Through the Fly's Eyes: M&A Financing

From Larry Ramer of Theflyonthewall.com

Banks Getting Better Financing Deals, But Not Pulling the Plug Yet

So far, it seems that banks are not pulling the plug on merger and acquisition deals that were in place prior to the credit crunch. In some cases, however, lenders are demanding – and getting – more favorable terms from the companies and private equity firms whose deals they are financing.

For example, banks are demanding concessions from private equity firm KKR, which is buying First Data Corp. (FDC) for $24B. KKR may be willing to remove covenant-light and PIC toggle terms in order to close the deal, according to a report in today’s Private Equity Hub. In the case of the sale of Home Depot’s (HD) construction-supply unit, it was the seller who made concessions to lenders, as Home Depot cut the price for the unit by 18%, agreed to guarantee $1B in debt and will buy back 12.5% of the division for $325M.

As yesterday’s “Deal Journal” in the Wall Street Journal points out, investment banks would hurt themselves by torpedoing mergers and acquisitions. If all the deals from 1H07 are completed under current terms, investment banks stand to make $11.8B in fees. So firms like JPMorgan (JPM) and Goldman Sachs (GS) are certainly not going to nix deals unless they really feel they are too risky to be salvaged.

However, there are some signs and speculation that it may be easier for foreign banks to supply credit for deals than U.S. banks. Gerdau Ameristeel Corp. recently switched from a financing package for its acquisition of Chaparral Steel (CHAP) that was exclusively supplied by JP Morgan, to a financing deal with mostly banks from outside the U.S. Gerdau was able to obtain terms that are “at least as favorable” as its original deal, the company reported. In addition, the Wall Street Journal reported on Wednesday that Asian banks have been hit less by the subprime crisis than American banks, allowing Asian lenders to more easily finance deals.

It’s only been several weeks since the subprime crisis began to really affect large U.S. banks, and the situation could change quickly. (For example, action or inaction by the Fed on September 18 could really alter the whole picture). Up to this point, however, no big deals have fallen through, although there does seem to be a trend of deal terms being changed to help lenders.

Through The Fly's Eyes: Milan Solar Conference

from Joseph Lazzaro of Theflyonthewall.com

Milan Solar Conference Preview

Most investors, and followers of energy policy and environmental issues are familiar with the following refrain: "This year will be solar energy's big year."

And then, what typically occurs is, the year passes ....with hardly enough change in policy or a shift in U.S. energy consumption trends to justify the anticipation at the year's start.

Further, the upcoming European Photovoltaic Solar Energy Conference in Milan September 3-7 may not alter that pattern, but the meeting has a chance to boost investor confidence in the sector, particularly regarding higher quality names, according to Lehman Brothers.

Lehman said Milan will give investors their first look at Q4 2007 / Q1 2008 demand, ASPs, and year-end channel inventory. Here's a look at a few solar names that Lehman has it eye on:

LDK Solar (LDK), a manufacturer of wafers [used in the construction of solar cells and solar modules]; currently trades around $50, and Lehman has an Outperform and a $52 target for LDK.

Canadian Solar (CSIQ), a manufacturer of standardized solar panels for residential / commercial / industrial use and other products, including solar car battery charges; currently trades around $8, and Lehman has a Market Perform rating and a $9 target for CSIQ.

Yingli Green Energy (YGE), a manufacturer of polysilicon wafers and ingots that the company uses to make solar cells and modules, which it incorporates into solar energy systems; currently trades around $15.85 and Lehman has an Outperform rating and a $20 target for YGE.

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com

Highlights For Next Week

Monday September 3

* Markets closed for Labor Day holiday.

Tuesday September 4

* Ford (F) to report monthly sales at 1pm; General Motors (GM) at 2pm.
* American Dental Partners (ADPI) to discuss acquisition of Metropolitan Dental at 1pm.

Wednesday September 5

* Apple to hold media event to introduce "a new array of digital media offerings."
* Boeing (BA) to give update on 787 Dreamliner Program at 10am.
* Hot Topic (HOTT) and ZUMZ to report monthly sales at 4pm, American Eagle Outfitters (AEO) at 5pm.

Thursday September 6

* Chico's (CHS) to report monthly sales at 7:30am, Ann Taylor(ANN), Gap (GPS) and Wal-Mart(WMT) at 8am.
* PDUFA date for Johnson & Johnson (JNJ) and Omrix Biopharmaceuticals' (OMRI) Thrombin.
* Campbells Soup (CPB) to report Q4 earnings; conference call at 11am.
* National Semiconductor (NSM) to report Q1 earnings; conference call at 4:30pm.

Friday September 7

* I did not see anything to compelling going on here, please leave a note in the comments section if you think I missed something important.

Through The Fly's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com


Rumor Round-up

If this is the official end of summer, there must be at least one good rumor out there. How about two?



NEWMONT MINING (NEM), BARRICK GOLD (ABX):

Talk about a golden opportunity. A battle of the number one, Barrick, vying for the number two, Newmont. With Newmont’s proven and estimated gold reserves totaling about 95M ounces, that’s a reason for this to happen. How about that bandied about price of $25B, equal to about $60 a share? No one’s saying yes, but don’t tell that to the investors gobbling up Newmont’s shares and options.



MICROSOFT (MSFT), RESEARCH IN MOTION (RIMM):

Is Microsoft finally ready to make a play for Canadian Blackberry maker Research in Motion? Seems so, especially now that Google (GOOG) is coming out with a phone of their own. If they’re finally going to do this, though, they had better get a move on it. Motorola (MOT) is also said to be kicking RIMM’s tires. But guess what? Nobody’s talking. You know why? They’re all on their phones.

Through The Fly's Eyes: Apple Inc, General Electric

from Laurie Pasternack of Theflyonthewall.com

NBC and Apple in Pricing Spat

This morning's New York Times reported that General Electric's (GE) NBC Universal unit has decided not to renew its contract to sell digital downloads of television shows on Apple's (AAPL) iTunes online store. The decision was based on a pricing spat, where the two companies failed to come to an agreement on the matter.

NBC Universal accounts for about 40% of downloads on the iTunes service. Current NBC Universal offerings include hit television shows like "The Office" and "Heroes," but have not yet agreed to offer movies because of piracy concerns. iTunes currently accounts for more than 76% of digital music sales. The issue between the two is this: iTunes sells songs for 99c and sells episodes of television shows for $1.99 and movies for $9.99 apiece. NBC Universal -- and other companies -- want to increase download prices by "packaging content." In this respect, NBC Universal wants to pair an episode of a television show with a movie that has a common actor, for, say, $14.99.

The decision from the top supplier of digital video to the online store reflects increasing tension between media companies and Apple. Many media companies have been unhappy with Apple because the company refuses to cede more control over pricing of their songs and videos. NBC Universal's decision follows a move by Vivendi's Universal Music Group, who declined to sign a long-term deal with iTunes for similar reasons. Universal will instead market music to Apple so that it can remove its songs from iTunes on short notice.

Sources believe that there is still room for the companies to reach an agreement on a new contract before their current deal expires. A person close to the matter said that talks will continue for the time being and have "been free of acrimony." The current deal between iTunes and NBC Universal extends through December, and those close to the source said its video catalog will be available on iTunes "at least until then." Also expiring soon is a deal between CBS (CBS) and Apple.

Analysts believe the action by NBC Universal will not have an "immediate" impact on iTunes, although it will likely eventually hamper Apple's efforts to grow further into the video-focused consumer electronics market. Analysts believe this could eventually fuel Apple's retail business in the future, although sales are more focused on music offerings like its iPhone and iPod. By not making a deal with NBC Universal, Apple's iTunes expansion into the UK may also be restricted in the future.

Additionally, analysts believe that right now, Apple needs companies' content more than they need Apple. Should NBC Universal decide to move away from iTunes, it could always form a deal with rival offerings from Amazon.com (AMZN), Wal-Mart (WMT), Sony (SNE) or Microsoft (MSFT). Further, NBC Universal may be able to compete with video portals like Google's (GOOG) YouTube with its Hulu.com, a venture with News Corp (NWS). Apple's dominance in this area may be significantly threatened by competitors.

Not signing a new deal could also have negative repercussions for NBC Universal. For example, iTunes is becoming more popular everyday. If it takes its business away from that portal, NBC Universal will be losing an important way of marketing its products and making sure its content is seen. Despite its attempts to appear "pro-consumer," by taking its content away from iTunes, the company could in fact become branded with an "anti-consumer" label.

Through The Fly's Eyes: Citigroup

from Theflyonthewall.com

Strong GDP Growth is Bad News for Citigroup

That you loud thud you heard yesterday morning at 8:30am was Chuck Prince, Citigroup's (C) CEO, hitting the floor following the much stronger than expected GDP report.

Citigroup, who has committed tens of billions of dollars to finance many of the larger PE deals, will be stuck holding these loans on its books for much longer than it anticipated due to this report. The simple fact of the matter is the Fed will not be able to lower short-term rates with GDP growth of 4%.

Leaving short-terms rates unchanged means the yield curve will not change for the better and could actually change for the worse. If rates start heading higher, this means the loans the money-center banks are holding will drop even more in value.

Yesterday's GDP report means this post-PE bubble environment will be difficult to work through. Any easy fix of a slowing economy leading to the Fed dropping rates and a downward shift in the yield curve is not going to happen. Actually, it looks like the longer end of the bond curve was wrong in forecasting an economic slowdown, with the possibly of rates having to head higher. This means it is too early to get back into the money center banks.

Through The Fly's Eyes: Blue Coat Systems

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Guarding your e-business

The development of e-commerce has provided the business community with new and exciting ways to reach the consumer, but there are associated dangers. There is an outfit in Sunnyvale, California that secures Web communications and accelerates business applications across the distributed enterprise.

Blue Coat Systems (BCSI) helps organizations make the Web safe and productive for business. Blue Coat proxy appliances provide control of Web communications to protect against risks and inefficiencies from spyware, Web viruses, inappropriate Web surfing, instant messaging, video streaming and peer-to-peer file sharing. Blue Coat has installed more than 40,000 appliances worldwide. Customers include the National Institutes of Health, Merck (MRK) and the US Air Force. Cisco Systems is a (CSCO) is a major competitor.

The company surprised investors last week, when it reported fiscal Q1 EPS of 43 cents and revenues of $62.4 million. Analysts had been expecting 35 cents and $58.8 million. Management also guided Q2 EPS to 43-50 cents (37 cent consensus) and Q2 revenues to $67-$70 million ($61.65 million consensus). The CEO said that the firm is in a very fast growing market and sees much growth potential. Roth Capital, Wedbush Morgan and Needham subsequently declared the stock a "buy." The stock popped on the news and then moved into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the shares with one "strong buy," five "buys" and two "holds." Analysts expect a 32% growth rate, through the next year. The BCSI Sales Growth rate (71.43%) compares favorably with industry, sector and S&P 500 averages. Institutional investors hold about 87% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $16.66 and $87.05. A stop-loss of $71.75 looks good here. Note that the company declared a two-for-one stock split earlier in the month. The issue will trade split adjusted on October 3.

Through The Fly's Eyes: Ann Taylor Stores

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Ann Taylor Stores: Fashion For The Professional Woman

A trip through any mall in the country shows that corporate America is not shy about satisfying the fashion tastes of younger women. There are, however, relatively few firms that cater to the busy professional woman in need of a coordinated wardrobe. One of them is headquartered on Times Square.

Ann Taylor Stores (ANN) is a national specialty apparel retailer for the professional woman. The firm operates 887 stores across the United States, targeting fashion conscious customers with clothes designed exclusively for its own outlets. Most signature Ann Taylor stores are located in malls and upscale retail centers. The chain's Ann Taylor Loft stores offer their own label of mid-priced apparel and Ann Taylor Factory stores offer clearance merchandise. The company also operates a pair of Web sites. Competitors include Jones Apparel Group (JNY) and Liz Claiborne ( LIZ).

The firm pleased investors last week, when it reported solid Q2 results, reaffirmed guidance for FY08 earnings and authorized a new $300 million stock buyback program. Management also said that it will be launching a new store concept next month, aimed at what it calls the "modern boomer segment." The new approach will involve an attempt to tap into a demographic that has more disposable income, but fewer shopping options, than its younger counterparts.

The ANN share price popped through 30-day moving average resistance on the news and has since begun to define a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with four "strong buys", five "buys", eight "holds" and one "sell". Analysts expect an 18% growth rate, through the next year. The ANN P/E ratio (16.29), PEG ratio (1.07), Price to Sales ratio (0.85), Price to Book ratio (2.19), Price to Cash Flow ratio (8.17) and Price to Free Cash Flow ratio (20.39) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $27.05 and $45.15. A stop-loss of $27.25 looks good here.

Through The Fly's Eyes: iRobot

from Eric Buscemi of Theflyonthewall.com

iRobot in the Gutters

iRobot (IRBT) is famous for its automated housecleaning robots, the Roomba and Scuba, which are programmed for vacuuming and mopping, respectively. Now the company is planning to introduce another Jetsons-era household helper, the Looj, for cleaning gutters. Word of the new robot comes from Engadget.com, who got their hands on an FCC document showing a diagram of what appears to be a miniature gutter-sweeping tank.

This move appears to be a clear positive for iRobot, as it targets a distinctly more male audience than its other two popular products -- I mean, really, who is more likely to go out and buy a robot to do the chores, Mom or Dad? Wall Street was also excited about the new product, as iRobot's stock rose over 4% today, to $21.89.

Additionally, according to iRobot CEO Colin Angle, consumers should expect to see two new robots at the Digital Life expo, which takes place on September 27-30 at the Javits Center in New York City. Assuming this is one of them, what could the other one be? Personally, I'm hoping it's a bed-making robot.

Through The Fly's Eyes: NAFTA

From Kevin Shult of Theflyonthewall.com

Politicians Want the Border Open, Truck Drivers Don't

As early as this Labor Day weekend, the Bush administration could open the U.S. roadways to Mexican trucks. The Teamsters Union and three public-interest groups -- The Sierra Club, Public Citizen and Environmental Law Foundation -- asked a federal court yesterday for an emergency injunction to prohibit Mexican trucks on the roads.

The union has fought for 13-years to stop Mexican trucks from entering into the U.S., a promise given by Bill Clinton under the North American Free Trade Agreement, or NAFTA. They argue that the introduction of these trucks would compromise highway safety and cost U.S. jobs.

Hector Marquez, head of the Mexican Economic Ministry’s Trade and NAFA Office, disagrees. "It's very unfortunate because certainly the governments of Mexico and the United States have put forth a tremendous effort to put in place all the requirements, all the mechanisms, all the personnel and the resources to make this work and to guarantee the security and safety," The Houston Chronicle reported today. The Transportation Department’s Federal Motor Carrier Safety Administration dismissed the suit as “without merit.”

Rolando Ortega, a delegate from the National Confederation of Mexican Carriers, doesn’t believe Mexican truckers want to travel into the United States. “We don't want to go to the United States, and the Americans don't want to go to Mexico... It doesn't reflect the reality of the transportation industry," he told the Chronicle. He said that most Mexican trucking companies that deliver to the U.S. already struggle with high insurance rates, longer lines at the border and a lack of credit. Ortega added that most Mexican truckers cannot read signs in English, are unfamiliar with the U.S. highway system and lack the knowledge to find cargo for a return trip to Mexico.

The only companies that want to do that are the trans-national companies and the companies that move their own cargo,” Oscar Garza, another delegate of the Mexican carriers, told the Chronicle.

The launch awaits certification from the Transportation Department’s inspector general.

Through the Fly's Eyes: Ratings Agencies

From Larry Ramer of Theflyonthewall.com

It’s Payback Time for the Ratings Agencies

The major ratings agencies were prime enablers of the mortgage-backed securities bubble. Tons of securities backed by risky, overambitious mortgages were labeled investment grade by the major ratings companies, Moody’s (MCO), Standard & Poors, or S&P, and Fitch Ratings. S&P is owned by McGraw-Hill (MHP). Fitch is a privately held company.

A brief anecdote and a quote from the September 3 issue of Fortune Magazine tells the story pretty well. Referring to the agency’s recent downgrade of mortgage-backed securities during a conference call, Steve Eisman, a managing director of hedge fund FrontPoint Partners said , “I’d like to ask why [S&P] is making this move today and why you didn’t do this many, many months ago.”

The answer by an S&P analyst was not exactly reassuring. “It’s a good question,” he said.

And, referring to S&P’s defense that the company needs to see sustained losses before downgrading investments, Jim Chanos, the head of Kynikos Associates, asked, "If the rating agencies will downgrade only when we can all see the losses, then why do we need the rating agencies?”

Now that is a really good question.

While the ratings agencies face lawsuits and government investigations. their nightmare scenario is probably that a firm or firms which saw the mortgage backed securities crisis coming will manage to permanently steal loads of business from them. According to research company Oxford Analytica, the Big Three rating agencies now control 95% of the ratings business. Unluckily for the Big Three, Congress last year removed barriers to entry in the sector. The stage seems set for new blood to enter the field.

But even if no significant new competition emerges, it should take the established agencies a long time to recover from this blow. The lawsuits will probably hurt a great deal, and companies and governments will probably not value the agencies’ approval as much as they once did.

Moody’s shares have sunk to around $45.60 today, compared with around $70 in mid-May. They may sink a lot further before they hit the floor. Standard & Poors is a unit of McGraw Hill, which has many other businesses to soften the blow. Still, McGraw has seen its shares slip to about $50 from just over $70 in May.

McGraw CEO Terry McGraw was probably understating matters a little when he said on July 24 that S&P’s revenues would “slow” in 2H07, but remain in double digits. The company may also have to take back McGraw’s assertion that strength in S&P’s corporate finance unit would help make up for slowing growth in its ratings unit.

Through The Fly's Eyes: Molson Coors

From Kevin Shult of Theflyonthewall.com

Molson Coors to Brew New High-End Beer

In an effort to fight back against shifting consumer trends to spirits and wine, the Wall Street Journal reported that Coors Brewing Co. (TAP) has created a new subsidiary to “introduce above-premium beers to the marketplace,” according to an email sent to beer wholesalers last week.

The move comes at a time when the American beer business is facing considerable headwinds, including slower growth due to upscale “craft” beers and a strong push for market share by imports. Anheuser-Busch Cos. (BUD), the largest American beer maker, and SABMiller PLC’s (SAB) Miller Brewing Co., the second-largest, have already introduced new beverages to combat these headwinds.

Molson Coors, on the other hand, had focused more on its Coors Light, Keystone and Blue Moon brands instead of dabbling in new tastes. But now, the company said it would create new upscale beers at a pace similar to how they built Blue Moon, which took over a decade. The Belgian-style wheat ale is now one of the fastest-growing American beers.

The move to create a new “craft” beer will not be done overnight, especially if Molson Coors expects to follow the same pace of their Blue Moon label. For every Blue Moon in production there are hundreds of beers that fail to make the grade. If the company expects to create a top-selling beer, investors need to understand the new subsidiary will act more like an R&D drug company for Molson Coors’ bottom line, rather than a full-fledged beer unit. Good things take time.

Through The Fly's Eyes: Sony Ericsson

from Laurie Pasternack of Theflyonthewall.com

Sony Ericsson Pushes into Emerging Markets

How does the coupling of low-cost cellphones and emerging markets sound?

That's the idea behind Sony Ericsson's latest strategy. According to research firm Gartner Inc, the company, a joint venture founded in 2001 by Japan's Sony Corp (SNE) and Sweden's Ericsson (ERIC), is the fourth-largest maker of mobile phones in the world. CEO Miles Flint realized that in order to become one of the industry's top three cellphone makers, Sony Ericsson would have to address a broader market. If he wants to be the top, Flint knows he has to address the broadest market.

This is where the low-cost cellphones come in. Flint's plan is to expand the company's range of phones that cost less then EUR100. Already this year, the company has launched six bare bones handsets, phones that contain neither a camera nor an FM radio. He said that for the time being, he won't try to compete with the "very lowest-cost phones that some rivals offer because of the challenges of maintaining profit margins." The company is also planning to shift the manufacture and development of some new low cost phones to India and will open an R&D center focused on that market

According to the Wall Street Journal, Flint is going to have to tread very carefully in the entry-level phone market: In growing industries across India and Latin America, Flint must sell cheaper handsets while maintaining profitability levels. The WSJ noted that the cheaper handsets typically have "much slimmer profit margins than the high-end gadgets [Flint] is used to." This was especially challenging for Motorola (MOT), who recently explored low cost handsets in emerging markets. Unfortunately for the company, it warned its mobile-devices unit would not continue to match competitors' price cuts and said it would post a loss this year.

At this point, Finland's Nokia (NOK) which currently holds a 37% market share, may be Sony Ericsson's biggest rival in the low-cost, emerging markets sector. The gap between Nokia and Sony Ericsson may be because of SE's weakness in key geographies, according to Nomura analyst Richard Windsor. Additionally, Nokia recently announced it would up its range of music-focused devices. Aside from that, Windsor doesn't see any significant impact from Sony Ericsson in emerging regions "before about 2008" regarding its market share.

Not that Sony Ericsson would be able to rest easy if it is eventually able to surpass Nokia. Other notable competitors include Apple (AAPL) and South Korea's LG Electronics. Apple, remember, recently launched the iPhone. LG Electronics is reportedly planning a new model for "people who like to take photos." Further, SE will have to deal with competition from low-cost Asian manufacturers.

The fact remains that Sony Ericsson has sold 34.5M walkman phones since their launch in mid-2005. Under the leadership of Flint, the company has grown its net income 54% in the last quarter to $300.8M from a year earlier. If Flint wants to lead the company into emerging markets with low-cost handsets, it is likely he will -- eventually -- make a dent in rivals' market share. Although Nokia ruled over last year's mobile handset market, iSuppli reported that it was Sony Ericsson that made the biggest impact, posting the largest quarter-over-quarter growth for cell phone makers. Pushing deeper into the low-cost handset market, iSuppli analyst Tina Teng said in January, contributed to the joint venture's growth in 2006. It is likely this growth will continue, even if the impact won't be seen for awhile.

Through the Fly's Eyes: TiVo

From Larry Ramer of Theflyonthewall.com

Investors May be Underestimating TiVo

Investors are apparently very disappointed with TiVo’s (TIVO) Q2 results, which the company reported yesterday. Following the announcement, TiVo’s shares plunged almost 8%, to around $5.66 in late morning trading. Indeed, on the surface, there was a great deal to be disappointed about in the company’s Q2 results, as TiVo’s losses came in at 18c per share, versus a consensus of 5c per share. However, a look underneath the surface indicates that there is some room for optimism about TiVo’s future performance.

The poor Q2 results are, in part, a reflection of more competition in TiVo’s core digital video recorder market from cable TV and phone companies, as well as start-ups that have entered the sector. As this blog noted last month, TiVo is facing tough times. But we also suggested that long-term investors consider sticking with TiVo, since the company has launched several initiatives that could bear some fruit in the near future. These initiatives still seem to be on track, and most analysts seem to believe that they will indeed improve the company’s performance down the road.

For example, Kaufman Bros. believes that Tivo’s launch of a new, cheaper high definition, or HD, DVR should "improve (the) economics of TiVo’s stand-alone DVR,” and “offers a compelling alternative to cable offerings.” Indeed,TiVo CEO Tom Rogers told Dow Jones that retailers are reserving prime shelf space for the new product, which was just launched last month. Kaufman contends that the shares’ current price is a result of investors’ misunderstanding of TiVo’s new business model. Going forward, the firm forecasts that TiVo’s new advertising platform, the company’s new lower cost DVR, and its cable DVR deals, will provide upside. When you factor in the fact that TiVo operates in a high growth sector, and the shares’ low price, there are many reasons to consider taking a look at TiVo.

Even the company’s Q2 results are not as bad as they seem on the surface. Most of TiVo’s loss in the quarter was the result of an inventory write down for standard DVRs , caused by retailers’ rapid movement towards high definition DVRs. TiVo’s revenue of $67.2M actually beat analysts’ consensus of $57.96M, and the company believes that its cash flow will reach the break-even point by the end of the year.

Through The Fly's Eyes: Gap Inc

from Laurie Pasternack of Theflyonthewall.com

One More Exec Falls Out of The Gap

Clothing retailer The Gap Inc (GPS) announced that CFO Byron Pollitt is leaving the company to take the CFO position at Visa Inc. Effective September 14. Sabrina Simmons, Gap's current senior VP of corporate finance, will serve as interim CFO. Company spokeswoman Kris Marubio said there was "no formal search going on right now" for a permanent CFO.

Is Pollitt leaving on his own accord? It is only one month after Gap named Glenn Murphy as the man to replace former CEO Paul Pressler, and Pollitt is now out for a new job. Pressler, who was hired from Disney (DIS) in 2002, quit after failing to revive sales slumps in the namesake and Old Navy lines. Pollitt, who has been at Gap since 2003, also formerly worked for Disney and was hired for Gap by Pressler. Therefore, it's not really a surprise that Pollitt is leaving, because many executives leave after close associates do.

It's no secret that Gap is in the midst of a major restructuring. In fact, Murphy was brought in to revive sales at its Gap and Old Navy chains after losing market share in the U.S. to other retailers like Target (TGT) and Abercrombie & Fitch (ANF). While under the reign of Pressler and Pollitt, Gap sales initially rose, but dropped into a slump over the past several years; the Associated Press reported that despite this, Gap's market value remains about $2B above where it was before Pollitt joined the company.

In order to boost profits, Pollitt and his associates have implemented several cost-cutting efforts that have managed to cut about $100M from the company's expenses this year. This move has so far eliminated around 2,000 jobs and closed the company's Forth & Towne chain. Despite sagging sales, the cost cutting helped boost Gap's Q2 earnings by 19%.

So far, Gap is still a mess. The retailer, which also owns the Banana Republic chain, has seen flat or declining SSS since June 2004 in every month but three. C.L. King analyst Mark Montagna said that losing Pollitt is a "notable loss," particularly because new CEO Murphy has no significant fashion industry experience. As Murphy prepares to attempt to gain back some of the U.S. market share from rival retailers through layoffs, cuts in corporate office space and reduced inventory, he really needs someone behind him with experience.

As for Pollitt, he's confident the "talented team" at Gap will "continue to build on the progress [made]." For now, though, he is expected to have better luck at Visa, whose IPO later this year is expected to yield a big payday.

This morning, shares of Gap traded down almost 1%.

Through The Fly's Eyes: Chico's FAS

from Theflyonthewall.com

Chico's Having A Tough Time Turning Around

Although total sales increased to $436 million from $403 million, same store sales fell once again for Chico's (CHS), the once high flying retailer. Comps sales dropped 5.6% for the quarter ending in July and comps for August continued to decline in the mid-single digit range. Analyst had expected comps sales to flatten beginning in August -- this is not a good sign.

Chico's found a great niche selling to aging boomers who wanted to buy high quality and higher-end fashion clothing. At times, the attraction was almost cult-like. However, the flagship Chico's stores have begun to seriously struggle the past year, finding it near impossible to grow comp sales.

Last night, the retailer reported earnings of $0.22 per share versus a consensus estimate of $0.26. Also, its newer WhiteHouse/BlackMarket concept is also struggling with negative comp sales, which are coming in much worse than expected.

All told, this is one struggling retailer to avoid bottom fishing in, at least for now.

Through The Fly's Eyes: Bandwidth

from Theflyonthewall.com

Mark Cuban & Om Malik on BroadBand

Mark Cuban, owner of the Dallas Mavericks and Internet pioneer, is not too happy with how the Internet's infrastructure is evolving. Cuban points out how "each generation to whom the invention was a breakthrough it may have been heretical to consider those inventions 'dead and boring'. The reality is that at some point they stop changing. They stop evolving. They become utilities or utilitarian and are taken for granted."

Cuban points out that until bandwidth throughput to the home reaches far higher numbers, the Internet is dead, as the platform is not evolving fast enough to allow really smart people to come up with groundbreaking ideas. Throughput to the home has not increased more than 5mbs in the past 5 years, and few people's throughput is going to increase to more than 10mbs in the next 5 years, he noted.

GigaOm.com's Om Malik agrees, saying most of the smart people who orginally built out the Internet are now developing the content and not the infrastructure. All the smart people who built the equipment and the pipes are now building Web 2.0 products.

Malik goes on to say "the future, however, is in two-way, symmetrical Internet, where applications such as Kyte.TV and Sling Media can actually be put to use." Malik goes into much greater detail, which should be required reading for those who are investing in technology and the Internet. The blogs can be found at GigaOm.com and BlogMaverick.com. Both Cuban and Malik agree the Internet's infrastructure is due for a serious wake-up call.

Through The Fly's Eyes: GameStop

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

GameStop: The World's No. 1 Video Game Retailer

If keeping up with the latest video games stands high on your list of priorities, there is an outfit in Grapevine, Texas that makes it easy. It has stores around the world and operates a pair of web sites, too.

GameStop Corporation (GME) is the world's largest video game and entertainment software retailer, offering software, hardware and game accessories for the PC, as well as video game systems from Sony (SNE), Nintendo (NTDOY) and Microsoft (MSFT). The firm also owns two e-commerce sites and Game Informer magazine, a leading video and computer game publication. GameStop operates 4,954 retail stores worldwide. Amazon.com (AMZN) and Best Buy (BBY) are competitors.

The company surprised investors last week, when it reported Q2 EPS of 14 cents and revenues of $1.34 billion. Analysts had been expecting 9 cents and $1.19 billion. The CEO said, "Our second quarter performance was very broad-based, with the U.S., Canada, Australia and Europe all exceeding expectations." Management also guided Q3 EPS to 19-21 cents (18 cent consensus), FY08 EPS to $1.45-1.48 ($1.46 consensus) and FY08 revenues to $6.38-$6.49 billion ($6.45B consensus). Two brokerages subsequently declared the issue a "strong buy" and three others said "buy". Price targets were set in the range $52-60.

The stock popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the shares with eight "strong buys", seven "buys" and three "holds". Analysts expect a 32% growth rate, through the next year. The GME Price to Sales ratio (1.31), Sales Growth rate (38.92%) and EPS Growth rate (366.67%) compare favorably with industry, sector and S&P 500 averages.

Institutions own about 90% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past twelve months, it has traded between $20.97 and $49.84. On Tuesday, it closed at $46.42. Should you decide to invest, let early volatility pass and consider a stop-loss of $41.50.

Through The Fly's Eyes: Synopsys

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.













Design Software for the Chip Industry

Synopsys Inc. (SNPS) is a leading provider of electronic design automation software for semiconductors. The company delivers system design and verification platforms, IC manufacturing and yield optimization solutions, semiconductor intellectual property, and design services to customers in the chip, electronics and aerospace industries. Synopsys products address such complex issues as power management, accelerated time to yield, and system-to-silicon verification. The firm has strategic alliances with Honeywell (HON), IBM (IBM) and Texas Instruments (TXN).

Investors were pleased last week, when the company reported fiscal Q3 EPS of 32 cents and revenues of $304.1 million. Analysts had been expecting 30 cents and $300.6 million. Management also guided Q4 EPS to 34-37 cents (35 cent consensus) and Q4 revenues to $300-$310 million ($308.61M consensus). Shares popped above 50-day, 200-day and 90-day moving average resistance on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the stock with two "strong buys," two "buys" and seven "holds." Analysts see a 19% growth rate, through the next year. The SNPS Price to Book ratio (2.98), Price to Free Cash Flow ratio (15.48) and EPS Growth rate (190.91%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 87 percent of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $18.32 and $28.67. A stop-loss of $23.40 looks good here.

Through The Fly's Eyes: Auto Sector

From Kevin Shult of Theflyonthewall.com

Ford Invests in Spain, not the U.S.

Ford Motor Co (F) signed an agreement with the UGT Union in Spain today, according to the Associated Press. The agreement will allow Ford to build three new small- and mid-sized cards in its Almussafes plant in Spain, with an annual production target of 350,000 cars. The union has agreed to keep labor costs low in effort to keep the plant competitive with its European rivals.

The announcement comes at a time when automakers are doing everything they can to expand their global operations outside of the United States.

Japan’s Nissan Motor Co (NSANY) and Renault SA of France are in talks with India’s Mahindra & Mahindra Ltd. to develop a car that would cost less than $3,000. In addition, Nissan has allied itself with Indian truck and bus maker Ashok Leyland Ltd. to build small trucks and other light commercial vehicles in India, according to the Associated Press today. India’s very own Tata Motors Ltd. (TTM) is also developing a $2,500 car for Africa and putting up showrooms across the continent, the WSJ reported

Last month, Chrysler (DAI) and Chery announced their joint venture to export cars to Latin America and Eastern Europe. The Journal reported in July that Ford plans to invest nearly $1 billion into Romanian car maker Automobile Craiova if its wins a tender to acquire a 72.4% stake in the company. The Romanian government hopes to wrap-up the deal by September 1st.

Inside the U.S., the United Auto Workers are fighting tooth and nail to keep their jobs. Both General Motors (GM) and Ford (F) have threatened to move their North American operations overseas if the union doesn't agree to their terms. The Wall Street Journal reported today that Chrysler is proposing to divest two non-core assets in the United States – Mopar and Chrysler Transport – citing people familiar to the matter.

Looks like Detroit’s “threats” are turning into reality as each day passes by. The UAW better watch out.

Through The Fly's Eyes: Chrysler LLC

From Kevin Shult of Theflyonthewall.com

Chrysler threatens the UAW

Chrysler joined Ford (F) and General Motors (GM) today when it proposed to divest two of its non-core assets. The newly independent Chrysler is looking at divesting Chrysler Transport, which manages deliveries of supplies to Chrysler plants, and its Mopar unit, which makes high-performance and specialty auto parts, people familiar with the matter told the Wall Street Journal.

Obviously, the United Auto Workers opposes the divestures. It is unclear if the divestiture of the assets will be part of the final agreement between the UAW and the newly independent Chrysler.

In addition to the potential non-core asset sales, the company already has a restructuring plan that calls for 13,000 jobs cuts and a return to profitability next year. Tom LaSorda, who created the restructuring plan and leads the talks with the UAW.

The UAW's talks with Chrysler have also revolved around the auto maker receiving a concession on health care costs, similar to what Ford and GM received back in 2005. Chrysler also wants to outsource non-core employees to a third party, similar to the agreements Ford currently has with UAW locals at individual plants.

The UAW now faces a battle at each of the three major Detroit automakers. The contract between the UAW and Chrysler expires on September 14th.

Through The Fly's Eyes: Freddie Mac

from Joseph Lazzaro of Theflyonthewall.com

Freddie Mac's Q2 Report Aug. 30: Data Point Of Significance

In the Concrete Canyon that is the financial capital of the world, there are data points, and then there are data points.

Thursday's docket offers a "data point of significance" when Freddie Mac (FRE) reports Q2 results. As one of two public, government-sponsored agencies formed to promote home ownership by increasing the availability of mortgage funds, any Freddie Mac report would be noticed by economists, analysts and traders alike, but this quarter's report takes on added import in light of recent subprime mortgage and mortgage-backed asset defaults that have roiled the stock and credit markets in the world's major developed economies and produced a credit crunch.

Moreover, the defaults were a major factor in the Dow Jones Industrial Average's more than 10% retreat from its +14,000-level high earlier this summer and the concomitant housing sector's slowdown that may cause the U.S. economy to slip from projected, below-trend GDP growth into a recession.

Among other FRE metrics, on Thursday Wall Street analysts will pay very close attention to portfolio and credit guarantee income, and the overall quality of its retained portfolio. FRE is expected to post a decline in Q2 2007 earnings per share, to 81 cents from $1.13 in Q2 2006, according to the Reuters consensus estimate. Freddie Mac's shares were down 57 cents to $60.63 in Wednesday afternoon trading.

Still, just as significant - and perhaps more so - will be Freddie Mac's statement and conference call comments: Wall Street will scrutinize any comments FRE may have on the scope of subprime charge-offs and defaults, overall mortgage credit quality [including delinquency rates], housing market conditions, and any comments FRE may have on its retained portfolio.

The aforementioned operational statistics would be noteworthy in a typical market. But in a market that's now diligently [if belatedly] collecting and analyzing subprime and credit information in order to get a comprehensive picture of the scope of subprime defaults and overall mortgage market conditions, Freddie Mac's Q2 report Thursday is, without question, a data point of the most pertinent sort.

Through the Fly's Eyes: Christopher Wood

From Larry Ramer of Theflyonthewall.com

Predictor of Credit Crunch Foresees Recession

CLSA stock strategist Christopher Wood, who two years ago predicted that mortgage-securities would cause a credit crunch, now believes that the U.S. is headed for a recession. “All risks,” he says,”are on the downside.”

In 2005, Wood, a British-born former financial journalist, warned that U.S. mortgage debt was “where the credit risk lies in the American and global financial system,” according to an article in today's Wall Street Journal. Those were, of course, quite prophetic predictions by Wood, whose employer is owned by French bank Credit Agricole.

Wood now sees more doom and gloom on the way. Last Friday, he told India’s CNBC-TV18 that “the next few months should see a material slowdown in the U.S. economy,” as a result of a continued housing downturn and lower consumption rates in the U.S. A transcript of Wood’s comments was provided on the station’s website, www.moneycontrol.com.

The Fed will cut rates on September 18, unless U.S. markets continue to be strong until then, Wood believes. In any event, he forecasts that the Fed will cut rates within 2-3 months amid slowing economic growth. He recommends buying interest-rate sensitive stocks.

Wood must not be a popular figure among Western investment bankers, as he seems to put most of the blame for the current crisis on American and European financial institutions’ love affair with securitization and “structured credit.”

While “conventional thinkers” believe that securitization spreads losses throughout the system, securitization is actually analogous to “a body ravaged by a spreading cancer,” Wood said recently, as reported by the Financial Times’ Alphaville section. The structured credit system created by American and European financial institutions has been discredited and is in the process of self-destructing, Wood said on CNBC.

Furthermore, the fact that central banks have had to lend billions of dollars to banks in recent weeks indicates that the asset-backed securities market has failed, Wood told the Financial Times. He added that central banks have been too quick to lend money, undermining market discipline.

“If modern day authorities are not prepared to see financial institutions fail, then they should stop pretending it is a free market, re-regulate, and ban securitization,” Wood said.

Through The Fly's Eyes: Apple Inc

from Laurie Pasternack of Theflyonthewall.com

Apple Schedules Event for September 5th

This morning, Apple (AAPL) confirmed a media event on September 5th. According to digital invitations to analysts and media, the company is planning to introduce "a new array of digital media offerings" at the event, called "The Beat Goes On."

Rumors are swirling that the "digital media offerings" may include a new variety of Mac OS X-based iPods. In addition, sources close to the matter believe CEO Steve Jobs, who generally unveils new iPod models before the start of the holiday season, may announce offerings related to the company's digital media download service and iTunes software.

Apple hasn't released a new iPod model in over a year, so exactly how sure are the analysts? According to Piper Jaffray analyst Gene Munster, "I would say 99 percent chance it's new iPod." Munster said he believes the company is looking to "closely focus its business" and related segments around its Mac OS X operating system, instead of reports to the contrary. Bloomberg reported sales of the iPod and music on iTunes accounted for nearly 40% of Apple's revenue last quarter. Based on this, a new generation of iPods would be great for the company, as a way to keep their offerings fresh and may likely cause users to upgrade their models. Consumers, too, appear to be excited over an impending announcement: Shares of Apple were up more than 4.15% in mid-day trading.

As for components, according to analysts, along with redesigns of the video iPod and iPod nano, the new iPods may incorporate the recently-released iPhone's 3.5-inch touch screen. The third-gen iPod nano may include video capabilities and come in five new colors, but may still contain storage capacity of 2GB to 8GB. There is less speculation regarding the sixth-gen video iPod, but at 70% certainty, Munster said it could be widescreen, with WiFi capability, and may have storage capacity of up to 160GB. The Piper Jaffray analyst, who believes Apple is "entering the two strongest quarters in the company's history," also puts the lowest iPod price point to $299 from $249.

Be sure to mark September 5th on your calendar, because if new iPods are indeed announced, you won't want to miss it.

Through The Fly's Eyes: General Mills

from Laurie Pasternack of Theflyonthewall.com

It's Curtains for General Mill's Frozen Waffle Business


In a U.S. regulatory filing yesterday, General Mills (GIS) made several announcements pertaining to its strategy going forward.

The second-largest U.S. cereal maker said it would shutter two factories in Allentown, Pennsylvania and in Trenton, Ontario. This will eliminate 580 jobs. Additionally, the company will stop making cakes at a Chanhassen, Minnesota plant, a move that will eliminate around 125 workers.

Perhaps the announcement that will have the biggest effect on the company and its workers, General Mills said it would exit the Pillsbury frozen-waffle business. Although the company did not specifically comment on this decision, except to say that the "strategy had changed," there are rumors that strong sales of Kellog's (K) Eggo frozen waffles was largely the reason. In recent years, Eggo sales have deeply cut into sales of the Pillsbury waffles. In fact, in recent years, sales for Pillsbury waffles have fallen from $63M to $24M, according to market research firm Information Resources Inc. Kellog, meanwhile, currently holds a 71% market share in frozen waffles.

These restructuring efforts come several months after the company said it would sell its cereal at similar prices, but in smaller boxes. As prices for ingredients rise, this would allow General Mills to charge more-per-ounce for its cereals, which include Total and Cheerios. Analysts worried that this plan, called the "Right Size, Right Plan," will cause consumers to go elsewhere for their breakfast needs, but according to a survey, the initiative is off to a better-than-expected start.

Now that its frozen waffle business will shortly be out of commission, General Mills will have a lot of work to do to save face, although BMO Capital Markets analyst Kenneth Zaslow believes raising cereal prices shouldn't be a big deal for the company because its competitors have done the same thing.

According to the filing with the SEC, these actions are to be completed by March 2009. Spokeswoman Heidi Geller said production of the frozen dough products will be shifted to other General Mills plants. By eliminating nearly 3% of its workforce, General Mills is hoping to counter higher costs that hurt its profit earlier this year. The company is expected to record $13M in charges in Q1 related to the restructuring actions, job cuts and plant closures.

General Mills will report Q1 earnings on September 19th.

Through The Fly's Eyes: Robert Shiller

from Theflyonthewall.com

Will Shiller Be a Good Contrarian Indicator?

Yesterday, Robert Shiller of Macromavens said "the pullback in the US residential real estate market is showing no signs of slowing down." This followed the S&P/Case-Shiller national home price index falling 0.9% sequentially in the second quarter.

The index is down 3.2% from the second quarter of last year and is at its lowest level since it began in 1987. Robert Shiller went on to say he is worried about your home's value, and that's not good.

As a reminder, Shiller, of Yale professorial claim, correctly called the excesses of the late 1990's stock market. However, while he called the top, he never called the bottom, staying with his bearish bias way too long and never becoming a buyer.

Shiller shifted his focus to real estate in the current decade. Once again, his bearish prognostications proved correct. However, as the real estate market becomes weaker and weaker with the media flocking to his doors, the trained economist appears to be focused on following the downward trend and not attempting to find a point to start bottom fishing.

A new contrarian indicator may be when Shiller hits the airwaves in full force with his bearish views, it could prove to be a good sign that the bottom for the bear market in real estate is near.

Through The Fly's Eyes: Burlington Northern

from Joseph Lazzaro of Theflyonthewall.com

Warren Buffett Rides The Rails

When Warren Buffett buys, people listen.

And right now Buffett, head of Berkshire Hathaway (BRK.A) is into Burlington Northern Santa Fe (BNI) in a big way: according to information filed with the Securities and Exchange Commission, Buffett has upped his stake in BNI to 14.8%.

In BNI, Buffett is hooking up with a long-term, secular trend - the revival and expansion of the nation's railroads. Aided by strong demand for commodities in the U.S. and abroad, and by an increase its transportation services role, railroad companies are thriving. BNI, and Union Pacific (UNP), and CSX Corp. (CSX) have all benefited from solid demand for their services in the U.S. and robust growth in emerging market economies [particularly China, India and South America].

Further, the rise in road transportation costs stemming from higher diesel and gasoline costs has provided another boost for the rails: it many cases it's cheaper to transport products by rail than by trucks. Also, the U.S.' s inadequate, undermaintained, and increasingly-congested highway and road infrastructure has shifted additional business to the rails.

Still, BNI, like the other rails, remains vulnerable to a slowdown in global growth or a U.S. recession, and the stock has also pulled-back considerably during the market's recent decline, to about $78.70 from its roughly $95 high in May/June, but that hasn't deterred Buffett. Buffett, no doubt spotting long-term sector fundamentals in BNI's favor, BNI's performance, and the stock's reasonable price [P/E 16], probably interpreted the sell-off as a chance to snap-up a bargain.

And from the steady demand and revenue growth opportunities suggested from continued above-trend global GDP growth, Buffett's BNI analysis is one worth taking a look at.

Through The Fly's Eyes: Zumiez

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.














Zumiez: Gear For The Action Sports Crowd

If your idea of the best way to travel involves an Arbor Fish longboard, or a Burton Chopper, then there is an outfit in Everett, Washington that has your basics and all your accessories, too.

Zumiez (ZUMZ) is a mall-based specialty retailer of sports-related apparel and equipment. Apparel offerings carry such brand names as Billabong, Burton, Hurley and Quiksilver, as well as private labels. The equipment includes skateboards, snowboards, boots, bindings, and miscellaneous novelties. Stores cater to young people, between the ages of 12 and 24. The firm operates 266 outlets, in 22 states.

Zumiez pleased investors last week, when it announced Q2 EPS of 11 cents and revenues of $82 million. Analysts had been expecting 8 cents and $79.3 million. Management also guided FY08 EPS to 97-99 cents (97 cent consensus). The news helped pop the shares out of a mid-August "cup" into the late August "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle."

Brokers recommend the shares with five "strong buys," four "buys" and four "holds." Analysts see a 29% average annual growth rate, through the next five years. The ZUMZ Sales Growth rate (46.95%), EPS Growth rate (83.33%), Return on Assets (14.03%), Return on Investment (19.61%) and Return on Equity (22.12%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 91% of the outstanding shares. Over the past 52 weeks, the stock has traded between $20.00 and $48.10. A stop-loss of $39.00 looks good here.

Through The Fly's Eyes: MF Global

From Kevin Shult of Theflyonthewall.com

MF Global Getting Noticed

At least seven research firms initiated coverage of MF Global Ltd. (MF) this morning, with the majority of the ratings favorable, based on expectations for the company to benefit from the havoc in the financial markets.

MF Global, which had a disappointing trading debut last month at $30, is a broker of exchange-listed futures and options for over 130,000 clients. Shares now trade at $26.55 in late-day trading today.

JP Morgan, who initiated MF Global with an Overweight rating, expects volume and volatility in the current market will to create earnings growth in the longer-term. However, some analysts are concerned with MF Global’s competition. Deutsche Bank initiated shares of MF with a Hold rating, citing concerns over falling commission rates in a falling interest rate environment, which could pressure the company’s growth. Analysts from Wachovia initiated coverage of the derivatives brokerage firm with a Market Perform rating, while Citigroup started coverage with a Hold rating.

Through The Fly's Eyes: Crocs

from Eric Buscemi of Theflyonthewall.com

Crocs Trying to Take Bite Out of Apparel Market

Just in case the increasing trend (which I am very tempted to refer to as a fad, but will not, for fear of getting too many negative comments) of people wearing plastic clogs known as Crocs (CROX) wasn't enough, Crocs has now announced that it will expand into a full clothing line.

Consumers will soon be able to buy Crocs branded tops and bottoms for men, women and the kids. But here is the real announcement -- these won't only be regular cotton t-shirts and mesh athletic shorts, like Nike's (NKE) apparel, they will be made from the same Croslite plastic formula as the shoes. Furthermore, the clothing line will come in all the same outrageous colors as the shoes!

Crocs stock rose yesterday on this announcement, but the real tell will be how the stock reacts after the consumers try out this plastic clothing when it launches in October.

Through The Fly's Eyes: Alvarion

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

Comprehensive Wireless Broadband Networking

Businesses requiring wireless broadband network solutions are generally comforted by the knowledge that their provider's equipment is used successfully around the world. There is an outfit in Tel Aviv that provides that level of comfort. Its units are deployed in some 150 countries.

Alvarion Ltd. (ALVR) designs, develops and manufactures wireless broadband access systems. The firm's equipment uses multipoint and point-to-point packet switching technologies for high-speed, broadband Internet, and intranet connections. Products based on WiMAX (Worldwide Interoperability for Microwave Access) standards are a specialty. Customers include cellular operators, competitive local exchange carriers, service providers and regional carriers. The firm has strategic relationships with Alcatel-Lucent (NYSE: ALU) and IBM (IBM). Competitors include Cicso Systems (CSCO) and Nortel Networks (NT).

Alvarion surprised the Street earlier in the month, when it announced Q2 EPS of 3 cents and revenues of $57.6 million. Analysts had been looking for 2 cents and $54.7 million. Management also guided Q3 EPS to 3-5 cents (2 cent consensus) and Q3 revenues to $58-62 million ($55.72 million consensus).

The news kept ALVR shares cycling through a positive twelve-week trading channel. The price subsequently pulled back to the channel base, on the mid-August market decline, but then popped into a bullish "pennant" consolidation pattern with the aid of "buy" recommendations from FTN Midwest (8/16) and CE Unterberg Towbin (8/17). Stocks frequently exit a pennant with a move in the same direction they were traveling when they entered it. In this case, that would be to the upside.

Brokers recommend ALVR with four "strong buys," six "buys" and four "holds." Analysts see a 28% average annual growth rate, through the next five years. The ALVR Price to Sales ratio (3.57) and Price to Book ratio (3.65) compare favorably with industry and sector averages.

Institutional investors hold about 28% of the outstanding shares. Over the past 52 weeks, the stock has traded between $6.03 and $12.59. A stop-loss of $9.95 looks good here.

Through the Fly's Eyes: Playboy

From Larry Ramer of Theflyonthewall.com

Playboy Enters the Social Networking Arena

News Corp.’s (NWS) MySpace and Facebook have a new competitor to contend with in the social networking space – Playboy (PLA). The Playboy bunny has decided to hop into the online social networking field, by launching “PlayboyU.com,” a social networking website targeted specifically at college students.

PlayboyU.com will have at least two advantages over MySpace and Facebook. The first one is fairly obvious – PlayBoyU will presumably have a little more leeway when it comes to “risqué” content. It seems to be widely accepted that one of the reasons young men and women use social networking sites is to see and be seen. Sometimes they let a lot of themselves be seen, and that is likely viewed as a positive thing by many teenagers and young adults. Playboy will probably be able to be much more lenient in how much skin is shown on their site than Facebook and MySpace. That may allow them to quickly draw more young men and women away from these competitors.

The second advantage is a little less obvious. It has always seemed strange that there is very little media specifically targeted to college students, even though they are so sought after by advertisers. For example, although there are well-known magazines targeting men (“GQ”), women (“Cosmopolitan”), and children (“Teen” and “Highlights”), there doesn’t seem to be any prominent magazines that specifically cater to college students. So Playboy may have found a somewhat unexploited – and lucrative – niche.

But Playboy does face at least two big challenges as well with the site. PlayboyU probably won’t make too much money for the company if it becomes just another soft porn website, catering only to men. Playboy will have to walk a fine line, between showing a little more skin than its competitors, while taking care not to alienate female viewers. And, like all social networking owners, Playboy will have to figure out the best ways to monetize the site while keeping viewers happy.

Through the Fly's Eyes: Seagate and China

From Larry Ramer of Theflyonthewall.com

Seagate Story -- or Non-Story -- Raises Puzzling Issues

There are conflicting reports about whether a Chinese company was interested in buying U.S. disk drive maker Seagate Technology (STX). According to an article in The New York Times on Saturday, Seagate CEO William Watkins said he was approached by a Chinese company that was possibly looking to buy Seagate.

Today, Watkins is saying that The Times misunderstood him, that he did not receive an offer from any Chinese company, and that Seagate is not for sale, according to a Reuters report.

However, one somewhat puzzling aspect of the story has not been challenged. According to The Times, at least two people with close contacts to the U.S. government seem very concerned that China would be interested in purchasing an American disk drive company. They view such a purchase as a possible threat to U.S. security.

“Seagate would be extremely sensitive,” said one industry executive who participates in classified government advisory groups (the executive’s name was withheld by the newspaper). “I do not think anyone in the U.S. wants the Chinese to have access to the controller chips for a disk drive. “

The story does point out that modern disk drives have data encryption technology that could enable the lifting of information from computer networks. But it seems hard to believe that the purchase of a company which makes disk drives available on the open market could pose a viable threat to U.S. national security.

The hand-wringing about the national security implications of a Chinese purchase of Seagate seems particularly hard to comprehend at a time when the Bush Administration is pushing the sale of the most advanced weaponry in the world to Saudi Arabia, which has been accused of financing terrorism. And it wasn’t too long ago that the Administration, supported by many in Congress, was ready to turn over responsibility for America’s seaports to Dubai World, which is owned by a country that has also been accused of financing terrorism.

On the other hand, the Chinese have also shown signs of playing the national security card. Chinese lawmakers recently enacted a provision that seems aimed at limiting foreign investment based on Chinese national security concerns, according to an article in today's Times. Also, the Chinese have delayed the acquisition of a construction equipment manufacturer by an American private equity firm for three years, using the unlikely pretext of national security concerns. While some people believe that the Chinese are retaliating for the U.S. Congress’ decision to torpedo the sale of American energy company Unocal to a Chinese firm two years ago, others think the Chinese are being obstructionist because they just don’t need foreign investment anymore.

At any rate, the U.S. government should be wary of doing too much to alienate the Chinese now, at least over trade and business issues. At a time when America’s own economy is not exactly humming along brilliantly, it can ill afford to turn its back on Chinese investment in American companies, and the wealth of opportunities that the Chinese market provides to U.S. corporations.

Through The Fly's Eyes: Auto Sector

From Kevin Shult of Theflyonthewall.com

Chinese Car Manufacturers Roll into Africa with a Vengeance

Africa is too poor to be a major market for the world’s major automobile companies, but the industry has started noticing a new trend: China’s young car companies are aggressively moving into the continent.

The majority of people in Africa, especially in the smaller economies like Senegal in West Africa, lack the means to purchase a new Toyota (TM), Ford (F) or Volkswagen (VLKAY), according to the Wall Street Journal. For years, many Africans purchased used vehicles from developed nations in Europe. Now, Chinese automakers like Great Wall, Chery Automobile and Geely Group are challenging European, Korean, Japanese and American automakers by offering cheaper alternatives in the price-sensitive market.

In addition to exporting to Africa, China’s car companies are quickly building manufacturing hubs outside their home country. Now other companies are quickly maneuvering to be included in the global market expansion: Japan’s Nissan Motor Co (NSANY) and Renault SA of France are in talks with India’s Mahindra & Mahindra Ltd. to develop a car that would cost less than $3,000. Last month, Chrysler (DAI) and Chery announced their joint venture to export cars to Latin America and Eastern Europe. India’s Tata Motors Ltd. (TTM) is also developing a $2,500 car and putting up showrooms across Africa, the WSJ reported.

The Detroit News Wire Services reported that General Motors Corp (GM) and Malaysia’s DRB-Hicom Bhd. agreed to form a manufacturing and distribution joint venture in Malaysia to gain market share in Southeast Asia. In July, the Wall Street Journal said that Ford would invest $930.6 million into Romanian car maker Automobile Craiova if it won the sole bid for a 72.4% stake in the plant. The Romanian government hopes to close the deal by September 1st. With the current set of problems between the UAW and American car manufacturers, the recent threats from Ford and General Motors could spur additional joint ventures in foreign lands.

Through The Fly's Eyes: Nasdaq, Borse Dubai

from Joseph Lazzaro of Theflyonthewall.com

Borse Dubai, Nasdaq Vie For OMX

Borse Dubai and Nasdaq are both bidding for the Nordic exchange owner, OMX, with the current bid, by Borse Dubai, up to $4 billion, according to the Daily Telegraph Dubai.

Further, there was talk that Nasdaq also may make a revised bid for OMX: according to one weekend press report, Nasdaq is planning to unveil an improved offer for OMX this week, Thomson Financial reported. In May, OMX agreed to a $3.7 billion offer from Nasdaq, but at lest two big shareholders are re-examining their support for the Nasdaq offer, Forbes reported.

Borse Dubai's $4 billion bid for OMX is becoming increasingly acceptable to institutional investors, after Sweden's regulator recognized the Dubai offer as legitimate, Gulfnews.com reported. About 25% of OMX floating stock is held by hedge funds.

London's Daily Telegraph also indicated that Nasdaq is also trying to sell its 31% stake in The London Stock Exchange, reportedly shopping its share for $1.6 billion.

The Dubai bid gives strong indications of Dubai's intentions to establish a Middle East / Europe multi-exchange capable of competing with Nasdaq and NYSE / Euronext (NYX), as well as major financial centers in Europe.

Analysts say the exchanges' efforts to establish regional partnerships and undertake mergers is being driven by technology, the increasing interconnectedness and interdependence of major equity and financial centers, and the benefits of economies of scale, among other factors. These analysts also generally note that Nasdaq's intention to sell its LSE stake represents a tactical modification, not a refutation of the regionalization of equity markets trend.

Through The Fly's Eyes: Take Two Interactive

from Theflyonthewall.com

Manhunt 2: Violence Sells

Take Two Interactive (TTWO), the developer of violent-rich video games, got crushed pretty good this past month as the launch of the next installment in its flagship series, Grand Theft Auto 4, was delayed until the spring.

Management dismissed the pushback saying although it will miss the Christmas rush, it will be out in time for Easter. Therefore, while shoppers pick up their Easter baskets, they can also pick up a new copy of GTA4 for their kiddies. So, while chomping away at their Easter bunnies and celebrating Christ's rising from the dead, your kids can be shooting pimps and prostitutes on their new video game -- life doesn't get much better than that.

Jesting aside, Take Two will be releasing a series of products that could make some serious money for investors. Manhunt 2, which has received a "Mature" rating from the US Entertainment Software Rating, will be out in time for the Halloween season. It had previously received an "Adult" rating, which severely limited distribution. The mature rating greatly increases the revenue and profit potential for investors.

Further, the power of the Grand Theft Auto name should not be underestimated. While the launch has been delayed, the stock appears to have discounted most of the impact, dropping from $20 down to $14. The recent stock market correction further depressed these shares.

While Take Two has its risks, most notably its relationship with game developers at Rockstar Games who create the big money making products, the video game company should benefit from a massive product upgrade cycle, from both new games and the new consoles. Use the recent panic selling to scoop up these shares. Take Two could revisit its $20 level by the spring.

Through The Fly's Eyes: Procter & Gamble, Kraft Foods

from Laurie Pasternack of Theflyonthewall.com

P&G Blowing the Lid off the Competition


Procter & Gamble (PG) announced yesterday it had filed a lawsuit against Kraft Foods (KFT) over patent infringement. Patent infringement? P&G is claiming that Kraft's Maxwell House coffee's plastic container infringes one of its own patents for Folgers coffee. The Folgers canister, which features a one-way valve and a snap lid to "preserve freshness," has "many innovations" covered by patents, according to the company.

In an effort to "protect [its] intellectual property," P&G Chief Legal Officer Jim Johnson said that the lawsuit was necessary because of the large investments made to overcome "technical challenges" in making a lightweight plastic container. Remember that in the recent past the country's largest U.S. consumer goods maker has also has patent infringement issues with Berkshire Hathaway's (BRK.A) McLane Co (it alleged McLane sold items that "looked similar" to P&G items) and Coca-Cola (KO) (over a patented preservation method for calcium, fiber and vitamins contained in juice drinks). In this case, P&G believes that it is the container, which was introduced in 2003, that has helped grow its coffee business over the past few years. In fact, AdAge.com reported that it was plastic containers with handles that allowed Folgers to beat Maxwell House in the ground-coffee category through 2004. Although temporarily stalled due to Hurricane Katrina, Folgers was able to make a comeback: According to Information Resources Inc, Folgers narrowly beat Maxwell House 35% to 34% in ground-coffee market share for the year ended July 15th.

35% to 34%? That really is a narrow win, which may explain why Procter is fearful of the competition. This also doesn't help dispel speculation that both Folgers and Maxwell house may be divested in the future. Rumors have been swirling that Procter may sell Folgers to concentrate on its growing personal-care and household cleaning businesses. Procter's other products include Crest toothpaste and Tide detergent. As for Maxwell House, activist investor Nelson Peltz may have interest, and may put pressure on Kraft to sell. Meantime, both Procter and Kraft have been making an attempt to get into the cluster of brands that cater to the food-service industry; P&G has been selling Dunkin' Donuts ground coffee, while Kraft, whose products also include Post cereals and Nabisco cookies, has been selling Starbucks (SBUX)-branded whole coffee beans.

The lawsuit, filed in San Francisco's District Court, is seeking unspecified monetary damages. In addition, P&G is looking for Kraft to halt shipments of Maxwell House with its new plastic containers. Kraft spokeswoman Renee Zahery said the company has not yet reviewed the lawsuit, but "respects valid patent rights of others."

Through The Fly's Eyes: HD Supply

from Theflyonthewall.com

Home Depot vs. Wal-Mart

Headlines abounded yesterday of Home Depot (HD) taking a big haircut on the sale of its supply business. However, taking the big haircut now could mean more money in shareholders' pockets further down the road.

Conversely, another retailing behemoth, Wal-Mart (WMT), sent out signals yesterday that it may, for the first time, start looking at acquisitions. Sam Walton must be rolling over in his grave.

Wal-Mart's current CEO, Lee Scott, has had a tough time keeping good times rolling at the discount retailer. Whether it is market saturation or poor management decisions, he just cannot seem to get sales growing.

But as Home Depot's board of directors has learned, it is often better to stay focused than to go on an acquisition binge. It will be interesting to see if Mr. Scott wants to learn from Mr. Nardelli's errant ways.

Through The Fly's Eyes: Tech Data

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

IT Distribution in Over 100 Countries

A big problem for distributors is how to keep prices at levels that will allow their clients to effectively do business with end users. There is an information technology provider in Clearwater, Florida that doubtless believes it's a matter of scale. The firm is the second-largest distributor of computer products in the world.

Tech Data Corporation (TECD) is a leading distributor of IT products, with more than 90,000 customers worldwide. The firm sells microcomputer systems, peripherals, networking equipment and software products to resellers, direct marketers and retailers. In addition, the company provides training, technical support, external financing options and configuration services. Suppliers include Alcatel-Lucent (ALU), Apple Inc. (AAPL), Cisco Systems (CSCO), Hewlett-Packard (HPQ), International Business Machines (IBM), Intel (INTC) and Microsoft (MSFT).

Tech Data pleased investors last week, when it announced Q2 EPS of 50 cents and revenues of $5.61 billion. Analysts had been looking for 30 cents and $5.3 billion. The CEO attributed the successful quarter to "very strong" revenue growth in the Americas and a "significant turnaround" in Europe. Management also guided Q3 revenues to $5.75-5.90 billion ($5.67 billion consensus).

The share price popped on the news and then began formation of a bullish "pennant" consolidation pattern. Stocks frequently exit a pennant with a move in the same direction they were traveling when they entered it. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy," two "buys," nine "holds" and three "sells." Analysts see a 21% growth rate, through the next year. The TECD Price to Sales ratio (0.10), Price to Book ratio (1.20), EPS Growth (0.01 to 0.50 yr/yr) and Revenue per Employee ($2.74M) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $33.01 and $43.74. A stop-loss of $34.25 looks good here.