Daily Archives: February 6, 2008

ISP Earnings Preview: Earthlink Vs. United (ELNK, UNTD, TWX)

Thursday is going to be an interesting earnings day if you follow the few independent Internet Service Providers (ISP’s).  EarthLink, Inc. (NASDAQ: ELNK) and United Online Inc. (NASDAQ: UNTD) both report earnings on Thursday, and these results may end up being closely watched by Jeff Bewkes of Time Warner inc. (NYSE: TWX) for some rather obvious reasons.

In the early morning we’ll get to see earnings out of EarthLink Inc. (NASDAQ: ELNK).  The estimates from First Call for the Internet access and communication provider are $0.15 EPS on $280.96 million in revenues, but be advised that the estimates vary greatly. Next quarter estimates are $0.21 EPS and $290.17 million in revenues, and fiscal 2008 estimates are $1.01 EPS on $ 1.07 billion in revenues.  Analysts have an average price target of north of $9.00.  At its last earnings, EarthLink gave a fiscal free cash flow target of $200 to $240 million, although it has more restructuring than analysts can agree on.  It listed the following for subscribers as of last quarter: narrowband at 2.856M and broadband at 1.093M for as total of 3.949M consumer subscribers.  For business customers it listed the following: 30,000 narrowband businesses, 68,000 broadband businesses, and 104,000 web hosting accounts for a total of 202,000 business accounts.  These numbers have shrunk in EVERY SINGLE CATEGORY.  Shares closed down about 1.2% to $6.67 on Wednesday and the stock’s 52-week trading range is $5.90 to $8.36.  Its market cap is $802 million.

On Thursday afternoon we’ll get to see earnings out of United Online Inc. (NASDAQ: UNTD). The estimates from First Call for the internet provider are $0.30 EPS on $127.82 million in revenues, although this one is very thinly followed by analysts and there are discrepancies on estimates beyond this quarter.  Estimates for fiscal 2008 are $1.10 EPS on $508.10 million in revenues.  It appears that analysts still have an average price target of $17.00, although we would again urge caution in trusting our number or anyone else’s on these.  The biggest problem here is that after its failed Classmates.com IPO got pulled, United has lost its mojo.  Unlike most Internet stocks, this actually has a decent dividend $0.20 each quarter. Its communications unit, or the ISP of NetZero and Juno listed that last quarter paying accounts had declined some 134,000 to 2.2 million; and this one is now harder to value directly compared because its content/media revenues were roughly two-thirds of the size of the Communications/ISP unit.  United Online closed up 1.5% at $10.87 on Wednesday, and its 52-week trading range is $9.55 to $17.97.  Its market cap is $735 million.

We have covered both of these in our Special Situation subscriber letter, and both are routinely screened for our weekly "10 Stocks under $10" subscriber letter.  In fact, both of these fit in our "small cap internet watch list" for companies that we think will ultimately either be acquired or will merge up under the right circumstances.  While these businesses are declining, there is actually some value here for the right financial asset buyer.  In a slowing economy it is even possible that a portion of those who prefer the more expensive broadband triple play packages from cable or the telecoms might not have a choice BUT to go back.  That may be heresy to some, but it is possible.

But we’d like to take a walk on Hypothetical Lane here.  If you are Jeff Bewkes at Time Warner inc. (NYSE: TWX) and want divest the rest of the legacy AOL Internet access business, you’d probably be watching these two reports quite closely. The TWX earnings call transcript from Blogging Stocks is here. This will derive an implied market value per subscriber on a discounted basis.  Based upon what you see there you would begin to work these numbers backwards.  How many independent broadband and narrowband ISP’s with large customer bases does the U.S. need with all the Internet access choices out there?  Under the right circumstances and a little creativity you might even be able to imagine a business threesome.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 10:38 pm in Earnings, Internet, , ,

Motorola’s Best Strategy: Getting Icahn To Buy More (MOT)

Carl Icahn has disclosed in an 13D SEC FILING that he boosted his share ownership in Motorola Inc. (NYSE: MOT).  Icahn indicated his ownership of the stake in a notice to nominate four directors to the board sent last week, and he noted that shares are undervalued and that he intends to seek further conversations with the company.  It appears that Icahn now holds some 114.2891 Million shares of Motorola stock, which is now roughly 5% of the common stock.

Icahn is a very smart and influential investor.  But it may take more than forcing a share buyback and a cell phone business auction to make this stock turn around.  That is why we listed this as one of the top stocks that may disappear this year.

Motorola shares are up about 1% to $11.60 in after-hours trading, which is actually more than 20% higher than the 52-week lows of $9.43 seen recently.  Frankly, if John Chambers & Co. wasn’t such a better competitor and if they hadn’t guided lower on tonight’s Cisco conference call these shares might be up more than this.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 6:07 pm in Activist Investor, Technology Companies, ,

Delta (DAL) And Northwest (NWA) Get Urge To Marry

Northwest (NYSE: NWA) and Delta (NYSE: DAL) are getting very close to announcing a merger. According to the FT "the airlines may clinch the landmark accord as early as mid-February, the people said, though they cautioned that negotiations may still stall or even collapse."

While merging airlines in periods of high fuel costs and a tight economy may make some sense, the savings are probably overrated. Customers service and other back office jobs can be cut, but knocking down flght crew expenses often leads to serious and disruptive labor disputes.

There is no solid evidence that the mess which always results from putting together two airlines drives customers away.But, poor reservations service and badly run ground operations don’t bind the passergers to the carrier.

The merger may save some money but it almost always hurts customer affairs.

Douglas A. McIntyre

Read More »

Posted on: February 6, 2008 – 5:55 pm in Airlines, ,

Chambers’ Conference Call Commentary… Cisco Guidance Soft (CSCO)

Cisco Systems, Inc. (NASDAQ: CSCO) did give guidance in the conference call, and the shares got whacked over a less confident in near-term visibility and a weak January that is expected to last for several months. 

Below are some of the guts of Chambers’ paraphrased comments:
"Despite macroeconomic changes, we remain comfortable with long-term growth projections…. Long term 12-17% yr/yr, but at risk of stating the obvious there may be times that the growth will be above and below…… US is experiencing challenges… we are seeing US and EU customers remaining cautious….. product order growth was in low-teens…. orders were strong in December but January growth was lower than expected and was challenging… because of environment forecasting next quarter is EXTREMELY challenging…. due to caution from peers and customers and the company assumes that January’s growth rates may continue over next several months…. Shares now DOWN 5% at $21.89…. We believe strategy is right on target…. our best estimate is that this is a relatively short term challenge….  Q3 2008 REVENUE GUIDANCE is 10% year over year growth, (or otherwise 10% higher than $8.866 Billion to generate a guidance of $9.75 Billion)….. Unfortunately that is well under the $10.2 Billion FIRST CALL estimate……." -end of Chambers-

ON LAST LOOK CISCO SYSTEMS STOCK WAS DOWN SOME 7.6% to $21.31 at 4:56 PM EST.  That will mnark a new 52-week low if the stock is static in the morning.  The 52-week trading range is $22.30 to $34.24.

247WALLST.COM EARNINGS RELEASE:
Cisco Systems, Inc. (NASDAQ: CSCO) $0.38 non-GAAP EPS on revenues of $9.83 Billion.  First Call had estimates of $0.38 EPS and $9.79 billion in revenues. Net earnings after charges were $0.33.    Chambers noted: "As we enter the second half of the fiscal year, our innovation pipeline is in excellent shape, our balanced product momentum across core and advanced technologies continues to be solid, and execution against our long-term strategy remains unwavering. This constant evolution of moving into new markets and product adjacencies, alongside our core operational and financial strength, is the hallmark of Cisco’s ability to act upon key market transitions."

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 5:06 pm in Earnings, Technology Companies, , ,

Akamai Up After Earnings, Guidance Coming Shortly (AKAM)

Akamai Technologies Inc. (NASDAQ: AKAM) has just posted normalized earnings of $0.41 EPS on revenues of $183.2 million.  First Call had estimates of $0.37 EPS and $174.61 million in revenues. Estimates for the next quarter are $0.38 EPS and $183.04 million in revenues. Estimates for fiscal 2008 are $1.65 EPS and $803.93 million in revenues.

Full-year cash from operations was $235.4 million, and at year-end Akamai had approximately $633.5 million of cash and equivalents on hand.

Akamai also noted that it added 29 customers to end with 2,645 customers; a 13% annual gain.  Sales through resellers were 16% of quarterly revenues and sales outside the U.S. accounted for 23% of quarterly sales.

Unfortunately, we got no formal guidance.  That is OK though, we’ll be getting to ask the CEO Paul Sagan some questions directly at 5:30 PM EST today.  Stay tuned.

Shares closed down 0.7% at $29.73 in regular trading today, and after the report shares were just trading up 5% at $31.25 in after-hours trading activity.   The 52-week trading range is $25.06 to $59.69.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 4:32 pm in Earnings, Internet, Technology Companies,

Cisco Meets, But Mum on Guidance (CSCO)

Cisco Systems, Inc. (NASDAQ: CSCO) has just posted earnings of $0.38 non-GAAP EPS on revenues of $9.83 Billion.  First Call had estimates of $0.38 EPS and $9.79 billion in revenues. Net earnings after charges were $0.33, but Wall Street is still using that $0.38 numbers. 

The company did not offer guidance, but Chambers will likely issue that in his conference call.  Next quarter estimates are $0.39 EPS and $10.2 billion in revenues. Estimates for fiscal year July 2008 are $1.59 and $40.34 billion in revenues.

Chambers noted: "As we enter the second half of the fiscal year, our innovation pipeline is in excellent shape, our balanced product momentum across core and advanced technologies continues to be solid, and execution against our long-term strategy remains unwavering. This constant evolution of moving into new markets and product adjacencies, alongside our core operational and financial strength, is the hallmark of Cisco’s ability to act upon key market transitions."  Unfortunately, this doesn’t offer any real meat for traders to hang their hats on either way.

Shares closed down 0.7% at $23.08 in regular trading and after the report shares were just trading  down marginally at $23.00in after-hours trading activity.  The 52-week trading range is $22.30 to $34.24.

We had already noted whether or not this one was way oversold before, and after today it looks like traders are holding off for that eagerly-anticipated guidance.  Until then, this is VERY incomplete reporting.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 4:14 pm in Earnings,

More Bad News At Macy’s, But Still Not At Lows (M)

Macy’s Inc. (NYSE: M) is seeing shares hold up better than you’d imagine if you would have gotten to see the news last week or even yesterday.  Traders are still reacting to headline news rather than addressing the current environment and trying to figure out how much bad news should already be priced into stocks as we enter a recession.

For starters, the huge department store’s same-store-sales came in down at -7.1%.  Because of the one-week differential, its total sales were down over 28% to $1.275 Billion.  But this 7.1% drop is even worse than its prior -4% to -6% range it had offered.  Macy’s also gave total quarterly sales of -2% at $8.597 Billion, although it had previously given a prior range of -2% to +1%. It has lowered guidance now to where it expects fourth quarter EPS in a $1.75 to $1.80 range, excluding merger costs of $70 million.  First Call had estimates at $1.71 EPS and $8.76 Billion in revenues.

Simultaneously, macy’s announced it would consolidate three divisions to reduce expenses and accelerate same store sales.  It will take $150 million in charges in 2008, but it will reduce SG&A by about $100 million.  Besides management changes, the company will be able to trim about 2,300 jobs.

We’ve already seen the company announce store closures, and back then we noted that there would be more changes coming.  This might not be the end of that, although it is obvious Macy’s is trying to reel in its cost structure.  Macy’s did fall as much as 6% before correcting itself.  We see sharesdown about 3% at $24.30 today.  The 52-week trading range is $20.94 to$46.70.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 3:25 pm in Retail, ,

SPAC IPO FILING: Apple Creek, Backed By Tricadia (AKU)

Apple Creek Acquisition Corp. is a special purpose acquisition company, or a SPAC, that has filed to come public.  For filing purposes it lists that it intends to sell up to 25.875 million units for a maximum proposed amount of $258.75 million.  The actual IPO filing is for 22.5 million units at a traditional price of $10 per unit, with each unit holding 1 share of common stock and 1 warrant with a $7.50 strike price.  The company will list units on the American Stock Exchange under the ticker "AKU" after it begins trading.  J.P.Morgan is listed as the lead underwriter and Ladenburg Thalmann is also in the underwriting.

This blank check company was formed November 28, 2007, and like all SPAC’’s it has no operations currently.  While this says that it is not limited to any specific sector, the company said in the filing that it intends to focus on on acquiring an operating business in the alternative asset management sector or a similar business.  The company has a different filing than many as it has the right of first review with a company:

  • We have entered into a business opportunity right of first review agreement with Tricadia Capital, which provides that from the effective date of the registration statement of which this prospectus forms a part until the earlier of the filing by us of a current report on Form 8-K with the SEC announcing the execution of a definitive agreement for our initial business combination, or our liquidation, we will have a right of first review with respect to business combination opportunities of Tricadia Capital with a fair market value of $177 million or more that Tricadia Capital, including its principals and employees, first becomes aware of after the effective date. Tricadia Capital will first offer any such business opportunity to us (subject to fiduciary obligations it has to its clients as a registered investment advisor) and will not, and will cause each fund and other investment vehicle managed or advised by Tricadia Capital not to, pursue such business opportunity unless and until our board of directors has determined for any reason that we will not pursue such opportunity.

Apple Creek’s management team will be made up of five senior managers of Tricadia Capital (the managing member of our founding stockholder) with an average, 20 years of experience in the fields of credit analysis and trading, leveraged loans, capital markets, risk management, structured products, and special situation investing.  The following Tricadia officers are managing this SPAC: 

  • Chairman & Co-CEO, Michael Barnes;
  • Co-CEO & Director, Arif Inayatullah;
  • COO is Geoffrey Kauffman;
  • Executive Vice President is John McCormick;
  • CFO is Julia Wyatt.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 2:19 pm in IPOs, , , , ,

Yang Leaves Buyout Doors Open (YHOO, MSFT, GOOG)

There was a rather odd email that went out to Yahoo! (NASDAQ: YHOO) employees today from Jerry Yang, CEO.  Here is the full link at the SEC website and you’ll notice that this email was sent out in all lower case letters.

Yang noted that the current developments from the Microsoft (NASDAQ: MSFT) buyout offer as "we won’t let it distract us from pursuing our transformation strategy…. as we’ve said, no decisions have been made about Microsoft’s proposal. our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape. and we’ve hired top advisors to assist through the process…. as this process moves forward, we’re going to keep you informed. your hard work and strong commitment are more important now than ever before."

Yang even noted some business as usual, "stay tuned for exciting announcements next week at the mobile world congress."  Most importantly, Yang noted that the board is focused on maximizing value of its assets for shareholders.

So here is what this is, or at least this is my opinion of the matter.  For starters this is a significant development.  Jerry Yang is keeping his options open for the company to go find a new partner or a new buyer.  But he is also acknowledging that he may need to capitulate and surrender to the Microsoft buyout offer.  On its own merit and on its own accord based on today’s environment, Yahoo! cannot expect that it stock is worth $31.00 on its own today.  Maybe it can get there on its own, but last week’s disappointing conference call put the company in for yet another full year of restructuring and another full year of uncertainty for shareholders.  Yahoo! shares were actually expensive on a relative basis to Google (NASDAQ: GOOG), and that is despite the huge weakness in the stock.  Internet companies are still thought of as instruments for growth.  Conducting large layoffs to go for earnings enhancements is more representative of a maturing business that has to be measured exactly the same as more traditional companies in a manner that is no different than mining companies, manufacturing companies, and diversified conglomerates.

Jerry Yang is keeping the door open so he doesn’t assure that the buyout gets killed.  Whether a CEO wants to fight it out and try to stay independent or not usually will take backseat to billions of dollars for shareholders.  That is particularly true if management has significant stakes and has an opportunity for a nice golden parachute.  Now the companies have to determine how they’ll work with regulators.  We still expect Yahoo! stock to trade around the headlines of its merger for the time being.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 1:06 pm in Internet, Mergers and Buy Outs, , ,

Another Billion Fund Goes Further Into Distressed Investing

Octavian Advisors, LP, a global alternative investment management firm managing over $1 Billon in assets, has hired Arif Gangat as Managing Director and Oscar Mockridge as Director to focus on international distressed debt investments.  This will be for investing in distressed debt outside of the United States, so it won’t be another distressed debt vulture buying up distressed paper inside the U.S.

CEO Richard Hurowitz believes that Octavian’s unique investing techniques amid the current turmoil in world-wide markets provide a unique opportunity on which these hires can capitalize with their expertise and experience.

  • Previously, Mr. Gangat directed distressed debt and special situation equity investments at Southpaw Asset Management.
  • Mr. Mockridge is a former Senior Vice President of the distressed debt and special situations division at Halcyon Asset Management and a former Senior Vice President for the financial restructuring group at Houlihan Lokey Howard & Zukin.

We are seeing more and more interest in funds going out now acting as opportunistic vulture investors.   We noted how Annaly and Chimera have a vulture and value approach for investors.

If you read through enough business history and have the power of a few billion dollars here and there, you’ll understand why. In fact, if you have the luxury of taking a very long-term outlook and don’t even watch the market on a short-term basis, you might wonder if short term trends even matter.  Take a look at our "anniversary of the crash" article.  Times are changing and markets have matured greatly since then, but you can look at the lessons of looking at distressed large companies. 

Rachel Lopez
February 6, 2008

Posted on: February 6, 2008 – 12:50 pm in Financial Stocks, Value Investing, , , , , ,

Cisco Systems Earnings Playbook: Make Or Break Quarter (CSCO)

After the close of trading we’ll get to see earnings out of Cisco Systems, Inc. (NYSE: CSCO). The estimates from First Call for the networking giant are $0.38 EPS on $9.79 billion in revenues.  Estimates for the coming quarter are $0.39 EPS and $10.2 billion in revenues, and estimates for fiscal July 2008 are $1.59 EPS on $40.34 billion in revenues.

If options traders were using current prices we would think that traders are only pricing in a move of $0.57 to $0.69 in either direction. We would caution that with high volatility and with earnings today this just seems far off and doesn’t seem like enough of a potential move based on a past post-earnings move and based on its performance since last earnings.  The chart on this one has been a steady ladder down since last earnings.  About the only good news that could be said is that the chart has used $22.30 as intraday support twice during the selling peak and its low closes are around today’s prices before the slight gains.  Analysts still have an average price target north of $34.00, which is now almost 50% higher than today’s prices after the huge sell-off from last quarter. 

Today is going to all be about guidance and Chambers’ stance on how he sees enterprise spending in 2008.  We already know that financial service companies are not going to have grown, although last quarter Wall Street was somehow surprised that financial firms weren’t adding routers and networking equipment while they were laying people and trying to stay afloat until a government sponsored recovery package would give them a future.  But much interest will be given to how Chambers sees international spending from both Europe and from the key emerging markets in the BRIC countries.

We expect much discussion to continue around Telepresence and for the Web 2.0 build-out opportunities. But traders have so far been using every opportunity to sell shares lower.  We feel shares have been oversold considerably, but what we think isn’t the issue.  Traders are still reacting to most "new news" merely on the headlines and they are not pricing in anything that would support efficient market theory.  If Chambers comes out very strong and the numbers ahead are not lower then we’d expect a serious relief rally.  But if Chambers comes out cautious and notes a substantial slowdown growing then we’d be in the camp that this huge sell-off already seen won’t be taken into consideration.  In our first preview we noted how this was getting down to levels where both Value Investing managers and GARP managers would have to start paying interest.  Now the question is if those prior estimates are anywhere close to reality.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 12:36 pm in Earnings, Technology Companies,

Circuit City’s Surpise Huge Jump In Credit Facility (CC)

Circuit City Stores, Inc. (NYSE: CC) has an interesting filing this morning, and we are frankly surprised about it.  If there is one technology retailer that has screwed up its operations and that has a CEO that needs to go, it is Circuit City.

But this filing shows that maybe some larger lenders still believe in the beleaguered tech retailer.  On January 31, 2008, Circuit City entered into a second amended and restated credit agreement.  The banks named in the agreement are Bank of America, as administrative agent and collateral  agent; Banc of America  Securities,  LLC, as lead arranger and joint bookrunner, Bank of America, N.A., as Canadian administrative agent and Canadian collateral agent.  Wells Fargo was listed as syndication  agent and joint bookrunner.  GE Capital Corporation and JPMorgan Chase are listed as co-documentation  agents.  Wachovia was listed as senior managing agent. 

This credit agreement amends and replaces the prior July 8, 2004 agreement that permitted an aggregate borrowing of up to $500 million.  This new Credit Agreement increases borrowing allowances, appoints a new administrative agent and collateral agent, and it extends the expiration date from June 27, 2009 out all the way to January 31, 2013.

This new credit agreement is for up to $1.3 Billion. Of this amount, up to $50 million is available for its InterTAN Canada Ltd.  The aggregate limit also includes a $60 million limit on swingline loans and a $350 million limit on standby and documentary letters of credit and banker’s acceptances.  The credit agreement also provides Circuit City with an option to request an increase in the aggregate borrowings limit in an amount not to exceed $300 million.

This facility, if tapped, will still continue to be secured primarily by its inventory and credit card receivables.  As of February 4, 2008, the dollar amounts outstanding under the credit agreement were listed as approximately $49.7 million.

Shares are not impacted as this is merely a credit facility and not any official capital raise.  But we are still surprised to see an increase of this size.  After this company’s poor financial performance and critical management missteps, and after its horrible financial results, we are surprised it was able to more than double its credit facilities.  If things were going great and if the economy was humming along smoothly, this would otherwise be nothing more than a mere footnote.  It’s hard to know if the company is about to go tap a new round of financing or if it is just lining this up "just in case."  Either way, this was a large enough move to catch our interest.

After the open today, shares are down 1% to $4.84 and the 52-week trading range is $3.47 to $22.02.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 10:23 am in Retail,

Super Tuesday Election Winner: STEM CELLS (STEM, GERN, ASTM, IVGN, KOOL, NBS, OSIR)

Despite not knowing whom the ultimate winner of the 2008 Presidential election will be, it looks like stem cells may be one of the real bright spots as far as which area in biotech will be open for more funding down the road.  If the Democrats win this is a shoe in.  If McCain wins, the current research clamp-downs won’t likely be as stringent in 2009 and beyond as they are today.  If Romney stages a comeback, despite many thinking of him as a religious figure our indications are that he at worst would not be anywhere as tough on the stem cell studies as the current administration.  Public companies such as StemCells Inc. (NASDAQ: STEM), Geron Corporation (NASDAQ: GERN), Aastrom Biosciences, Inc. (NASDAQ: ASTM), and others are going to be watching closely.

If you look at Tradesports.com for the political futures, you can see the Presidential nominee futures right now if you want to make a determination where the actual money bets are going right now.  McCain is priced at $93.00 and Romney is now priced at $1.90, so this would indicate a 92.9% probability of a McCain nomination.  The Democrat race is much closer right now with Tradesports showing a Hillary Clinton nomination with a $54.60 price (down $8.40), and Obama with a $47.40 price (up $8.90).  So the futures are showing a McCain essentially as a shoe-in now, yet the Democrat race is still too close to call.  Guess what, this would be a win-win for stem cell research beyond this year.

Read More »

Posted on: February 6, 2008 – 9:33 am in Biotech, Politics, , , , , , , , , , , , , ,

Icagen Wins On Pfizer Put…. Back From Dead? (ICGN, PFE)

Icagen Inc. (NASDAQ: ICGN) has announced that it has provided notice to exercise its put option with Pfizer Inc. (NYE: PFE).  This is for the private placement of approximately $10 million of Icagen common stock.

the closing date of the transaction is February 13, 2008, and some 5,847,953 shares of common stock will be sold to Pfizer at a price of $1.71 per share.

Icagen said it intends to use the proceeds to fund its R&D programs and for general corporate purposes. This purchase agreement was based upon terms of the collaboration between Icagen and Pfizer that had already been announced.  Icagen has agreed to file a registration statement with the SEC that covers the resale of these shares issued in the private placement.

This is after last month’s announcement that the FDA accepted the company’s investigational new drug application as a potential Asthma treatment.  Subsequently it noted back then that it would begin dosing for Phase Ib clinical trials.

Icagen’s stock used to trade in a $6 to $10 range when it came publicback in 2006, and it saw a severe setback in late 2006 that has keptshares under $2.00 for most of the time since then.  Icagen shares are indicated up some 20% at $2.09 in early pre-market trading.  Its 52-week trading range is $1.20 to $3.09 and its market cap before this pop was only $70 million. 

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 8:50 am in Biotech, , ,

Ralph Lauren Relief (RL)

Polo Ralph Lauren Corp. (NYSE: RL) has posted net income of $113 million, which translates into $1.08 EPS for its Q3-2008.  This is up from its net income of $111 million, or $1.03 EPS, in Q3-2007. Revenues grew 11% to $1.27 Billion.  First Call had estimates at $0.77 EPS on revenues of $1.19 Billion.

Ralph Lauren is also giving 2008 forecasts as there is only one quarter left, but the company is also offering preliminary 2009 targets:

  • For 2008, it sees low double-digit revenue gains, operating margins to decline by approximately 250 basis points, and sees EPS at the lower end of the range of $3.64 to $3.74 compared to a prior expectation of $3.50 to $3.60.  First Call has estimates at $3.47 EPS.
  • For 2009, it projects revenues to increase by a low-to-mid single digit percentages, expects a 38% tax rate, sees roughly 106 million shares outstanding, and is initially setting a range of 2009 EPS at $3.95 to $4.05.  First Call has estimates at $4.31 EPS.

While this is under plan for 2009, this actually is not a major disappointment in the grand scheme of things.  If you are a value manager or a GARP manager, there is ammo for both.  Based on the pre-market price being static, this would generate a current year P/E ratio for 2008 of 16.1 and a forward 2009 P/E ratio of 14.6 at the mid-point of the range.

Shares were initially down on this report, but now shares are indicated slightly higher by 2% at $58.70.  The 52-week trading range is $50.55 to $102.58, so there has already been a full blown market price correction to adjust for a slower growing company here.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 8:28 am in Apparel, Earnings, , ,

Mixed IAC Results; Shares Initially Stung (IACI)

IAC/InteractiveCorp (NASDAQ: IACI) has posted headline EPS $0.46, while First Call had estimates at $0.55.  Total revenues were brought in at $1.86 Billion, versus a $1.83 Billion estimate.  We would note that there appears to be gains and losses in the number.

This sure sounds like the company is saying it will proceed with its original split-up plans rather than try to appease John Malone.  We have this one under review for our Special Situation subscriber letter.  Barry Diller, CEO:

  • "There is good news and bad news this quarter — the mix of which is another reason why our previously announced plans to reorganize IAC into five independent public companies makes more and more sense….. We have begun the year on a satisfactory basis and believe the work we are doing now to prepare each of the entities for separate public life will greatly benefit shareholders in 2008 and beyond."

Diller outlined the bad news areas as lending, catalog, EPI discounts.  On the good side, Diller noted HSN turnaround, record Ticketmaster volume, increased queries rm distributed toolbars, Ask.com, Interval, and Match.

On a separate basis, IAC noted that it has repurchased 6 million shares of common stock at $24.25 per share after this last quarter on January 10, 2008.

The market is not seeming to care about the items in the numbers as shares are indicated down over 6% on thin volume at $22.97.  If that holds this will be a new 52-week low as the 52-week trading range is $23.30 to $40.99.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 8:01 am in Earnings, Entertainment, Internet, Media, ,

Linux Founder Calls Apple (AAPL) OS X “Utter Crap”

The founder of the Linux open source project, Linus Torvalds, said Microsoft’s (NASDAQ: MSFT) Vista operating system weak and full of bugs. But, he left his hardest criticism for Apple’s OS X Leopard.

"(But) OS X in some ways is actually worse than Windows to program for. Their file system is complete and utter crap, which is scary." he told The Sydney Morning Herald and The Inquirer.

Since Linux competes with both systems, he may be biased.

Douglas A. McIntyre

Posted on: February 6, 2008 – 8:01 am in Uncategorized, ,

Top 10 Pre-Market Analyst Calls (CLX, EL, LAMR, RF, TMA, AMT, CCI, EXPE, OWW, PCLN, F, GM)

Here are some of the top individual analyst calls in pre-market trading:

  • Clorox (NYSE: CLX) downgraded to Underweight at Lehman.
  • Estee Lauder (NYSE: EL) raised to Equal-weight at Lehman.
  • Lamar Advertising (NASDAQ: LAMR) started as Buy at Jefferies.
  • Regions Financial (NYSE: RF) downgraded to Sell from Hold at Citigroup.
  • Thornburg Mortgage (NYSE: TMA) raised to Buy from Hold at Jefferies.

Below are some sector calls:

  • COMM. TOWERS: American Tower (NYSE: AMT) & Crown Castle (NYSE: CCI) raised to Buy from Neutral at UBS.
  • ONLINE TRAVEL DOWNGRADES: Expedia (NASDAQ: EXPE) downgraded to Underweight at Morgan Stanley.  Priceline.com (NASDA: PCLN) and Orbitz Worldwide (NYSE: OWW) downgraded to Equal-Weight at Morgan Stanley.  There was an upgrade though, as Credit Suisse raised its Expedia (NASDAQ: EXPE) raised to Outperform from Neutral.
  • US AUTO’s: Ford (NYSE: F) downgraded to Peer Perform from Outperform at Bear Stearns. General Motors (NYSE: GM) downgraded to Underperform at Bear Stearns.

Jon C. Ogg
February 6, 2008

Posted on: February 6, 2008 – 7:35 am in Analyst Calls, , , , , , , , , , , ,

The Biggest Recession In History: A Minority Report

It is a minority opinion, but one held by some astute people. The recession which may hit the US, or has already hit the US, could be the worst in 50 years.

The argument is based on the normal fall-off in housing prices and rising fuel costs, but it adds the factors of "heavy consumer debt, a growing federal budget gap, and rising prices," according to Reuters.

While the number of economists and pundits calling for a recession a mile wide and a mile deep is still fairly small, they can make a compelling case. Fuel prices are likely to stay at their highest levels ever. Demand from China and an unwillingness to push more supply from OPEC are the critical factors here.

Housing defaults could indeed accelerate rapidly. If the economy goes through a job creation slump, out-of-work homeowners are likely to add to the rolls of those who simply have high costs and low incomes.

Consumer debt has been a concern for over a decade. High employment and a rising GDP driven by consumer spending could be a counter-balance. But 18% credit card debt will catch up to people who are not seeing real increases in their incomes and those who do not have jobs at all.

The automotive, retail, newspaper, real estate, and building industries are now done laying people off. In some parts of the economy, that process is only beginning. Cities and states may have to cut employees as the tax base falls.

A three year recession with a 5% GDP fall-off? No longer a position only taken by residents in asylums

Douglas A. McIntyre

Posted on: February 6, 2008 – 6:53 am in Economy

The World’s Safest Stocks Market Sell-Off Edition (VZ)(MO)(ORCL)(MSFT)

When the market drops almost 400 points, investors start to think about 1,000 point drop day. They forget the little run-up the market had over the previous two weeks.

Some of the safest stocks to own are even safer now that they have given up a little on price. They are more likely to have found a bottom than shares which have doubled or tripled over the last two years.

Microsoft (NASD: MSFT) is down to $29. The Vista franchise may falter a bit, but Windows still owns 95% of PC OSs. The company made money last quarter, a lot of it, in every division expect its online operation. Microsoft has over $20 billion in cash. The Yahoo! (NASD: YHOO) buy-out has pushed MSFT shares down but with its huge cashflow from software, that is likely to be temporary.

Oracle (NASD: ORCL) is now the world’s largest supplier of business software.It has been successful in its M&A strategy and management sees no end to its current strong growth. It licenses often extend for several years giving it ongoing earnings power.

Altria (NYSE: MO) is spinning off its international operation. Shareholders will end up owning stock in both companies. Without being tied to US regulations and threats of lawsuits over health issues, the international operation is free to sell coffin nails all over the world. They can make those cigarettes as strong as they would like. Huge cashflow business.

Verizon (NYSE: VZ) Its landline business may be shrinking, but cellular revenue is more than making up for that. New wireless data services should increase operating margins even more. The company has spent most of its capex over the last two years on new fiber-to-the-home for 18 million customers. Now Verizon gets to take the ROI on all of that investment capital. Indications are that cable customer have begun moving to the firm’s fiber offerings.

Douglas A. McIntyre

Posted on: February 6, 2008 – 6:33 am in Defensive Stocks, , , ,