The Unusual Suspects for the Week Ahead (BKS, BRCD, CSKI, CIEN, FNFG, NAL, GENZ, SNY, LULU, ID, NFLX, NE, PBR, RTN, SKS, TTWO, THQI, CALL)
The cast of characters in this week’s Unusual Suspects is not any ordinary group of companies. There are many key stocks to watch for investors that have carryover issues from last week or which have upcoming events for the week. There is a lot happening considering that earnings are quiet and considering that this is Labor Day Weekend. Key stocks to watch going to be Barnes & Noble, Inc. (NYSE: BKS), Brocade Communications Systems, Inc. (NASDAQ: BRCD), China Sky One Medical, Inc. (NASDAQ: CSKI), CIENA Corp. (NASDAQ: CIEN), First Niagara Financial Group Inc. (NASDAQ: FNFG), New Alliance Bancshares Inc. (NYSE: NAL), Genzyme Corporation (NASDAQ: GENZ), Sanofi-Aventis (NYSE: SNY), Lululemon Athletica Inc. (NASDAQ: LULU), Netflix, Inc. (NASDAQ: NFLX), L-1 Identity Solutions, Inc. (NYSE: ID), Noble Corp. (NYSE: NE), Petroleo Brasileiro (NYSE: PBR), Raytheon Co. (NYSE: RTN), Saks Incorporated (NYSE: SKS), Take-Two Interactive Software Inc. (NASDAQ: TTWO), THQ Inc. (NASDAQ: THQI), VocalTec Communications Ltd. (NASDAQ: CALL), and Vonage Holdings Corporation (NYSE: VG).
We have compiled information on the catalyst for each stock, an outlook where applicable, added in color for traders where applicable and given specific news and background data on each situation.
Barnes & Noble, Inc. (NYSE: BKS) is turning into a nasty proxy fight as billionaire Ron Burkle is appealing a poison pill anti-takeover measure from the company as his 18.8% stake (second highest behind Riggio) as he is trying to install 3 directors next month. Here is the obvious… Burkle needs to either cry uncle or he needs to go split a fifth of scotch after a round of golf with Riggio and they can work out a fair price. Being an activist in a closely held company is not the smartest of targets, even for billionaires. Friday’s CALL options trading was “off the charts.”
Brocade Communications Systems, Inc. (NASDAQ: BRCD) was one of this week’s “stocks that could double” that we prepared for InvestorPlace.com. The current catalyst is the post-3PAR interest after HP beat out Dell as the companies fight for more unified offerings between networking and storage now that Cisco has declared war on that lineup of billions in revenues. This highlights Brocade now that it has merged with Foundry and sets this up t be the low-cost provider or “the poor man’s Cisco” for Dell, HP, IBM, or a whole host of other companies that need to fend off the Cisco threat. With a $2.5 billion market cap, its market cap is now only 25% more than 3PAR and it is expected to have about 9-times the equivalent revenues (almost $2.1 billion) for the year as a standalone player. If the tech consolidation continues, this is a highly viable candidate for a buyer to compete against Cisco on price. The company’s big problem is that on a standalone basis it just can’t stand up to much of the larger competition and that gives it very choppy results.
China Sky One Medical, Inc. (NASDAQ: CSKI) got crushed after lowering guidance due to: “Management’s reduced guidance reflects the termination of relationships with certain private distributors, who after several rounds of discussions, chose to end their cooperation with the Company after learning that their business information was disclosed in the Company’s public SEC filings and would continue to be disclosed in such documents as required by SEC regulations… has led to increased scrutiny of their financial performance by government authorities within China. ” The integrated Chinese pharma player lowered 2010 revenue guidance to $128 to $136 million versus a prior target of $160 to $164 million; lowered 2010 adjusted net income guidance to $26 to $31 million from $40 to $41 million. China Sky One became China Die One as shares fell a sharp 27.76% to $7.00 in the after-hours session on a sharp 187,000 shares after the 4PM bell. This marks a 52-week low under the prior range of $8.82 to $25.45. Ouch.
CIENA Corp. (NASDAQ: CIEN) is on deck for earnings on Wednesday morning. The communications equipment and systems company is at $13.29 and the 52-week range is $10.53 to $19.48. A portfolio manager just labeled it as a new technology providing long-term value for investors. Thomson Reuters has estimates of -$0.33 EPS and $387.04 million in revenues.
First Niagara Financial Group Inc. (NASDAQ: FNFG) is something that just does not make sense at the current time. The bank is acquiring New Alliance Bancshares Inc. (NYSE: NAL) and this will set it up to be the next potential super-regional bank. Shares hit yet another 52-week low of $11.23 this last week before closing out the week at $11.80 versus a 52-week range of $11.23 to $14.88. On a forward earnings basis, its multiples are neither dirt cheap nor excessive. What is a mystery is that the Attorney General from Connecticut is probing this merger. New Alliance trades at an implied discount to the 1.1 shares, but the arbitrage is harder to play because the merger may be stock or it could be cash and stock. Our angle here is on First Niagra, as it has been a safer bank that does not have all of the same baggage as many of the other big boys. Even with the concern of CT-state charters versus Federal charters, the AG probe just doesn’t make much real sense.
Genzyme Corporation (NASDAQ: GENZ) closed down 0.44% at $70.49 and is still above the $69.00 implied buyout price from Sanofi-Aventis (NYSE: SNY). Reports from both Bloomberg and IBD indicate that CEO Henri Termeer may be close to capitulating and accepting a buyout. Our guess is that Termeer is probably telling them, “Please just offer $1 or $2 more so we look good to our holders who are stuck in Genzyme at slightly higher prices.” This saga may soon come to an end. After all, Sanofi has bragged over and over that it has the cash. It can afford another buck, or two, if it wants.