would have soft revenues at around 3.9 Billion Euros, down 8% on a constant currency rate.  It also forecast a 260 million Euro loss, half of which was on items.  What kept the stock higher was that it gave a book-to-bill ratio of 1.3 at the end of the quarter.  If they can capitalize off that then that will be a stabilization.

So, forget about the current earnings numbers and go straight doiwn to the company’s guidance in the press release.  Don’t forget to back out a 780 million Euro gain from te sale of a Thales transaction, so if you see that the company posted a 500 million Euro earnings number in the headline you don’t have to be fooled.  If it does not show at least some hope of better revenues on that 1.3 book-to-bill ratio then there may be some selling. 

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 6:23 pm in Earnings, Telecom,

Cramer’s Sell Block (May 10, 2007)

On tonight’s Sell Block on CNBC’s MAD MONEY, Jim Cramer reviewed many of his picks you need to sell:

He said the CEO of Syntax-Brillian (BRLC) is one he doesn’t trust and he’s against the stock right now.  If you read my own commentary regularly then this may sound familiar after I said they can’t be trusted.

HealthSouth (HLS) is one where Cramer is no longer on the fence and you have to sell it.  The debt credit spreads are bad.

Because of the potential backlash on drug stocks, he wants to take the 16% gain on Novo Nordisk (NVO).

He wants to stick with McDermott (MDR) at $75, Foster Wheeler (FWLT) sell at $100, Fluor (FLR) at $115.

Dynegy (DYN) is being run well and he doesn’t think it needs to go down.

Cisco Sytems (CSCO) is one he liked repeatedly and he thought it would go up and it didn’t; But Cramer said he is not going negative and he is saying to not sell it.  He would be a buyer if you haven’t bought.  As a reminder this was Cramer’s #3 Top Growth Pick for 2007.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 5:52 pm in Cramer, , , , , , , ,

Cramer’s ‘Must Own’ List

Stock Tickers: WHR, BDK, ATI, BGC, HON, ASD, JCI, MDR, FWLT, CAT, TEX, DE, QCOM

On tonight’s MAD MONEY on CNBC Jim Cramer addressed the opportunity created by the big down day.  He thinks some stocks are so loved that hedge funds and mutual funds just keep buying.  These funds can’t buy what they want all at once any longer, so they just keep buying and then the smaller funds jump on board.  The other change is that the companies are shrinking because of buybacks.  On days like today they sold off and that’s an opportunity for you to buy.  The floats on these are small enough that they almost trade like small cap stocks.  He has a dozen of these stocks:

Whirlpool (WHR), Black & Decker (BDK), Allegheny Tech (ATI), General Cable (BGC), Honeywell (HON), American Standard (ASD), Johnson Controls (JCI), McDermott (MDR), Foster Wheeler (FWLT), Caterpillar (CAT) and Terex (TEX), and Deere (DE).

This follows up on yesterday’s feature by Cramer where he sort of touted this as a scam on Wall Street in Qualcomm (QCOM).

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 5:26 pm in Cramer, , , , , , , , , , , , ,

Comments From Dendreon’s Conference Call (May 10, 2007)

Dendreon hosted a painful conference call today, and despite management answering most questions you could hear some frustration and disappointment out of management.  The FDA has requested additional data but not specified what form of data.  The impact study is double blind and placebo controlled Phase III study under a binding FDA agreement.  This will serve as the basis and they will complete and interim analysis next year and a final analysis in 2010.

The company is maintaining that they are committed to this process.  As far as earnings for the quarter, but earnings are irrelevant because revenues were a whopping $80,000.00.  It had $88+ million cash and equivalents at the end of the quarter and they think the cash is adequate to get them through to interim analysis in 2008.

Please continue reading further because the list goes on and some people jumped back in the line to ask questions.  These are brief summary comments rom the Q&A session and some of the answers and questions were only able to be partially caught:

Read More »

Posted on: May 10, 2007 – 4:30 pm in Biotech,

Syntax-Brillian Can’t Be Trusted

Syntax-Brillian Corporation (BRLC-NASDAQ) reported revenue of $162.9 million, up 257% from revenue of $45.7 million in the year-ago quarter.  GAAP diluted net income per share was $0.09 for the third quarter of fiscal 2007 compared with a diluted net loss per share of $0.26 for the third quarter of fiscal 2006.  First Call estimates were $0.12 non-GAAP and $167 million revenues, so this is being viewed as a shortfall.  Adjusted EBITDA was $15.5 million compared with negative $2.9 million for the third quarter of fiscal 2006. Adjusted EBITDA for the nine months ended March 31, 2007 was $49.2 million compared with $403,000 for the comparable period of the prior year. Consolidated gross margins of 18.1% for the quarter ended March 31, 2007

Here is the second problem, a Securities Offering; AGAIN!: Syntax-Brillian announced that it plans to offer approximately $150 million and certain of its stockholders plan to offer approximately $22 million of shares of Syntax-Brillian common stock in an underwritten public offering. Merrill Lynch is the book-running manager; UBS will be co-lead manager; Robert W. Baird, Canaccord Adams, and Brean Murray, Carret & Co. will serve as co-managers.  Net proceeds to Syntax-Brillian are intended to be used for general corporate purposes, including the payment of a portion of outstanding indebtedness. Syntax-Brillian anticipates completing the public offering prior to its June 30, 2007 fiscal year end.

Long DSO’s: At March 31, 2007, accounts receivable and due from factor totaled $221.0 million for total days sales outstanding ("DSOs") of 122.1 days. This compares with 73.9 DSOs at March 31, 2006 and 78.6 DSOs at December 31, 2006. Included in accounts receivable at March 31, 2007 was $170.8 million of accounts receivable from Asia, where standard industry terms are 120 days.  Accounts receivable and due from factor, excluding the Asian receivables, totaled $50.1, million which represents approximately 45.7 DSOs at March 31, 2007 compared with 73.9 DSOs at March 31, 2006 and 66.8 DSOs at December 31, 2006.

GUIDANCE: For the quarter ending June 30, 2007, Syntax-Brillian anticipates revenue in the range of $190 million to $210 million, predominately from sales of LCD TVs on shipments of approximately 240,000 to 270,000 units. Gross margins for the quarter are anticipated to be in the range of 15% to 17%.  For the fiscal year ending June 30, 2007, Syntax-Brillian anticipates revenue in the range of $682 million to $702 million, predominately from sales of LCD TVs on shipments of approximately 970,000 to 1.0 million units. Gross margins for the full fiscal year are anticipated to be in the range of 16% to 18%.  For the calendar year ending December 31, 2007, Syntax-Brillian anticipates revenue in the range of $950 million to $1.1 billion, and gross margins in the range of 16% to 18%.

Jim Cramer probably is thinking that since the CEO has done two offerings now that this guy may not be that trusted.  Unless this CEO has some real rabbits in his hat, he sure looks hard to trust and this may now be relegated to a "story stock." Shares closed down 2% at $8.41 in normal trading and they are down another 15% at $7.09 in after-hours.  This will represent roughly 3-month lows if this level holds.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 3:40 pm in Earnings,

We know Jupitermedia posted a loss already so now what?

Jupitermedia (Nasdaq: JUPM) posted a Q1 07 loss of $1 million yesterday, or 3 cents per share, versus a profit of $9.2 million, or 25 cents per share, in the year-ago period. The loss is due to legal fees related to a failed sale of the company to competitor Getty Images (GYI).

When the news hit Wall Street back in February that Getty and Jupitermedia could be merging, shares of JUPM hit $10 a share. Today Jupitermedia shares are down 13% and barely above $6 a share. Despite the bad news reported yesterday JUPM’s Q1 revenue increased to $34.8 million from $33.9 million in the comparable quarter last year. The Street was expecting revenue of $34.8 million and for the company to break even, thus today’s drop.

Look America, despite your disappointment with Q1 results, this little image company is still growing. Jupitermedia’s CEO Alan M. Meckler said yesterday:
"Our revenues for the first quarter year of 2007 showed improvement over the same quarter of the prior year due to progress made with our Jupiterimages business. Jupitermedia continues to grow as a powerful creator and distributor of a wide range of commercial images and digital content. In addition to the expansion of our image offerings, we increased our wholly-owned royalty-free music offerings during the quarter."

Now that JUPM’s stock is less than $1 away from its 52-week low, it’s got me interested. If Jupiter can start generating more sales, maybe even start talking with Getty again, what’s to stop their stock from going up a few bucks? Even if the merger never happens, Jupitermedia isn’t dead, so don’t write this stock off.

Frank Lara Jr.

Frank Lara Jr. can be reached at franklara@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 10, 2007 – 3:21 pm in Earnings

Mamma.Com Dribbles Earnings

Mamma.com Inc. (MAMA-NASDAQ) reported revenues increased by 20% to $2,642,904 due to an increase in search advertising revenues; net loss of $1,380,702 ($0.10 per share), including employee termination costs of approximately $685,000 compared to Q1 2006 net loss of $875,083 including a reimbursement of $460,000 for professional fees.  Continuing operations generated cash of $317,275 compared to a use of cash of $91,310 in Q1 2006; Cash and cash equivalents increased by $728,215 during the quarter to $8,699,674.

Martin Bouchard, President and CEO: "During the last few quarters, we focused our attention on reorganizing the Company in a way that ensures efficiency, firm control of our ongoing operating costs, while maintaining a competitive presence. The results of this current quarter demonstrate these efforts.  To date, we have successfully expanded our sales and marketing team with the addition of two new US based Senior Vice Presidents responsible for software licensing. In addition, we launched a new, revolutionary product that allows users to search and access all their files, emails, music and videos stored on their PC from virtually anywhere using their mobile phone."

Shares of Mamma.com (MAMA) closed up 5.9% ahead of results on hopes that the losses would be better.  Shares have given back all the gains and are now down over 7% from the closing price and down at $5.15 in after-hours trading.  It doesn’t help that the company gave no further guidance for micro-cap stock traders to focus on.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 3:13 pm in Earnings, Internet,

The 52-Week Low Club

Divx (DIVX) What a dog. Multimedia software company projects week Q2. Market remains mortified. Drops to $15.61. Down from 52-week high of $31.89.

Whole Food Markets (WFMI) Another company with weak Q2 junk. Shares fall to $40. The 52-week high was $71.30.

Tweeter Home Entertainment (TWTR) Electronics retailer has poor earnings and may go Chapter 11. Drops to $.30. Yes, $.30. Down from 52-week high of $8.74.

Building Materials (BLG) Earnings fall from $.54 last year to one penny. It is a building company in a housing downturn. That’s some excuse. Down to $13.68 from a 52-week high of $35.82.

Dean Foods (DF) Poor guidance for the balance of the year. Drops to $31.73 from 52-week high of $50.50.

US Airways (LCC) Oil prices are not helping. Down to $33.10 from 52-week high of $63.27.

Douglas A. McIntyre

Posted on: May 10, 2007 – 3:12 pm in HI/LOW

Apple’s Steve Jobs: The MOST Entrenched Corporate Leader

Apple (AAPL-NASDAQ), or Steve Jobs & Co. for the purposes of this story, is showing what a great company can do under great leadership.  The company is hosting an analyst meeting and the stock is up on a day where almost everything is trading lower.

After having run many features on "entrenched CEO’s" and even on "CEO’s that need to go," it is obvious that Steve Jobs is probably the most entrenched CEO in corporate America right now.  Apple and Apple shareholders are most certainly better off with Steve Jobs than without, and the only people that would really like to see him leave are top Microsoft (MSFT) executives and Wong Hoo Sim of Creative Technology Ltd. (CREAF).  Could you imagine hearing someone try to claim he isn’t that great of a creator or that great of a CEO?  They would be laughed out of the room.

Barron’s recently tagged him as the TOP CEO of the 30 Best CEO feature they ran a few weeks ago.  We have noted in the past about how options issues inside Apple may have been an issue, but this has dribbled on long enough now that if there was some smoke then the fire would have already erupted.  Even with the ex-CFO doing a finger-pointing attempt it is quite evident that almost nothing serious is going to come out of any options inquiry.  To us the real risk was the options inside Pixar before Disney bought them because it was almost Steve Jobs Animation, Inc.; but right now it really seems like he could go prove how backdating there helped keep the talent needed to drive the company and that EVERYONE made money investing in the name (and short sellers can’t sue because you drove the stock up).

He has been the creative force behind iPod, iTunes, further Mac expansions, operating systems, Apple TV, and the soon to be iPhone.  On a corporate level he has survived what was a wholesale rip-off of an operating system long ago.  He was ousted and then brought back in.  If you go back to the lows within the last 5-years, the rise in iPods and Macs that were both driven by Jobs & Co. have helped run this stock up more than 14-fold and now this beast has a market cap of over $90 Billion. 

He survived a rare form of pancreatic cancer, which he even sent a memo to employees about from his hospital bed.  Wall Street loves Steve Jobs just as much as Main Street, and from where it sits right now it would take something more than drastic to unseat Steve Jobs.  We even ran a piece long before Barron’s (back in December) that Steve Jobs was worth $30 per share of Apple.

Why did we not run this one sooner?  You gotta save the best guy for last!

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 2:43 pm in Uncategorized,

Overlooked Metal Stocks (ZEUS)

When you look at companies such as US Steel (X-NYSE), Alcoa (AA-NYSE), Rio Tinto (RTP-NYSE), Alcan (AL-NYSE) and many other giants in the metals sector either in the midst of or rumor to be in a merger, it just makes you wonder if there are many much smaller companies that have been overlooked.

We are running 4 or 5 niche-oriented stocks in the metals sectors and this is the first of the series. Gone are the days that these can be found at 6-times earnings, so the "cheap" term has to be thought of in the light that we are in a metals world driven by foreign demand and further driven by merger speculation.  We are only focusing on companies that have niche businesses or operations that make them seem attractive or cheap on their own merits.

Olympic Steel (ZEUS-NASDAQ) $33.30 (-2%l -$0.71); 52-week trading range $21.03 to $39.49.  This trades for what is probably going to be 10-times forward earnings and about 1.5-times book.  There is very little hidden kicker in the company like cash hoards or easily spotted assets that are grossly undervalued.  It’s pretty straight forward.  This is thin volume and thinly covered, which you’d expect for a player with a $350 million market cap.  Its earnings consistency has been sporadic and it has grown its top-line at roughly 5%.  Revenues were $981 million in 2006.

Before getting excited about Olympic just as a buyout candidate, keep in mind that insiders hold close to 20% of the stock and Goldman Sachs, Barclays, and Dimensional each hold another 9% on average.  So if the holders don’t want to sell no matter what then it will be impossible to force a deal.   This should be looked at on a standalone basis because speculating in stocks just for the hope of a buyout is not a good enough reason to own a stock.

The company is also very subject to economic cycles and it is more involved in basically forging the steel into whatever manufacturers, transporters, infrastructure operators, machine makers, and the like need for their process.  So while it has facilities, it is not one that benefits from rising metal prices because it is not a miner.  You might even refer to them as a manufacturer’s manufacturer.  They partly  transformed themselves last year with an acquisition and the company has not come close to having too much market share. 

More detailed information can be found on them on their website.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 2:04 pm in Metals, , , , ,

Cramer Defends Retail & Wal-Mart

Today on CNBC’s STOP TRADING, Jim Cramer came out saying today’s sell-off is justifiable, but he’s still very bullish.  He’s a buyer of retail stocks on weakness because this was already expected to be bad.  He likes all retail but he thinks Wal-Mart (WMT-NYSE) is trading in an anticipatory phase.  He thinks it wants to go to $50.00 and the fact that it is barely down on a crummy day is telling you this.  JCPenney (JCP-NYSE) and Kohls (KSS-NYSE) he also noted.

You can watch our CNBC appearance video at this link or just read some further opinion on this subject.  Wal-Mart really does feel like the company is close to an anticipation event ahead of its board meeting.  What that is could be anything.  I still think Lee Scott needs to go, but there are numerous things that Wal-Mart can do as a better start.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 1:47 pm in Cramer, Retail, , , ,

Interpublic Group (IPG) may be out of breath

Interpublic Group of Companies, Inc. (Public, NYSE:IPG) posted a larger Q1 loss today and missed estimates with their international sales division. Shares of Interpublic are falling 8% today which makes today the worst drop they’ve experienced in the past four years.

According to their company website:
From McCann to Lowe, from Jack Morton to R/GA, the companies of Interpublic add color to local and global brands and breathe life into their relationship with consumers.

However today, they are hardly "breathing" life into their company shares which are down $1 to just under $12 a share. On a day like this, maybe an oxygen tank could help or better yet some smelling salts to get management back on their feet.

Interpublic reported their Q1 07 loss narrowed to $125.9 million, or 29 cents a share, from a loss of $170.2 million, or 43 cents, a year earlier. They were able to raise their sales 2.4% to $1.36 billion but when your losses from 2003 to 2005 total to $1.3 billion, nobody really cares – and it shows today.

Fitch Ratings upgraded Interpublic today citing a diverse client base, ample liquidity, and the progress made toward winning new accounts and driving organic growth from existing clients. They went on to say:
"Credit metrics have improved significantly from 2005 levels, and are expected to continue to improve in 2007 and 2008. The rating incorporates the risk that a pending SEC investigation could potentially result in a cash outflow."

Interpublic has been around since 1961,and is comprised of hundreds of communication agencies around the world that "deliver custom marketing solutions on behalf of their clients." Looking back over the past 5 years IPG stock’s performance has not been very impressive. Its had a hard time getting past $15 a share and long gone are the days of $30 per share. So if investors aren’t impressed by today’s results, do you really think the stock will get above $15 this year?

IPG 5 YEAR

But the "companies of Interpublic add color to local and global brands". That maybe so, but the only color Wall Street cares about is green money, better get more oxygen.

Frank Lara Jr.

Frank Lara Jr. can be reached at franklara@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 10, 2007 – 1:32 pm in Earnings

Is Hillenbrand Already at Full Value?

This morning we were happy to see that Hillenbrand Industries (HB) was splitting itself up.  The company had two entirely unrelated segments: medical technology under the Hill-Rom name, and caskets under the Batesville Caskets name.  About the only commonality was that there’s a good chance you will eventually use the second brand whether you use the first brand or not.  This was on our radar for some time and we anticipated this after the review was telegraphed last year. 

Roughly 1/3 of the company revenues and profits are derived from the funeral related operations.  The other 2/3 from th Hill-Rom brand is divided with real medical products sales and with hospital bedding and furniture for patients and around surgeries. 

The problem is that the combined operations trades at almost 21-times forward earnings, a premium to the S&P that is now magnified because of the 10% stock rise.  Neither business has a lot of sex appeal.  When we started evaluating this in 2006 shares were roughly $55.00.  We had left this one on the back burner earlier this year because we came up with a rough estimate value that may be only a little north of $60.00.  Sure, the market is higher and the company has now made its split up announcement.  But since we operate on a market neutral strategy with the 10% market rise and the $67.00 price here today, this one just looks much closer to being fully valued. 

It’s always possible we are being far too conservative and that the companies will be able to fly onward and upward as independent operators.  We often undershoot on these perceived valuations even in a "private equity gone mad" world.  But a conservative investor would at least lock in some of the gains now that the stock is close to all-time highs.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 12:49 pm in Consumer Goods,

AMD, Ebay, Vonage: Financial Blog Round-Up 5/10

GigaOm writes that Vonage’s (VG) new earnings have some troubling information.

Investment Outsider writes that Ebay’s (EBAY) new feedback system should improve the company’s revenue.

Redhat (RHT) will release a new, low-cost, Linux-based PC.

The Peridot Capitalist says that sub-prime mortgage problems are not spreading to other areas of the credit markets.

Herb Greenberg wirtes that Overstock (OSTK) CEO Patrick Byrne has received a received a subpoena and a notice of investigation.

WSJ Market Beat reports that "analysts are increasingly worried that Chinese authorites will have little ability to fend off problems" in markets like Shanghai.

Barron’s Tech Trader reports that takeover talk is popping up around BEA (BEAS) and that AMD (AMD) has started lay-offs.

Douglas A. McIntyre

Posted on: May 10, 2007 – 12:04 pm in Press Digest

Falling Corn Will Boost Ethanol Producers

Corn prices have fallen 25% since their early March highs and the weather the past two weeks has lead to a surge in planting with up to 40% increases in some areas.  The beneficiary? Ethanol producers.  Versun (VSE), who recently experienced a 31% increase in revenue, reported a quarterly loss and said the culprit was increased corn prices that had them paying $4.05 a bushel in Q1 and a inexplicable $33 million "loss" contributed to hedging.  How do you lose money hedging against higher corn prices when corn prices go higher?? 
 
 
 
When you consider Aventine (AVR) reported a profit and said they paid $3.58 a bushel in Q1,  Verasun’s results seem to be an indication of poor management rather than rapidly deteriorating fundamentals in ethanol.  Considering estimates have ethanol being profitable to produce at corn prices up to over $4.80 a bushel, ethanol will remain profitable for the foreseeable future. Archer Daniel’s Midland (ADM) reported Q1 results recently and while they do not release their price paid for corn (I presume this is due to it being dramatically lower than their rivals and would put pressure on suppliers to provide these prices to others), they reported an increase in Q1 corn processing results.  Shares of Pacific Ethanol (PEIX) are trading up 12% after their earnings actually came in it a profit

Now that we have a record corn crop going into the ground at a rapidly increasing rate, corn prices look to plummet before the summer is finished. When you add the fact that new ethanol production capacity that was scheduled to come online has slowed due to the higher corn prices, anticipated demand will not materialize.  For ethanol producers who managed their businesses well during the price spike, this will mean a series of earnings estimate beating results will come rushing in.

 
 
With the current outlook poor for the sector, shares ought to spike on the unexpected good news.

 
 
Todd Sullivan
May 10, 2007
Posted on: May 10, 2007 – 9:34 am in Alternative Energy, , , ,

Vonage’s “Patent Workaround”

Vonage Holdings (VG-NYSE) earnings came out shortly before the open and the good news is that the bleeding wasn’t any worse on a look-back to March 31.  The main crux of this has nothing to do with the current earnings.  It is the "patent workarounds" and you can see what was said.

Jeffrey Citron, Vonage Chairman: "We have battled through an extremely difficult quarter and will continue the fight in the courtroom. While the patent litigation has challenged our business, it has not distracted our focus on providing consumers with the opportunity to choose a better phone service.  We believe we have workable designs for the two name translation patents and intend to begin deploying the solution to our customers shortly. In addition, we are continuing our development of the workaround for the wireless patent."

Revenue for the first quarter 2007 grew to a record $196 million, up 64% from the first quarter 2006.  Adjusted loss from operations narrowed to $58 million in the quarter, a 20% improvement from $73 million in the year-ago quarter. Adjusted loss from operations "excluding royalty" narrowed to $48 million in the first quarter 2007, a 34% improvement from $73 million in the first quarter 2006 and a 10% improvement from $53 million last quarter.  The net loss narrowed to $72 million, or $0.47 per share for the first quarter 2006, or a loss of $0.39 per share on an "excluding royalty basis."  As we previously noted, they added 166,000 lines to end just short of 2.4 million lines.  Marketing cost per gross subscriber line addition was $273 in the first quarter 2007, a reduction of $33 from $306 last quarter and up $64 from $209 a year ago. As previously announced, the Company expects to spend approximately $310 million in marketing in 2007. Average monthly customer churn was 2.4% in the first quarter 2007, up slightly from 2.3% last quarter.

NO GUIDANCE: The Company says it has taken a number of steps which it believes will increase its ability to reach Profitability, but given the uncertainty surrounding the Verizon litigation, the Company will not comment on previously issued guidance.  Cash and equivalents did come in that $410 million range.  Now you have to consider the bond and royalties ahead.  So going on this it really boils down to if you trust the company or not.  So far shares are up 9%, so we’ll have to see if that holds.   Last month’s short interest was 7.879 million shares, up from 7.37 million in March.  There is still a prevailing thought that customers will flee if they are worried about the service being around, but so far that hasn’t seemed to occur.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 9:12 am in Earnings, Internet, Telecom,

Do Vonage’s Earnings Even Matter Today?

Vonage Holdings (VG-NYSE) reports earnings today.  Estimates are for -$0.42 EPS and $195.35M revenues.  The issue today is that the earnings just don’t matter.  Only someone named Pangloss would be expecting much good out of the actual numbers.

The most pressing issue is this patent situation with Verizon, where it lost an appeal to get a retrial based on the new patent laws.  The company has agreed to pay a 5.5% quarterly royalty into escrow in case it loses the final decision and has put up a $66 million bond.  The company has maintained that its current cash position allows it to pay these fees.

The problem that is evident here is that this will drastically cut the cash position: Vonage has been burning through roughly $40 million per quarter on average, so we would normally expect a $450 million cash position.  But with the add ons we can expect this number to now dip down closer to $375 million, and that is before whatever amount they are going to say was for extra legal costs and for whatever they’ll end up forking over to IPO shareholder.  Its cost cutting is starting, but that was only recent.

The company will probably maintain that it remains financially viable and can operate on its own with tapping extra liquidity sources even though its filings have disclosed that the patent suits could ultimately lead to a bankruptcy.  The company has already begun its cost cutting strategies and the founder Jeff Citron took control back at the helm.

As far as what the numbers have been, it ended last year with 2.2 million lines and added another 166,000 lines in the March quarter.  The monthly churn rates are still far too high at 2.4% and it had been spending close to $275 to acquire each new customer. 

It isn’t the earnings this last quarter that matter.  It’s the ability for the company to be able to say that it will still keep growth plans in a post-royalty world and that it can make it on its own.  Anything short of that will be met with more skepticism by Wall Street AND Main Street.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 8:21 am in Earnings, Internet, Telecom, ,

Goldman Sachs Research Summary (May 10, 2007)

Goldman Sachs has raised estimates on the following: NVR (NVR), SAVVIS (SVVS), United Auto Group (UAG), News Corp (NWS), Multimedia Games (MGAM), NPS Pharma (NPSP), Stereotaxis (STXS), Trimeris (TRMS), Charles River Lab (CRL), Keane (KEA), Brooks Automation (BRKS), DIRECTV (DTV), Calumet Specialty Products (CLMT).

Goldman Sachs has cut estimates on the following: Beazer Homes (BZH), Centex (CTX), DR Horton (DHI), Meritage Homes (MTH), Pulte Homes (PHM), Standard Pafici (SPF), Ryland (RYL), M.D.C. Holdings (MDC), M/I Homes (MHO), Brinker International (EAT), Cumulus Media (CMLS), Kimball International (KBALB), Maidenform Brands (MFB), Whole Foods (WFMI), Frontier Oil (FTO), Conseco (CNO).

SAVVIS (SVVS) is replacing Leap Wireless International (LEAP) on the Americas Conviction Buy List.  LEAP is still a BUY rated stock, but shares are up 43% since added to the list and Goldman sees more upside in SVVS.

Teva Pharmaceuticals (TEVA) reiterated a buy at Goldman as it believes that Teva will win over Mylan in the bidding for the generic business of Merck KGaA.

Aracruz Cellulose (ARA) reiterated Buy.

As you can see in the “estimates cut” section, housing stocks were almost all lowered on estimates.  Goldman maintains that the housing slowdown itself is showing no signs of slowing.  It sees further deterioration and sees a 20% sale drop in new homes in 2007 and a further 5% in 2008.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 7:52 am in Analyst Calls

Pre-Market Stock News (May 10, 2007)

(AAPL) Apple hosts shareholder meeting.
(ANN) Ann Taylor s-s-s -12.8% vs -4% estimate.
(ARXT) Adams Respiratory $0.08 EPS vs $0.04e.
(ATPG) ATP Oil & Gas $0.89 EPS vs $0.65e.
(BSTE) Biosite confirms that it received a revised offer from Inverness Medical over a possible cash tender.
(BVF) Biovail $0.58 EPS vs $0.40e; unsure if comparable.
(CHS) Chico’s FAS s-s-s -7.3% vs -0.6% estimate.
(COST) Costco s-s-s 7% vs 6.5%e.
(DISH) Echostar $0.35 EPS vs $0.44e; unsure if comparable because revenues in-line.
(ENTG) Entegris announced a Dutch tender offer for up to 20.4M shares at $11.00 top $12.25 each.
(FD) Federated s-s-s -2.2% vs 1% estimate.
(GOOG) Google hosts shareholder meeting.
(HB) Hillenbrand is finally splitting up: it will separate the medical technology business from its casket operations.
(HSY) Hershey lowered net for Q2 and 2007 because of higher dairy related costs.
(JCP) JC Penney s-s-s -4.7% vs -0.8% estimate.
(KBR) KBR is selling its stake of DML shipyards for right at $350 million.
(KG) King Pharma $0.48 EPS vs $0.41e.
(KNOT) Theknot.com trading down 14% on lower earnings.
(MESA) Mesa Air $0.13 EPS vs $0.23e; will repurchase up to 10 million more shares.
(MRK) Merck has a stuidy discussing adverse events and side effects of GARDISIL.
(NRF) Northstar Realty $0.39 EPS vs $0.36e.
(PSUN) Pacific Sunwear noted EPS guidance in-line but s-s-s were under plan.
(RGEN) Repligen reported positive Phase II clinical trial results of secretin for MRI imaging of the pancreas.
(SPC) Spectrum Brands -$0.18 EPS vs -$0.11e.
(TFSM) 24/7 Real Media up 0.5%; narrower losses; raised revenue guidance; assessing strategic alternatives.
(TLCV) TLC Vision $0.09 EPS vs $0.06e.
(URBN) Urban Outfitters $0.17 EPS vs $0.17e.
(VIA/B) Viacom $0.34 EPS vs $0.33e.
(WFMI) Whole Foods fell 7% after missing EPS and issuing a complicated earnings report.
(WMT) Wal-Mart s-s-s -3.5% vs -1.1% estimates; sees May s-s-s +1% to 2%.

Jon C. Ogg
May 10, 2007

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

Posted on: May 10, 2007 – 7:07 am in Pre-Market Activity