This week is a jam-packed list full of the Unusual Suspects. We have many earnings reports, enough that we had to screen out some, and we have many issues to watch for news, charts, and coming developments to watch. This week’s list of Unusual Suspects is Adobe Systems Inc. (NYSE: ADBE), Aixtron Aktiengesellschaft (NASDAQ: AIXG), GameStop Corp. (NYSE: GME), Hasbro Inc. (NYSE: HAS), Best Buy Co. Inc. (NYSE: BBY), Ciena Corp. (NASDAQ: CIEN), Lions Gate Entertainment Corp. (NYSE: LGF), Oracle Corp. (NASDAQ: ORCL), OSI Pharmaceuticals Inc. (NASDAQ: OSIP), Palm, Inc. (NASDAQ: PALM), Somaxon Pharmaceuticals Inc. (NASDAQ: SOMX), Teva Pharmaceutical Industries Limited (NASDAQ: TEVA), and Tiffany & Co. (NYSE: TIF).
In this issue you will see detailed previews, coming expectations. relevant price and trading ranges, chart data, and other color for each situation where applicable.
Adobe Systems Inc. (NYSE: ADBE) is set to report earnings Tuesday afternoon, and because of its recent Omniture acquisition we would note that analysts often get their estimates wrong for a couple quarters during a merger. Thomson Reuters has estimates of $0.37 EPS and $827.4 million revenues. For the quarter ahead, those estimates are $0.41 EPS and $858.62 million in revenues. At $34.67 it has a 52-week trading range of $20.39 to $38.20. At about 17.8-times a blended 2010 to 2011 forward earnings the multiple here is one to watch.
Aixtron Aktiengesellschaft (NASDAQ: AIXG), a LED stock (German chip gear maker of deposition systems based on compound, silicon or organic semiconductor materials) which saw nearly a 400% move last year, was the #1 spot on the IBD 100 from Investor’s Business Daily this weekend. This is despite a 2.9% drop on Friday to $33.70. The 52-week trading range is $4.79 to $38.34 and this one trades about 461,000 shares per day. Frankly, this is an odd choice considering a ‘gap and crap’ pattern and considering a three-day losing streak. My quick take is that the stock broke under a near term support level and it looks like it will take a strong market for the stock to bounce. We’ll see, it is IBD and they have done this for some time. Next support level looks to be around $32.90.
Barron’s has two gaming and entertainment picks, GameStop Corp. (NYSE: GME) and Hasbro Inc. (NYSE: HAS). GameStop was given an article in Barron’s this weekend calling for the potential of a 40% upside. The notion was that the used video game is a “lucrative used-video game business gives it an important buttress against competitive big-box retailers.” GameStop saw its shares rise from under $20 to over $21 on earnings this week. On Hasbro, Barron’s says, “The maker of iconic toys and games is transforming itself into a global powerhouse with shrewd use of media new and old.” It noted a Needham analyst who recently downgraded the stock as still having a $45 target, which would be just over 19% upside from Friday’s close.
Best Buy Co. Inc. (NYSE: BBY) is set to report earnings early Wednesday morning. An issue to watch is whether consumers are buying lower-priced PCs and flat-panel TVs. Thomson Reuters has estimates at $1.79 EPS and $16.05 billion revenues. For the quarter ahead, those estimates are $0.48 EPS and $10.85 billion in revenues. This is also the year-end and Best Buy reaffirmed a $3.00 to $3.15 range of annual earnings. For whatever it is worth, it might also be worth a look into how much the ‘warranty business’ affected. At $40.99, the 52-week range is $31.25 to $45.55.
Ciena Corp. (NASDAQ: CIEN) has announced on Friday that it has formally completed its acquisition of the optical and carrier ethernet assets of Nortel’s ‘Metro Ethernet Networks’ operations for $773.8 million (subject to probable downward adjustment of $62 million). The company recently completed a $375 million convertible note offering (with a $20.38 per share implied conversion) to help finance the deal. Ciena got AT&T, C&W, TELUS, EMC, and others to comment on the deal as a sign of endorsement in its “we closed the deal” press release. Ciena took a lot of heat over doing this deal as it was deemed too large by many and its stock fell from $13 to under $11 in very short order. Shares are now at $14.93 and despite a 3-day consecutive drop its chart still looks OK and above support around $14.60.
Lions Gate Entertainment Corp. (NYSE: LGF) is now the subject of an assault, from Carl Icahn for the rest of the shares he does not own. His $6.00 tender is a hostile bid. While the board of directors said they would “review Mr. Icahn’s revised offer and will make its recommendation to shareholders promptly,” the company has been far from eager to sell here and at $6.00 I will be the first to point out that the board will have many shareholders up in arms over this deal at that price. That is even at the risk of a lower price. Its $6.03 price compares to under $5.00 back in late-January. This opened at $6.24 and had a high print of $6.32, but then there was a classic gap & crap chart pattern which took the stock back under $6.00 briefly. The 52-week range is $4.41 to $7.29; and the old historic trading range on Lions Gate was $8 to $12 from 2005 to 2008. To add one more facet, Barron’s this weekend wrote “Lions Gate Not a Roaring Buy Despite Icahn Bid.” Stay tuned.
Oracle Corp. (NASDAQ: ORCL) is on deck for earnings on Thursday afternoon, and as goes Oracle as goes Cisco Corporation (NASDAQ: CSCO) due to the same form of enterprise spending despite the notion that these are in separate categories. Oracle’s stock is within about 3% of its 52-week and multi-year highs. Thomson Reuters has estimates of $0.38 EPS and $6.36 billion in revenues; and those estimates are $0.53 EPS and $9.56 billion in revenues for the quarter we are currently in. As a reminder, the discrepancy over the figures for the last quarter versus next quarter is the addition of the Sun Microsystems acquisition and we have note that analysts often get their numbers wrong in transition periods of a merger. If you blend the Fiscal 2010 and 2011 (May-end), Oracle trades at 14.35-times forward earnings per share. Not expensive, not dirt cheap.
OSI Pharmaceuticals Inc. (NASDAQ: OSIP) only had one small losing day this last week and shares kept putting in new higher-highs. The company is turning on its press machines in order to help either fend off the Astellas hostile offer for $52.00 per share or to get a higher bid from a rival. With shares trading at $58.94 and seeing a Friday high of $59.50, what is your guess about getting a higher price or not? This week may be too soon for a rival to make a bid, but the writing is on the wall. Using the April 2010 options generates an implied expectation that OSI will go for $61 or higher, although this process may take longer than a month. Keep this one your radar because this was a $37.00 stock before the Astellas $52.00 per share cash offer was made public.
Palm, Inc. (NASDAQ: PALM) is one investors have to keep on their watch lists this week. After earnings it did not just break $5.00. It got worse. And it traded 125 million shares or so in the process. My options pick at Optionszone.com on Palm was “the PALM May 5 Puts at 40 cents” on March 4 as the way to bet for much further downside. At a $1.48 close-out on Friday, that seems a hell of a return. One analyst at Canaccord Adams this week gave Palm a ZERO value. Frankly, Palm will never see ZERO. It will be taken over before then. Just keep in mind that Palm may be a “takeunder” rather than a takeover. Palm is one to watch this coming week based on the new $4.00 price and notion that it went as low as $3.96. I actually went back to my Palm Treo after deciding that I hated the Droid phone and I have no problem with the Palm phones. But business is business, and the public is going for different smart phones. Elevation Partners said it is in support of Palm, but the group probably isn’t too happy with co-investor Bono for having a U2 song and video for a Blackberry commercial from Rival Research in Motion Ltd. (NASDAQ: RIMM). Ouch! Traders smell blood here.
Somaxon Pharmaceuticals Inc. (NASDAQ: SOMX) soared this week after the FDA approved its Silenor as the only treatment of insomnia treatment without all the awful side-effects or “sleep-action” effects like sleep-walking, sleep-eating, sleep-driving, and another rather humorous episode I have been told about that is not suitable for writing about in a financial setting. It also is supposed to exhibits no addiction issues. Before the FDA approval, this was a $4.00 stock. It ran to almost $10 before closing at $9.21 on Thursday on a whopping 47 million shares. Shares then made a second run on Friday with a $9.65 open and a rapid run to over $10.00 before the major selling and major profit taking came into play; and despite trying a mid-afternoon recovery the stock closed only 5 cents above its intra-day lows for an $8.25 close. On a short-term basis, this is what a cocktail napkin chartist would call a drunkard as it can easily rise and easily fall on no news or on those pesky minute-charts. Still this is one to watch next week as the dust settles because it has a small market cap of only $195 million. We compared this to two of the top 100 drugs by name of the top 100 selling drugs out there and there is a huge opportunity for Somaxon. We’ll let the dust settle this week, but there is a large opportunity here for this company and there are effectively no recent analyst calls on it.
Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) deserves some kudos here. How many acquirers see their shares rise when they make a fairly large acquisition? The answer is ‘some, but not most.’ Teva paid roughly $5 billion for German generic drug maker as it outbid Pfizer Inc. (NYSE: PFE) to keep its grab on generics and to focus on higher growth markets in Europe. Its shares did not just rise on Thursday when it was announced, but its shares also rose on Friday when all of the major US index readings finally closed in the red and when the AMEX PHARMACEUTICAL INDEX (DRG) closed down 0.4%. In fact, it was the second best performer behind Amgen, Inc. (NASDAQ: AMGN) on the AMEX PHARMACEUTICAL INDEX on Friday. Our take is that it may take a while to get there, but Teva seems on track for ambitions of a mega-cap status ($100 billion) versus $55.7 billion today.
Tiffany & Co. (NYSE: TIF) is up for earnings on Monday and this will be a true ‘tell’ potentially for what lies ahead for the US and international luxury markets. Buffett would have ended up being better off as a common holder rather than a creditor per his 2009 investment, but that was made at a time when being a creditor offered more protection. Thomson Reuters has estimates of $1.13 EPS and $970.93 million revenues. For the quarter ahead, those estimates are $0.31 EPS and $585.91 million in revenues. With shares at $47.25, the 52-week range is $19.97 to $48.38. With Fiscal Jan-2011 estimates at $2.43 EPS this one trades at 19.4-times forward earnings. The company needs to raise guidance by my take even above what it already gave to hold this share price.
Then there are several other issues to watch in the coming week. There is the pending healthcare vote, and then the immediate call from President Obama to get financial reform passed right behind it. Stay tuned, there is a lot coming down the pipe.
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JON C. OGG