Daily Archives: October 8, 2007

XM (XMSR) Prepares For Life Without Sirius (SIRI)

The rent-a-temp CEO of XM Satellite (XMSR) does not sound like a man running a company about to be merged into Sirius (SIRI)."This is a business that has never made money, and we have lost billions over the years," Nat Davis, XMSR’s acting chief said. "Given that we’ve got 8.5 million subscribers and growing, and over $1 billion in revenue, my focus will be to become a profitable company not just a high-growth company."

"This is not a slam dunk merger. This is one of those that will be controversial," he told Reuters.

Davis speaks like a man pitching to have the top job full-time. He mentioned that XM expected more than 65 percent of its gross subscriber additions to come from customers buying cars by the end of 2007, compared to the 50 percent range at the beginning of the year. Not an observation that a man with a foot out the door needs to make. But, if he has to run the operation as a standalone company, the trend is important. It means that the company’s marketing costs should be dropping.

XM and Sirius probably suffer from the disease of being engaged but not married. They spend so much time preparing for the big day that they have little time left to run the mundance chores of their lives.

Over the last two years, XM’s shares are down almost 60%. It someone does not start to operate the company in earnest and soon, those shares could go to zero.

Douglas A. McIntyre

Posted on: October 8, 2007 – 6:32 pm in Satellite, ,

Cramer’s Next Internet Stock Gapper (VCLK, OPWV, GOOG, MSFT, YHOO)

On tonight’s MAD MONEY on CNBC, Jim Cramer reviewed ValueClick (NASDAQ:VCLK) as the next potential advertising company that could see a huge gain.  After Google (NASDAQ:GOOG) bought DoubleClick and after aQuantive was bought for a huge premium by Microsoft (NASDAQ:MSFT), this is the last of the independent Internet advertising stocks that should be acquired.  Cramer even thinks that Yahoo! (NASDAQ:YHOO) may need to acquire it.  Cramer came up with a figure that if DoubleClick and aQuantive revenue multiples were used with a 15% discount that you could see $59.67 or $34.00.  We had noted the same thing about 24/7 Real Media after Yahoo! acquired Right Media, and partially on the notion that ValueClick and aQuantive had once held merger talks.

If you are interested in Internet stocks that also may be taken over, we are getting ready to release our own internal "watch list" of small cap Internet stocks to subscribers of our Special Situation Investing Newsletter that we have kept private.  We do not believe theese are currently takeover targets, but under the right circumstances and prices these could all easily become subsidiaries of the current Internet giants.  Two companies that were acquired this year off that list this year were Web.com and 24/7 Real Media.

The Web.com buyout was one we had been calling for basically two-years before it happened, and they let things get south compared to when there was huge value.  Be careful on betting on major premiums just because of others.  We noted this specifically where 24/7 Real Media was giving itself away too cheaply.

One free peek on our list is OpenWave (NASDAQ:OPWV), although we think this one has worked itself into such a bind that a true buyout would be a "saving bid to scoop up on the cheap" after a major sell-off rather than a footrace with a major premium.

Jon Ogg
October 8, 2007

Jon Ogg produces the "Special Situation Investing Newsletter" and he does not own securities in the companies he covers.

Posted on: October 8, 2007 – 5:39 pm in Cramer, Internet, , , , ,

Sprint (S): Gary Forsee Goes To The Guillotine

Gary Forsee, the CEO of Sprint (S), is gone. He had been in management at the company in the 80s. He came back as head of the company in 2003. He lead the buy-out of Nextel the following year.

The Nextel merger was a bust and Forsee bet company’s future on a Buck Roger’s technology called WiMax. It is promising, a way to deliver wireless broadband. It may be the best stuff it the world, but it will not be completely in place until three years from now. Investors would not wait.

The failure of the merger was made clear again when Sprint pre-announced some of its third quarter earnings. The company said it now expects to report a net loss of 337,000 post-paid subscribers and lower annual consolidated operating revenue and adjusted operating income before depreciation and amortization than previously expected. Sprint said it now expects consolidated operating revenue for 2007 to be between $41 billion and $42 billion, while adjusted operating income before depreciation and amortization is now expected to be between $11 billion and $11.5 billion

Forsee was in the telecom business most of his career. There was nothing wrong with the Nextel merger per se. It created the third largest wireless company after AT&T (T) and Verizon Wireless, in a business where scale counts.Sprint, on its own, may have ended up much worse off as a smaller company in an industry dominated by giants. But, the salvation of the company was too far in the future and the potential of WiMax was too fuzzy.

Forsee paid for that.

Douglas A. McIntyre

Posted on: October 8, 2007 – 5:36 pm in Management Change, ,

Yum! Earnings Live Up To The Name (YUM)

Yum! Brands Inc. (NYSE:YUM) beat earnings estimates again.  The fast food and faster food giant posted 20% gains to $0.50 EPS on a 4% worldwide system same-store-sales.  It did note a $0.02 EPS boost from foreign currency conversion.  First Call has estimates at $0.45 EPS and $2.44 Billion in revenues. 

Yum! has also raised full-year EPS growth forecast to 13% from 12% based on the continued strong growth from China and YRI divisions: new full-year EPS forecast is $1.65 per share.  The company said it also plans to repurchase $4 Billion in stock over the next two-years.

Share of Yum! closed at a new all-time up 5.6% today at $36.29 with just under an $18.9 Billion market cap.  Shares are up another 3% at $37.50 in after-hours trading.

Very recently. Jim Cramer interviewed the CEO and said this was a buy on any pullback.  We also noted this earlier in the year as a ’second line defensive stock’ for a crummy market, but it didn’t make the most recent list of defensive stocks over relative valuation and excessive stock performance.

Unfortunately, it appears the earnings conference call is not until tomorrow morning.  Its 2007 conference for analysts and investors is not scheduled until December 12, 2007.

Jon Ogg
October 8, 2007

Posted on: October 8, 2007 – 3:17 pm in Earnings, Food,

The Business Day In Global Warming (GE, UPS, LDK, ITRI, BECN, ENER, COMV)

General Electric (NYSE:GE) announced a $750 million order to supply six advanced technology, Frame 9FB gas turbine-generators and associated services to EDF (Électricité de France) for the utility’s electrical power production facilities in France and elsewhere in Europe.

UPS (NYSE:UPS) is adding 306 alternative fuel vehicles to its “green fleet” by placing an order for 167 Compressed Natural Gas (CNG) delivery trucks while taking delivery of 139 new propane delivery trucks in North America. Additionally, the company has launched an initiative to use biodiesel fuel in its ground support vehicles at the UPS Worldport® air hub in Louisville.  Maybe BROWN really can be GREEN.

LDK Solar’s (NYSE:LDK) woes in China over its reporting on inventories continues…..down another 25% today. Lazard Capital Markets’ Sanjay Shrestha lowered his price target on Energy Conversion Devices (NASDAQ:ENER) from $44.00 down to $40.00 (current was $26.50); and increased his Buy rating target on Otron (NASDAQ:ITRI) from $95 to $115, and reiterated the Buy rating and $37 target on Comverge (NASDAQ:COMV).

Read More »

Posted on: October 8, 2007 – 2:43 pm in Alternative Energy, , , , , , , , , ,

Earnings Expectations For Yum! Brands Q3 2007 (YUM)

Yum! Brands Inc. (NYSE:YUM) is set to report earnings after the close, and this will be the start of a slow dribble of Q3 2007 earnings season before the onslaught of earnings next week.

First Call has estimates at $0.45 EPS and $2.44 Billion in revenues.  For Q4 2007 estimates are $0.45 EPS and $3.1 Billion in revenues.  It’s probably too hard to get a solid estimate for 2008 out of the company, but if it does give estimates for 2008 they are $1.83 EPS (about 11.5% EPS growth).  Of course the wild card here could come from the falling dollar as it is becoming a larger and larger international food growth story, which would likely work further in in its favor. 

Very recently, Jim Cramer interviewed the CEO and said this was a buy on any pullback.  We also noted YUM! earlier in the year as a ’second line defensive stock’ for a crummy market, but it didn’t make the most recent list of defensive stocks over relative valuation and excessive stock performance.

The street probably has high quite expectations on the company as it has easily exceeded earnings estimates in each of the last four quarters.  The chart here has been stellar as shares are hitting new highs immediately ahead of earnings.  Unfortunately, the average analyst target is just over $36.00, so analysts are going to have to raise targets or make the "downgrade on valuations" call.  Based upon the last look, it appears that options traders are braced for this to move up to $1.10 to $1.20 in either direction based upon today’s earnings reaction.

Unfortunately, it appears the earnings conference call is not until tomorrow morning.  Its 2007 conference for analysts and investors is not scheduled until December 12, 2007.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 12:31 pm in Earnings, Food, ,

What a $700 Google Stock Looks Like (GOOG)

Last week we put together a brief description of what sort of multiples and what it would take for Google (NASDAQ:GOOG) to hit $600.00.  This was a mere century mark that was briefly surpassed today.  Perhaps we should have been evauating what a $700.00 Google stock price looks like.  For starters, Google’s market cap at that price would be roughly $218.5 Billion.  Here was the full note for the $600.00 where we gave the time intervals between each new "century mark" of $100 handles.  If Google’s stock price instantly rose to $700 tomorrow and with a static earnings estimate picture, the following ratios come about:

  • Based on $15.25 EPS and $11.5 Billion revenues for Fiscal 2007 estimates, shares trade at 45.9-times earnings and 19-times forward revenues.
  • Based on $19.50 EPS and $15.75 Billion revenues for Fiscal 2008 estimates, shares trade at 35.9-times forward earnings and 13.87-times forward revenues.

Just last week, Jim Cramer said he was giving this one of the new four horsemen of tech a $700 target, and then said $701 to be higher after Bear Stearns raised his 2007 target to $625.00 and $700.00 for 2008.  These numbers start getting quite high even for a great growth stock, but this assumes no raised revenue and earnings projections out of Wall Street and out of the company itself.

We are getting ready to release our "watch list" of small cap Internet stocks to subscribers of our Special Situation Investing Newsletter.  We do not believe they are current takeover targets, but under the right circumstances and prices these could all easily become subsidiaries of the current Internet giants.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 12:09 pm in Internet, ,

Sealy and Tempur Pedic Sleeping Separately (ZZ, TPX, SCSS)

After looking at downgrades this morning and then after the stocks that hit 52-week lows, Sealy Corp. (NYSE:ZZ) showed up on the list.  Sealy saw its stock become broken last week after its $0.22 EPS was well short of $0.32 estimates.  It seems that soft housing is the obvious, but lower pricing power is also a factor here.  Its share buyback plan isn’t doing much to keep it off of lows either.  Banc of America’s downgrade from a Buy to Neutral is the extra catalyst for selling today.  The 52-week low of $13.000 from Friday was taken out today, and while shares are back within a few pennies of that level it appears that $12.52 was the new low put in today.  After this came public in early 2006 shares did drop down to $12.00 before coming back up to $18.00.

Select Comfort (NASDAQ:SCSS) shares are up almost 1% today, although it hasn’t done much better in general.  At $14.55, shares are close to the bottom of its $13.85 to $25.25 trading range over the last 52-weeks.  The standout is Tempur-Pedic (NYSE:TPX).  Its shares are down marginally today at $38.91, but its 52-week trading range is $17.12 to $37.87. 

These companies are all profitable and are expected to remain that way.  Market caps are all somewhat low: Sealy $1.4 Billion; Tempur-Pedic $2.9 Billion; Select Comfort $637 million.  These all have straight forward business models where competitors might not want to come into an established industry, and in the past each one of these have been thought of that under the right conditions could become targets of private equity.  Those thoughts are probably long gone for the current buyout climate.  But if they get too cheap it may be too hard not to look at.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 11:33 am in HI/LOW, , ,

Morningstar’s Seven Stocks To Sell

Morningstar has hit the market with "The Market’s Most Overvalued Stocks". They cover a wide range of industries, and some of them, like Schlumberger (SLB), would appear to be "buys" right now.

In addition to the oil and gas services company, the list includes: Sun Micro (JAVA), Bunge (BG), TD Ameritrade (AMTD), Celgene (CELG), Lowes Corporation (LTR), and AT&T (T).

Douglas A. McIntyre

Posted on: October 8, 2007 – 10:56 am in Analyst Calls, , , , , , ,

Biggest Names Hit 52-Week Highs

In a sign that the market, and especially tech stocks, are moving up at a burning pace, several major companies have hit 52-week highs today.

Hewlett-Packard (HPQ) at $51.05.

Broadcom (BRCM) at $38.79.

Google (GOOG) at at $601.45.

Apple (AAPL) at $165.02.

Douglas A. McIntyre

Posted on: October 8, 2007 – 10:46 am in HI/LOW, , , ,

China Stocks Lead Biggest Gainers, Again (CTDC)(CNTF)(XFML)

The market in Shanghai closed up 2.5% last night and hit an all-time high. But, that is hardly an excuse for the shares of Chinese companies trading on US exchanges to be up double-digits on yet another day.

China Development Technology (CTDC) is up almost 20% to nearly $10. It has no new news.

China TechFaith (CNTF) launched a new dual mode phone. No one knows if it will sell a single unit. Shares are up 11% to $7.85.

Xinhua Financial (XFML) is up 15% with no visible news support.

It’s just troubling.

Douglas A. McIntyre

Posted on: October 8, 2007 – 8:46 am in China, , ,

Patent Settlement With Sprint (S) Drives Vonage (VG) Higher

Shares in VoIP pioneer Vonage (VG) are almost 50% higher at $1.72. The company settled it patent dispute with Sprint (S)

Vonage announced that it has settled its pending patent dispute with Sprint and entered into a licensing arrangement under Sprint’s Voice over Packet patent portfolio.

The agreement is valued at $80 million, including $35 million for past use of license, $40 million for a fully paid future license, and $5 million in prepayment for services.

And Vonage lives to fight another day.

Douglas A. McIntyre

Posted on: October 8, 2007 – 8:36 am in Law, ,

Paychex Might Not Have The Value Barron’s Thinks (PAYX)

This weekend there was a positive report out of Barron’s on Paychex Inc. (NASDAQ:PAYX) that has shares up almost 2% pre-market, although the timing of this is odd considering the part of the economic cycle we are in. Barron’s notes that the recent pullback to around $41 looks like a classic buying opportunity as shares could recover to $46 within a year and $50 in eighteen months.

Barron’s specifically noted, "Though the numbers were generally in line with or above company guidance, with sales up 10% at $507 million and earnings of 40 cents a share, they fell short of many analysts’ more ambitious projections. Investors also worried over the company’s slightly lowered expectations for the full year, with profit growth now set at about 13% versus 15% three months earlier." You can read through the whole article yourself to see if you believe the company on a "because of the FOMC rate cut and because of the stock buybacks" as the excuse that is being used for lower guidance. 

Shares closed at $42.02 on Friday and the 52-week range is $36.08 to $47.14.  If you go back to summer of 2006, this was the real opportunity, as shares fell off and traded under $35 for a brief period of time.  In the year that followed this the shares ran more than 35% before the recent giveback.

The good news here is that shares didn’t really fall off more than they did on the warning.  But at this point in the business cycle it seems that the risk is perhaps more than the rewards for a stock that has become arguably range-bound.  Analysts on average appear to have a $47.50 to $48 price target, the market cap is $15.75 Billion, and it trades at 26.25-times forward fiscal May-2008 earnings projections.

There isn’t really anything wrong with Paychex as a business, but this is less than a 10% projected upside for the next year and that isn’t really a solid projected return for what is arguably still deemed by many as a growth stock.  If growth and income investors are looking for oversold opportunities, there are many other stocks out there.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 8:18 am in Business Services, ,

As McDonald’s (MCD) Offers Free WiFi, Another Challenge To Starbucks (SBUX)

It has not come to the US. But, bet your bottom dollar, it will. McDonald’s (MCD) is offering free WiFi in its 1,200 stores in the UK.

Starbucks (SBUX) offers T-Mobile WiFi in its UK and US stores. But, the customers have to pay for it after they buy that expensive latte. Free WiFi could save a regular at McDonald’s $20 a month. And, that is a good reason to stay out of Starbucks.

Douglas A. McIntyre

Posted on: October 8, 2007 – 8:10 am in Internet, ,

Invitrogen’s Broader Stem Cell Monitor Kit (IVGN)

Invitrogen Corp. (NASDAQ:IVGN) has announced the launch of a new kit that allows researchers to quickly and reliably monitor the state of human embryonic stem cells. The STEMPRO® EZChek™ Multiplex PCR Kit allows scientists to monitor stem cells with one reaction, using fewer sample cells than ever before. The STEMPRO® EZChek™ Kit allows for the analysis of four early differentiation markers using a small sample and a single-tube reaction. Without the kit, researchers need to carry out five separate reactions in five tubes, using many more cells.

Invitrogen is already the leader or one of the leaders with more than $300 million per quarter in revenues in supplying tools and reagents for stem cell research with more than 1,200 products in the related market.  This may be a much broader consolidated test solution, but with a portfolio that wide it may just be another day at the office.

The stock has not seen any noticeable trading pre-market.  Its market cap as of Friday’s $83.90 close was $3.89 Billion, and the 52-week range is $54.70 to $84.14.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 7:46 am in Biotech, , , ,

Noven Fails Phase III Lithium Study (NOVN)

Noven Pharmaceuticals, Inc. (NASDAQ:NOVN) today announced that a Phase 3 clinical study of its developmental once-daily lithium carbonate product did not meet its primary endpoint with statistical significance (p-value ≤ 0.15) in the treatment of acute symptoms of mania in subjects with Bipolar I disorder.

Approximately 240 subjects were randomized and the primary objectives of the four-week study were to determine the efficacy and safety of Lithium QD compared to placebo.

The company is analyzing the data to determine why statistical efficacy was not achieved and it says it continues to believe that Lithium QD has the potential to be a valuable once-daily option in the lithium therapy category.  Noven also said it remains committed to the continued development of this important product and it plans to complete analysis of the data and consult with the FDA regarding appropriate next steps to advance development.

Noven said that Lithium QD is subject to U.S. patents that extend to 2022 and may also benefit from three years of exclusivity under the Hatch-Waxman Act as there are currently there are no FDA-approved once-daily lithium products on the market. The current U.S. market for lithium products, calculated at branded prices, is estimated to exceed $400 million annually.

Shares of Noven are halted in early pre-market activity and currently set to re-open at 8:35 AM EST.  Shares closed relatively flat on Friday at $16.69 and the 52-week trading range is $14.99 to $27.80.  Its market cap was $414 million, it has generated over $15 million per quarter in revenues, is expected to now post over $20 million in quarterly revenues, and is currently profitable.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 7:23 am in Biotech, , , ,

Pre-Market Stock News (October 8, 2007)

(AGN) Allergan noted positively by Cramer on MAD MONEY.
(ALNY) Alnylam Pharma presented non-human primate data with an RNAi therapeutic targeting PCSK9 showing significant and durable reductions in cholesterol levels.
(BNI) Burlington Northern had more shares bought by Warren Buffett’s Berkshire Hathaway.
(BOBJ) Buisness Objects being acquired by SAP for $59.35, about a 17% premium; BOBJ also lowered guidance.
(CAH) Cardinal Health noted positively in Barron’s.
(DRV) DebtResolve said $1.3 Billion was placed into its system in Q3.
(HEPH) Hollis-Eden Pharma presented positive data demonstrating HE3286 provides a benefit in animal model of ulcerative colitis.
(HRAY) Hurray Holding will spin off its software and system integration business.
(ISIS) ISIS Pharma predicted lower loss guidance from a $40 million loss to a $20 million loss.
(JOE) St. Joe will accelerate value creation and a restructuring.
(MASI) Masimo was an overlooked IPO from the summer according to Cramer.
(NGPS) NovaTel is being acquired by Hexagon AB for $50 per share.
(OMG) OM Group is buying the electronics businesses from Rockwood Holdings.
(PAYX) Paychex noted positively as growth and shareholder reward in Barron’s.
(QDEL) Quidel announced that a large study released during the poster sessions at the Infectious Diseases Society of America supported rapid diagnostic testing for influenza and RSV.
(ROC) Rockwood Holdings is selling its electronics businesses to OM Group for roughly $265 million.
(SFUN) Saifun Semi being acquired by Spansion (SPSN) for $11.26 per share.
(STS) Supreme Industries was awarded a US State Department contract for armored vehicles.
(TASR) Taser said that it won follow-on orders from Cleveland and Jacksonville police departments.
(UIC) United Industrial being acquired by Textron (TXT) for $81.00 per share.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 7:08 am in Pre-Market Activity

Pre-Market Analyst Calls (October 8, 2007)

ALL cut to Mkt Perform at Wachovia.
ASML cut to Mkt Perform at FBR.
BEAS Cut to Neutral at UBS.
BECN cut to Mkt Perform at Piper Jaffray.
BOBJ cut to Neutral at RWBaird.
CHIC cut to Mkt Perform at Wachovia.
CMG cut to Neutral at RWBaird.
CNP raised to Outperform at CRdit Suisse.
CS cut to Neutral at Merrill Lynch.
CTRN cut to Mkt Perform at Wachovia.
DDE raised to Buy at Jefferies.
EXPE cut to Hold at Citigroup.
G started as Neutral at UBS.
GTIV started as Outperform at Wachovia.
HES cut to Mkt Perform at FBR.
HIRE raised to Outperform at RWBaird.
KLAC cut to Mkt Perform at FBR.
LEH raised to Outperform at Credit Suisse.
MER cut to Neutral at JPMorgan.
MER cut to Neutral at Credit Suisse.
NBR cut to Neutral at Merrill Lynch.
OXY cut to Underperform at FBR.
PVTB cut to Neutral at JPMorgan.
PG cut to Neutral at Sun Trust.
PGR cut to Underperform at Wachovia.
RTEC cut to Mkt Perform at FBR.
SAY started as Neutral at B of A.
SOV cut to Underperform at FBR.
TLB cut to Underperform at FBR.
UBS raised to Buy at Merrill Lynch.
ZZ cut to Neutral at B of A.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 6:43 am in Analyst Calls

Microsoft (MSFT) Adds Social Network Feature To Zune

Not wanting to be bested in features by Apple’s (AAPL) iPod, although it may always be bested in sales, Microsoft’s (MSFT) Zune has introduced a social network feature to the multimedia player.

According to Reuters, Zune Social "will automatically list songs that Zune users have most recently played, allow members to customize their own list of favorite artists and enable visitors to stream full versions of each song. Additionally, each Zune Social profile (called a Zune Card) can be added, much like a widget, to other social network sites, blogs and Web sites."

With the iPod’s mightly lead in the market, it probably will not matter.

Douglas A.McIntyre

Posted on: October 8, 2007 – 5:56 am in Consumer Electronics, ,

Europe Markets 10/8/2007

Markets in Europe were off slightly at 6.45 AM New York time.

The FTSE fell .1% to 6,587. HSBC (HBC) was down 1.6% to 946. Northern Rock was up 9.8% to 174.1.

The DAXX fell .1% to 7,996. Deutsche Bank (DB) was down 1% to 94.6. SAP (SAP) was down 4.9% to 39.6.

The CAC 40 dropped a fraction to 5,843. Cap Gemini was up 3.3% to 46.22.

Data from Reuters

Douglas A. McIntyre

Posted on: October 8, 2007 – 5:50 am in International Markets, ,