Why would a buyer look now?  It is currently priced in its stock at only 3.6-times free cash flow and that is the cheapest valuation out of retail stocks valued at more than $1 billion.  Its current expected P/E ratio is also under 8 and if it makes the consensus target for the year ahead it trades at barely 6-times expected earnings.

There are many problems here, some of which are the same that have faced GameStop Corporation (NYSE: GME).  While GameStop is a video game play, it too has been bantered around as a potential private equity takeover name in the past with equally cheap valuations.

The real thorn in Best Buy’s side is that many buyers now go to Wal-Mart Stores Inc. (NYSE: WMT) and the young crowd goes through Amazon.com Inc. (NASDAQ: AMZN) and a myriad of other online retailers.  While Best Buy now offers online sales from it and other merchants, Amazon and others just got too big of a jump.
Bloomberg went on to note, “Best Buy can still enrich leveraged buyout firms after generating $2.44 billion in free cash in the past year, Telsey Advisory Group and Morningstar Inc. said. The $8.14 billion company could get at least $37 a share in a takeover, according to Thornburg Investment Management, 59 percent more than its price yesterday.”

Before you rush to call this one a private equity buyout target hopeful that will definitely come to fruition, Best Buy may have to face even more pain before the company would agree to a buyout.  After closing at $23.23 on Wednesday its shares are not even indicated higher.   Today’s reporting from elsewhere may be more posturing than real speculation. We would not even formally classify this as a rumor at this point.

JON C. OGG

Citigroup (NYSE: C), Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) could be affected when S&P updates its credit ratings on the world’s 30 largest banks. (Reuters)

The Highway Loss Data Institute says hybrids are often safer in crashes. (Reuters)

The California Attorney General sends subpoenas to Fannie Mae and Freddie Mac in a review of lending foreclosure practices. (Reuters)

The ECB has a secret 20 billion euro bond-buying limit. (Reuters)

Proxy votes for Microsoft (NASDAQ: MSFT) CEO Steve Ballmer decline. (Reuters)

The Super Committee reaches no decision on Bush-era tax cuts. (WSJ)

The European Central Bank may be the only hope for a euro region bail out. (WSJ)

Eastman Kodak (NYSE: EK) puts its online gallery up for sale. (WSJ)

UBS (NYSE: UBS) will fire thousands at its investment bank. (WSJ)

Pressure on Alcatel-Lucent’s (NYSE: ALU) CEO increases due to poor performance. (WSJ)

Shares of Liberty Starz (NASDAQ: LSTZA) and Liberty Capital (NASDAQ: LCAPA) will be combined. (WSJ)

Data shows that Amazon.com’s (NASDAQ: AMZN) Kindle Fire has low margins. (WSJ)

Yelp files for an IPO to raise $100 million. (WSJ)

A new Spanish government will increase austerity plans. (WSJ)

Activist shareholder Relational Investors will get a Hewlett-Packard (NYSE: HPQ) board seat. (WSJ)

Gamestop (NYSE: GME) cuts its forecasts. (WSJ)

Silver Lake Partners is closer to a deal to buy Yahoo! (NASDAQ: YHOO). (WSJ)

Italy’s new prime minister offers a package to turn around the nation’s finances. (NYT)

Organized crime may be involved in the losses at Olympus. (NYT)

Spain’s borrowing costs soar. (FT)

NYSE Euronext (NYSE: NYX) and Deutsche Boerse will make some concessions to complete their marriage. (FT)

Home prices in many Chinese cities fall. (FT)

Douglas A. McIntyre

Several other standouts from today are as follows…

Zoll Medical Corp. (NASDAQ: ZOLL) is up nearly 23%, at $43.80. The medical equipment maker beat quarterly earnings estimates and announced a $50 million stock buyback program.

Angie’s List Inc. (NASDAQ: ANGI) is up more than 25%, at $16.32. The company had its IPO today, and shares have risen briskly from the $13 offering price.

Rambus Inc. (NASDAQ: RMBS) is up more than 23%, at $8.78. The company’s shares were torched yesterday following an adverse ruling in a patent case. Today’s comeback will help, though its a long ways back to the $18 level the stock was trading at yesterday morning.

Viasystems Group Inc. (NASDAQ: VIAS) is up more than 22%, at $18.25. The company withdrew a proposed offering of 4 million shares.

Daqo New Energy Corp. (NYSE: DQ) is down about -19%, at $1.82, after setting a new 52-week low earlier today. The company’s CFO will leave the company at the end of this month. Shares fell -3% early this week when the solar PV company missed earnings estimates.

Stay tuned for Friday. New York Federal Reserve Bank president William Dudley is speaking tomorrow morning and Dallas Federal Reserve Bank president Richard Fisher is speaking tomorrow afternoon. Here’s a list of other noteworthy events (all times Eastern):

• 10.00 a.m. – Conference Board index of leading economic indicators

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Paul Ausick

Beacon Power (NASDAQ: BCON), backed by U.S. funds, goes bankrupt. (Reuters)

Young and well-educated Greeks begin to leave the country. (Reuters)

Panasonic (NYSE: PC) cuts its annual earnings forecast. (Reuters)

MF Global’s (NYSE: MF) holding company may go bankrupt, with some assets sold to Interactive Brokers Group (NASDAQ: IBKR). (Reuters)

Many EU-based businesses have cut earnings forecasts as trouble in the region hurts the economy. (WSJ)

The U.S. may not sell more AIG (NYSE: AIG) stock until the share price rises. (WSJ)

Wells Fargo (NYSE: WFC) will not charge debit card fees similar to Bank of America’s (NYSE: BAC). (WSJ)

Gamestop (NYSE: GME) to sell PCs. (WSJ)

Google (NASDAQ: GOOG) has a new product to compete with Groupon. (WSJ)

Natural gas shale drilling  in Pennsylvania  prompts fight over who owns rights and land. (WSJ)

Sentier Research reports that American’s do not feel the recession is over. (WSJ)

Harley-Davidson (NYSE: HOG) increases marketing messages to women. (WSJ)

Porsche posts strong earnings. (WSJ)

Aol (NYSE: AOL) wants to catch the balance of mobile portal products creators. (WSJ)

Honeywell (NYSE: HON) throws off substantial cash but is unlikely to add new employees. (WSJ)

Federal Reserve members are at odds about whether the central bank should do more to help the economy. (WSJ)

Cable companies continue to block use of web TV. (WSJ)

Nebraska may try to block the construction of a huge pipeline that would run from Canada to the southern U.S. (WSJ)

Large corporations to lobby the G20 for more unity on economic issues. (FT)

Microsoft (NASDAQ: MSFT) will begin to use Xbox Kinect to deliver more than game services. New software may create medical devices. (FT)

Italian Prime Minister Silvio Berlusconi says he can set budget cuts to balance Italy’s books and that new elections are not necessary. (Bloomberg)

Honda’s (NYSE: HMC) numbers miss forecasts and it eliminates earnings estimates. (Bloomberg)

Douglas A. McIntyre

Activision Blizzard, Inc. (NASDAQ: ATVI) Started as Outperform at Baird.
AMR Corporation (NYSE: AMR) Started as Buy at Stern Agee.
Advanced Micro Devices, Inc. (NYSE: AMD) Raised to Perform at Oppenheimer.
American Water Works Co. (NYSE: AWK) Started as Neutral with $32 target at Credit Suisse.
Cardinal Health, Inc. (NYSE: CAH) named Bull of the Day at Zacks.
Discovery Communications, Inc. (NASDAQ: DISCA) Started as Neutral at JPMorgan.
GameStop Corp. (NYSE: GME) Started as Outperform at Baird.
Harbin Electric, Inc. (NASDAQ: HRBN) Cut to Neutral at Roth Capital.
Invesco Ltd. (NYSE: IVZ) Raised to Buy at BofA/ML.
JetBlue Airways Corporation (NASDAQ: JBLU) Started as Buy at Stern Agee.
Koninklijke Philips Electronics (NYSE: PHG) Cut to Underperform at Bear of the Day at Zacks.
Legg Mason Inc. (NYSE: LM) Cut to Underperform at BofA/ML.
Mastercard Incorporated (NYSE: MA) Started as Buy at Deutsche Bank.
Occidental Petroleum Corp. (NYSE: OXY) Maintained Buy but cut estimates and target at Argus.
Royal Caribbean Cruises Ltd. (NYSE: RCL) Cut to Hold at S&P Equity Research.
Visa, Inc. (NYSE: V) Started as Buy at Deutsche Bank.
Walt Disney Co. (NYSE: DIS) Started as Overweight at JPMorgan.
Wolverine Worldwide, Inc. (NYSE: WWW) named Value Stock of the Day at Zacks.
Wynn Resorts Ltd. (NASDAQ: WYNN) Raised to Outperform at Credit Suisse.

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JON C. OGG

Competition from other console makers like Microsoft Corp. (NASDAQ: MSFT) and Nintendo Corp. (OTC: NTDOY) and a huge hacking scandal have combined to weigh on Sony’s sales of the Playstation. This could be more bad news for game designers like Activision Blizzard Inc. (NASDAQ: ATVI) and Take-Two Interactive Software, Inc. (NASDAQ: TTWO), both of which have seen customers move from packaged software to downloadable games. Game makers are selling more downloadable games, but revenue is lower than for packaged games although margins are higher.

The real culprits are smartphones from Apple Inc. (NASDAQ: AAPL), Nokia Corp. (NYSE: NOK), Motorola Mobility Holdings Inc. (NYSE: MMI) soon to be a division of Google Inc. (NASDAQ: GOOG), Samsung Electronics (OTC: SSNLF), and HTC Corp. We noted the continuing shift to smartphone games in our review of earnings from Activision’s earnings earlier this month.

Nintendo has already dropped the price of its 3DS handheld console from $249.99 to $169.99 in an effort to attract more buyers. After one week of sales in Japan, Nintendo’s efforts appear to have paid off with sales jumping to more than 214,000 from just over 32,000 in the week before the price cut.

Nintendo’s latest earnings were down by about 50% from the previous quarter and the company has lowered its sales target for its Wii console and lowered its profit target by more than 80%.

Sony would like to avoid that, but the debacle over the hacking attack and the lack of enthusiasm for the Playstation 3 from the beginning are going to be too much to overcome.

Combined with the continuing incursion from the smartphone makers, Sony may have waited too long to get on the latest train to leave the station. Sort of reminds us of how the company and its Walkman were blindsided by MP3 players. This won’t be the last price drop for the Playstation 3.

Paul Ausick

Investors will be watching earnings reports from the following: Dillard’s Inc. (NYSE: DDS); LDK Solar Co. Ltd. (NYSE: LDK); Lowe’s Companies Inc. (NYSE: LOW); Analog Devices Inc. (NYSE: ADI); Dell Inc. (NASDAQ: DELL); Home Depot Inc. (NYSE: HD); TJX Companies Inc. (NYSE: TJX); Wal-Mart Stores Inc. (NYSE: WMT); Deere & Co. (NYSE: DE); DryShips Inc. (NASDAQ: DRYS); JDS Uniphase Corporation (NASDAQ: JDSU); NetApp Inc. (NASDAQ: NTAP); Staples Inc. (NASDAQ: SPLS); Target Corporation (NYSE: TGT); Brocade Communications Systems Inc. (NASDAQ: BRCD); GameStop Corporation (NYSE: GME); Gap Inc. (NYSE: GPS); Hewlett Packard Co. (NYSE: HPQ); Salesforce.com Inc. (NYSE: CRM); and Sears Holdings Corporation (NASDAQ: SHLD).

We did not include the consensus analyst price target this week because the data looks very skewed since it has not been fully updated to reflect the new estimates.

Monday, August 15

Dillard’s Inc. (NYSE: DDS) has Thomson Reuters estimates of $0.25 EPS and $1.42 billion in revenues; next quarter estimates are $0.31 EPS and $1.36 billion in revenues.  Keep in mind that the consensus group is too small for us to have much faith in estimates.   Shares are trading around $42.50 and the 52-week trading range is $19.26 to $61.08.

LDK Solar Co. Ltd. (NYSE: LDK) has Thomson Reuters estimates of $0.44 EPS and $716.37 million in revenues; next quarter estimates are $0.33 EPS and $740.77 million in revenues.  Shares are trading around $6.36 and the 52-week trading range is $4.97 to $15.10.  With the woes of solar and with the woes of Chinese accounting, LDK could be up huge or down huge.

Lowe’s Companies Inc. (NYSE: LOW) has Thomson Reuters estimates of $0.67 EPS and $14.78 billion in revenues; next quarter estimates are $0.35 EPS and $11.97 billion in revenues.  Shares are trading around $19.26 and the 52-week trading range is $18.97 to $27.45.  That 52-week low was hit on Friday.

One of our leading candidates for a buyback announcement is Cisco Systems, Inc. (NASDAQ: CSCO), which announces quarterly earnings tomorrow and is expected to post EPS of $0.38 on revenue of $10.98 billion. Cisco just initiated its first dividend, a paltry $0.12/share, and has spent more than $50 billion since 2004 on buybacks. These billions have not helped the share price, but buybacks appear to be Cisco’s weapon of choice against falling share prices. Don’t be surprised if tomorrow’s earnings announcement includes another stock repurchase.

Wal-Mart Stores Inc. (NYSE: WMT) has seen its share price fall by more than -6% since Friday. The company announced a $15 billion share repurchase plan in June that puts the company on track to return control to the Walton family any day now. The current opportunity to buy back even more shares at an even lower price may be too good to pass up.

Kohl’s Corp. (NYSE: KSS) authorized an increase in its repurchase plan to $3.5 billion last February. The company’s market cap at the time was $15.7 billion. Shares posted a new 52-week low yesterday and Kohl’s market cap has dropped to $12.15 billion.

Home Depot Inc. (NYSE: HD) announced in June a total repurchase plan worth $22.5 billion. At the time, the company’s shares had lost more than -3.5% year-to-date. Shares are down more than -15% year-to-date after yesterday’s debacle, and Home Depot is likely to speed up repurchases rather than commit more cash to its buyback plan.

Lowe’s Companies Inc. (NYSE: LOW) has had a difficult time closing its valuation gap with Home Depot. The company authorized a $5 billion share repurchase plan in February, when shares traded at around $23.00. Shares hit a new 52-week low yesterday. Lowe’s, like Home Depot, is unlikely to add more to its buyback plan, but it could speed up repurchases.

GameStop Corp. (NYSE: GME) has a $500 million share repurchase plan in place. The company reports earnings on August 18th and an additional $500 million addition to the buyback pool is not out of the question. Video game stocks have had a rough time recently, and GameStop’s price/book ratio is less than 1, making now a good time for the company to try to boost its valuation, given that it offers no dividend.

Dell Inc. (NASDAQ: DELL) has spent $1.6 billion of its authorized $2 billion buyback program. The company’s market cap has dropped by about -$4 billion since the end of June. Boosting its repurchase program doesn’t cost Dell much and looks good at the same time.

ConocoPhillips Corp. (NYSE: COP) boosted its dividend and announced a $10 billion buyback program in February. Faced with collapsing crude oil prices, a boost to the repurchase plan is not out of the question.

General Dynamics Corp. (NYSE: GD) authorized a share repurchase program for 10 million shares of stock in June. At the time, the program was estimated to be in the range of $750 million. At today’s share price it amounts to less than $600 million. Adding a few million more shares is essentially free and could give the company a PR boost.

General Electric Co. (NYSE: GE) still has more than $11 billion remaining in its stock repurchase authorization that was suspended in 2008 and restarted late last month. The company could decide to boost that figure back to its original authorization of $15 billion. That would just about cover the year-to-date drop in the stock.

For an ETF that focuses on companies buying back large amounts of stocks, there is the PowerShares Buyback Achievers (NYSE: PKW) ETF.  Its top holdings differ greatly from our list of companies here because it calculates its holdings based on the Mergent Buyback Achievers Index.

Paul Ausick

Citrix Systems Inc. (NASDAQ: CTXS) fell 10% after it announced it would buy Cloud.com. Analog Devices Inc (NASDAQ: ADI) fell 9% as other shares in its sector were punished by poor results

This week brought some new changes to the list and many updates on the old list.  Some of the companies covered on the list are Abercrombie & Fitch Co. (NYSE: ANF), American Water Works Company, Inc. (NYSE: AWK), Barnes & Noble, Inc. (NYSE: BKS), Chipotle Mexican Grill, Inc. (NYSE: CMG), GameStop Corporation (NYSE: GME), The Hersey Company (NYSE: HSY), Imperial Sugar Co. (NASDAQ: IPSU), Medifast, Inc. (NYSE: MED), Riverbed Technology, Inc. (NASDAQ: RVBD), SEI Investments Co. (NASDAQ: SEIC), and U.S. Auto Parts Network, Inc. (NASDAQ: PRTS).

We have covered these and added in targets and upside from Janney, as well as a blurb on each.  After that, we have added in some independent color if applicable.

Abercrombie & Fitch Co. (NYSE: ANF) was interesting to see after it has already enjoyed such a large run that has more than doubled.  It was not a repeat on the list.  Its adjusted price on the list was $66.92, but shares on Friday are up at $72.87.  Janney sees a fair value at $85.00, implying about 16% upside.  Thomson Reuters shows a consensus price target objective of $83.11 and supposedly there is a high target of $100 out there.  Janney’s thesis is supported by more international growth and it noted, “we will look to short-term weakness as opportunities for the long-term.”

American Water Works Company, Inc. (NYSE: AWK) was noted with a price of $29.45 and its price on Friday was $29.95.  Janney’s target is $32.00.  The firm noted, “American Water remains among our top ideas, not only in the water utility space, but in the water sector generally.”  It also looks for earnings growth and additional dividend growth.  As this was our top water pick at 24/7 Wall St., our only comment is that we see this one making it to $35 perhaps by the end of 2012. This is also a stock to hold for the next decade.

Barnes & Noble, Inc. (NYSE: BKS) was new on the list, which may be from the implied buyout interest. Janney’s quarter-end updated price was $16.58, but the stock was around $17.75 on Friday.  Janney’s fair value target is $24.00, implying about 35% upside remaining.  Janney is the street-high at $24.00, and investors may want to know that the Thomson Reuters consensus is from a small group of analysts but that appears to only be $19.50.  Janney noted, “Borders’ Bankruptcy Provides Near Term Support” and sees opportunity in the nooks and e-books.

Chipotle Mexican Grill, Inc. (NYSE: CMG) is a repeat on the Best Ideas list but Janney still sees big upside despite this hitting new all-time highs.  The quarter-end adjusted price was $308.19 and shares were almost $325.00 on Friday.  Janney’s fair value target is $375.00 and Janney appears to be the street-high target.  Thomson Reuters has a consensus target under the current price at closer to $286.00.  As a reminder, this one is up almost $200.00 from its 52-week low.  Janney noted several issues here that few may know about, one is its Asian concept called ShopHouse Southeast Asian Kitchen.  Its market share within the limited-service Mexican segment was said to be 14.1% at the end of 2010.

GameStop Corporation (NYSE: GME) is a repeat name on the list and Janney’s adjusted price of $26.67 is fairly in-line with today’s level of $26.80.  The firm sees a target of $33.00 as fair value and that is not much higher than the Thomson Reuters consensus target of $30.32.  One other firm has a $35.00 target.  Janney’s top points were competing store closures, its evolving position to digital, loyalty programs, and having easy comparable expectations ahead.  With the buyback and turnaround underway, investors need to know that despite its 50% recovery bounce it is still considered “cheap” at well under 10-times earnings.  It is also a heavily shorted stock.

The Hersey Company (NYSE: HSY) was new on the list and Janney’s adjusted initiation was at $56.85 and shares were at $57.60 on Friday.  Its fair value target is $62.00 and Thomson Reuters has a consensus target of just over $59.00. It should be known that Hershey is now close to 5-year highs.  You know Hershey regardless of your age and Janney simply noted, “pricing power, superior ad spending and volume growth, and a compelling valuation.”