Theflyonthewall.blog

Through The Fly's Eyes: Contest

2007-10-11T10:19:00.001-04:00

Andrew Corn is a contributing editor for Theflyonthewall.com and the CEO of Clear Asset Management .

Clear Indexes: NEXT GENERATION ETF CONTEST

Clear Indexes LLC is calling on college students to take a hiatus from Margaritaville long enough to start thinking like the "other Buffet." We are moving their interest from the songwriter Jimmy, to the legendary "Oracle of Omaha," Warren Buffet. His training and success began early, at the age of 11 at his father's brokerage firm. Buffet's experiences as a precocious youth provided him the foundation and spark that led him to become one of the greatest investors of our time. Clear Indexes recognizes the potential of motivated students and the importance of fostering and rewarding intellectual curiosity.Much of this is based on our own experiences and based on the firm's track record of success with college interns.

This morning, Clear Indexes LLC launched the first of many competitions aimed at stimulating the creativity of young minds. The "Clear Next Generation ETF Contest" is challenging Lehigh, Columbia, and NYU students to analyze the markets to uncover new and differentiated investment opportunities. The contestcalls for up to five unique and investable ideas that can translate into indexes for Exchange Traded Funds. We also require an explanation of why each idea will be attractive to a range of investors.

We have received outstanding support from professors and career offices.

"Clear Indexes' contest offers a great opportunity for our students to utilize the financial and marketing concepts learned in the classroom and fire up their creative juices by designing an ETF that is original and adds value in the marketplace," said Richard J. .Kish, chair of Lehigh University's Perella Department of Finance. "It is just the type of contest that will energize a core group of students to test the marketplace in arisk-free environment."

Ten honorable mentions will receive a gift, a letter, and the benefit of putting the contest on her resume. Two second place winners will receive $2,000 each. The Grand Prize Winner will win $4,000 and an internship at Clear Indexes. If the top idea is launched as a live ETF, the Grand Prize Winner will be invited to the exchange for the ringing of the opening bell. The deadline for the contest is November 26, 2007.

The ETF contest was created to benefit the students, Clear Indexes LLC, as well as the ETF issuers we work with. The inflow of fresh ideas will provide Clear exposure to a myriad of concepts and the opportunity to select the strongest investment thesis. Young and intelligent, although relatively inexperienced students have the potential to think outside the "Wall Street box." Clear Indexes has consistently given opportunities to college interns because we recognize the value in hiring people who are transitioning from being motivated by the lyrics of Jimmy to the siren song of Warren. We have experienced firsthand how determined, competent, and innovative college students can be and are excited to review the idea submissions.

Through The Fly's Eyes: Chrysler & UAW

2007-10-11T00:17:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Chrysler / UAW: As Expected, A Short Strike

Just call it the 6-hour strike. Or the strike that 'really wasn't that much of a strike.'

The United Automobile Workers announced Wednesday that they had reached a tentative contract agreement with privately-held Chrysler, about six hours after workers walked off the job at Chrysler plants nationwide when the two sides failed to reach a deal by a union-set deadline.

Contract details were not immediately available, but analysts believe the new pact will mirror a new contract at General Motors (GM), which was reached on Sept. 26 after a two-day union strike. Chrysler officials said the agreement contained a clause to start a health care trust, similar to one at GM, which would assume Chrysler's $18 billion liability for medical benefits for current and retired workers and their families. Chrysler's shares are privately-held. On Wednesday, GM closed down 20 cents to $38.13; Ford (F) closed down 9 cents to $8.23.

The agreement was announced by the union's president, Ron Gettelfinger, in a statement. The union told workers to report for their jobs on their next shift, which for most will be Thursday morning. Chrysler has about 45,000 workers in the United States.

Fly Analysis: The pact is consistent with the postmodern tenor of U.S. corporate - labor relations, particularly as it relates to the industrial sector. Namely, that globalization trends are compelling cost cutting, increased efficiency, and lower per-person labor rates to enable U.S. companies to compete with lower-cost foreign competitors. The new Chrysler / UAW pact gives the company an adequate chance to return to world-class competitive status, provided the company can also follow through with the launch of innovative, high-quality vehicles that meet consumers' needs and preferences.

Through The Fly's Eyes: ScanSource

2007-10-10T19:42:00.000-04:00

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

ScanSource: Gear For High-tech Check-outs

Passing through a store check-out line is no longer a simple matter of handing the clerk some cash and waiting for your change. Nowadays, the process involves an array of technical devices for identification, scanning, printing, data transmission and security evaluation. There is a Greenville, South Carolina firm that knows all the equipment and distributes systems to some 18,000 resellers.

ScanSource (SCSC) is a distributor of specialty technical products for automatic identification/data capture, point of sale, and communications applications. It provides such devices as bar code scanners, receipt/label printers, PC-based terminals, pole displays, call center equipment and electronic security products. The firm sells equipment from such manufacturers as Cisco Systems (CSCO), IBM (IBM) and Microsoft (MSFT).

ScanSource got the Street's attention earlier in the week, when it guided fiscal Q1 revenues to $546-$554 million. That range was up from prior guidance of $525-$545 million and topped the consensus Street estimate of $535.5 million. SCSC shares popped on the news and have begun defining 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 one "strong buy," one "buy," four "holds" and one "sell." Analysts see a 17% average annual growth rate, through the next five years. The SCSC P/E ratio (19.78), PEG ratio (1.13), Price to Sales ratio (0.42), Price to Book ratio (2.56), Sales Growth rate (21.47%) and Revenue per Employee ($2.01M) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% 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 $25.22 and $34.14. A stop-loss of $27.75 looks good here. Note that the company is expected to report Q1 results on October 25, after the close.

Through The Fly’s Eyes: Roche and Ventana

2007-10-10T19:08:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

Ventana’s Stalling Tactics

Swiss pharmaceutical giant Roche (RHHBY) is attempting to buy out diagnostic system maker Ventana Medical Systems (VMSI) and has a $3B – or $75 per share – offer on the table. This is the third time Roche has extended this offer, but it’s also the third time that Ventana shareholders have held out asking for more.

Roche has signaled that it has no intent to up their offer, with CEO Franz Humer saying he was fully confident that Ventana would come around, especially with nobody else bidding for the company. Ventana CEO Christopher Gleeson disagreed, saying there are no corporate issues between the companies, but mostly about the value. Gleeson believes the company can get more than $75 per share.

Analysts agree and think that Roche might have to up the stakes to change the shareholders’ minds. Nick Draeger of Adamant Biomedical Investments says that “they’re going to have to [raise the offer]. They don’t seem to be able to persuade enough investors to unload stock. It seems to be a real cat and mouse game.” Leernik Swann analyst Bruce Cranna also believes Roche’s offer is undervalued and when a deal is finally made, it could be worth $92-$95 a share.

The stock market seems to agree. Ventana’s shares, while down $1.67 in today’s trading, are still above $75 at $86.27. This is only slightly lower than the company’s 52-week high of $88.70. Roche’s shares don’t trade in the US.

While Roche is Ventana’s only bidder, the Swiss giant desperately wants to get into the diagnostic field and this might be the company’s best chance. Roche keeps affirming the same offer, but Ventana’s shareholders know their value and can feel Roche's desperation. With everything going in Ventana’s favor, the company would do best to wait for Roche to increase their offer. It would be a win-win for both companies.

Through The Fly's Eyes: Research In Motion

2007-10-10T18:54:00.000-04:00

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

Research In Motion Shares Enter Bullish 'Flag' Pattern

Research In Motion (RIMM) is engaged in the design, manufacture and marketing of wireless devices for the mobile communications market. Its popular line of BlackBerry smart phones handle voice, email and text message communications, as well as internet access. The firm also makes radio-based modems that other manufacturers incorporate into portable devices. The company sells to corporations, resellers, and wireless carriers. BlackBerry units are offered by a variety of service providers, including Alltel (AT) and Verizon Communications (VZ).

The firm pleased investors last week when it reported Q2 EPS of 50 cents and revenues of $1.37 billion. Analysts had been expecting 49 cents and $1.36 billion. The CEO said that recent product and market initiatives are expected to extend business momentum through the remainder of the fiscal year. Management guided Q3 EPS to 59-63 cents (55 cent consensus) and Q3 revenues to $1.60-$1.67 billion ($1.52B consensus). Officials anticipate third quarter subscriber account additions of about 1.65 million. The stock popped on the news and has since passed 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.

So far this year, brokers have recommended the shares with one "strong buy," nine "buys" and four "holds." Analysts see a 34% average annual growth rate, through the next five years. The stock's Sales Growth rate (26.84%), EPS Growth rate (100.00%), Operating Margin (27.07%), Net Profit Margin (20.70%), Return on Assets (26.94%), Return on Investment (33.09%), Return on Equity (33.82%) and Net Income per Employee ($140k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 76% of the outstanding shares. The issue is one of those used to calculate the NASDAQ 100 Index. Over the past 52 weeks, it has traded between $36.00 and $118.80. A stop-loss of $99.00 looks good here.

Through The Fly's Eyes: MGM Mirage

2007-10-10T15:35:00.000-04:00

from Larry Ramer of Theflyonthewall.com

MGM Rolling the Dice on Atlantic City Resort/Casino

MGM Mirage (MGM) is making a big bet that it can profitably run a huge Las Vegas-style casino in Atlantic City.

The company has announced plans to build a huge, $4.5B to $5B hotel, casino, and entertainment complex in Atlantic City. The project, called the MGM Grand Atlantic City, is slated to have 3,000 rooms and three towers. It will also boast a 1,500 seat theater, a spa, 5000,000 square feet of retail space, nightclubs, and the largest casino floor in the city.

As several people noted, the project is clearly an attempt to change the character of Atlantic City.

"[MGM's project] is another step in Atlantic City's evolution to a full-scale destination resort," said Joe Corbo, president of the Casino Association of New Jersey, as quoted by the Associated Press.

"[MGM Grand Atlantic City] is a bet on what Atlantic City can become," said Susquehanna Financial Group analyst Robert LaFleur. "We are long-term believers that the market can transition from a predominantly day tripper market to more of a Las Vegas overnight destination."

Perhaps, but MGM will face several significant hurdles in its attempt to lure people looking for a Las Vegas-like resort experience to Atlantic City . First of all, as LaFleur noted, people don't think of Atlantic City as a vacation destination, and it may take a while to change that perception. The city's gambling area just doesn't have the glitz of Las Vegas -- instead of the lights and glamour of the Strip, the casinos are surrounded by a dull boardwalk on one side, and parking garages and downscale restaurants and shops on the other. Also, unlike Las Vegas, any luxury resort in Atlantic City is sure to have a long off-season. How many high rollers are going to want to spend their vacations in the chill of New Jersey from the end of November through the beginning of April? And Foxwoods' casino in Connecticut, as well as casinos that are slated to be built in Philadelphia, will provide some competition for short-term vacationers.

On the other hand, MGM's $1B-plus Borgata casino in Atlantic City has done well, and maybe there is a market for Northeastern and Middle Atlantic vacationers who don't want to go far from home, but do want to gamble while enjoying a resort experience.

MGM and its investors are hoping that this gamble pays off. But do the odds here favor the house?

Through The Fly's Eyes: AT&T and Verizon

2007-10-10T11:37:00.000-04:00

from Theflyonthewall.com

Don't forget about the large telcos

While investors are focusing on the ensuing battle between AT&T (T) and the big cable companies over providing voice, video and data to the home, many might need to be reminded that the telco giants have a massive enterprise business that is ripe to benefit from improved pricing.

Remember there are few companies that can provide high-level enterprise service on a nationwide basis -- AT&T and Verizon Communications (VZ) are pretty much it. You would be hard pressed to name another. Qwest Communications (Q) has not said much about what it wants to do with its fiber network and although Level 3 Communications (LVLT) is picking up its business, it will not be enough to threaten the positions of the two behemoths.

AT&T and Verizon's stock performance, while doing well recently, has been held back by investors wondering where the revenue growth is. Now it appears that growth might be ready to return. Jim Crowe, Level 3's CEO, said a few months back that one issue the industry no longer has is pricing, a big change from a few years ago.

Verizon and AT&T have been written about more positively over the past few days, as Bear Stearns and Citigroup are both recommending the stocks. Sometimes the best stocks are in the most obvious places. AT&T and Verizon are two large companies that are worth looking at again.

Through The Fly's Eyes: Protectionism

2007-10-10T11:22:00.000-04:00

from Theflyonthewall.com

Protectionism Politics

As CNBC hosted a presidential debate targeting the business audience, the issue of protectionism, or the economic policy of restraining trade between nations, was raised in a number of ways: Why do we have trade deficits? Why do both heads of a household need to work versus one? Why do people have to work so many more hours to live at the same standard of living as their parents? Why is the U.S. dollar weak? This is a debate that will only intensify as the Republicans and Democrats pick their candidates to face-off against each other.

Utilizing protectionism as the political hot button for a presidential campaign always carries the risk of unintended consequences. A candidate could actually convince the American people that protectionism could work, as the merits of globalization can often be hard to communicate and are often only understood after having experienced the economic limitations of protected borders.

The irony of CNBC's debate is that it was hosted in Michigan. This is the U.S. state which has stuck most closely to strong unionization and attempts to limit competition, and has also registered some of the weakest economic growth in the U.S. since the shift from a manufacturing to a service economy began some twenty-five years ago.

Senator John McCain brought up the Smoot Hawley Tariff Act which led to the Great Depression and World War II during the debate. Closed borders equal closed minds which translates into some bad economic times. The temptation of protectionism is one that must be avoided.

Through The Fly's Eyes: IAC/InterActiveCorp

2007-10-10T11:02:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Ask.com-Google Partnership Sunk?

According to Investor's Business Daily, IAC/InterActiveCorp (IACI) CEO Barry Diller was, at one time, confident that his Ask.com would renew its partnership with Internet giant Google (GOOG). The question of renewal was posed to Diller back in February, and he said he believed the renewal could take around two months, at most, for a deal. Now that it's October, with no renewal in sight, a deal may be looking less likely. Diller has remained "relatively quiet" on the subject. Not good for InterActive, as the contract expires at the end of the year.

Why is the Google deal so important for Ask.com? The search engine is currently dependent on Google for text ads that provide a large part of its revenues. Being the giant it is, Google, ValleyWag.com, isn't nearly as dependent on Ask.com or on InterActiveCorp. Analysts believe Google isn't as dependent because as time goes on, the company continues to widen its lead in the search market. According to research firm Hitwise, Google accounted for nearly 64% of all searches in the U.S. in August, while Ask.com trailed far behind with just over 3%.

There is an upside -- sort of. Even if Google doesn't decide to renew its partnership with Ask.com, many believe there are others that would be interested in partnering. Of those, Yahoo! (YHOO) and Microsoft (MSFT), who are both looking to delve deeper into the search-advertising market, may be the biggest contenders for a relationship. Despite the fact that neither of these companies make as much as Google does -- per search -- they would still be willing to split profits with Ask. Additionally, ValleyWag points out another issue for Ask.com, which, should Google bail out, would leave Ask.com dependent on another search engine. Either way, if Ask.com isn't with Google, it may as well anticipate a net loss.

As the partnership with Google remains up in the air, Ask.com is aggressively promoting its upgraded search engine by advertising it on television. InterActiveCorp beefed up the site in June in attempt to catch up to the likes of Microsoft and Yahoo!. The new site integrates content from various media types, including Web content, news, blogs, images and video, onto one page. The shiny new Ask3D is reportedly more user friendly, but users have questioned whether Ask.com provides the "instant getification," it claims, as opposed to Google's Universal Search. The new ad spots have aired during shows like "Saturday Night Live," and aims to show the common user why their search engine is better than others.

Despite all the "cool" new functions of Ask.com, it is unlikely it would be able to catch up with Google in terms of advertisers and market share. Google has the resources, particularly through acquisitions, and the innovation to continue its drastic lead against not only Ask, but Microsoft and Yahoo!. If it wants to get ahead, Ask's remaining hope appears to be renewing its Google partnership. Otherwise, it looks like Ask.com is out of its league.

Shares of IAC/InteractiveCorp were down 0.17% to $29.69 this morning.

Through The Fly's Eyes: Sprint Nextel

2007-10-10T00:00:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Sprint's Lackluster Performance

The ouster of Gary Forsee as CEO of Sprint Nextel (S) can hardly be placed in the category of sudden, shocking surprises.

Facing mounting pressure from investors, Sprint said Forsee will leave immediately and that CFO Paul Saleh will run the company on an interim basis.

Sprint has struggled to adroitly and profitably integrate Nextel - which it purchased for $36 billion - into its operation, and it's now clear that a new company advertising campaign to attract subscribers isn't working; Sprint said it lost 337,000 contract subscribers in Q3.

One may ask why hasn't Sprint's advertising plan produced better results? An ad campaign can not negate serious operational deficiencies - it's kind of like arguing you can build a house by not laying a sound foundation. Sprint's shares closed Tuesday down 22 cents to $18.28.

Sprints largest drawbacks? You guessed it: those dropped calls and poor cell phone reception. In fairness, Sprint's mobile network has improved recently but it still lags mobile systems operated by Verizon (VZ) and AT&T (T). Further, the broadband era has simply magnified the quality gap: Sprint will have to invest even more to make its system as media-friendly as its competitors': growth in video consumption on mobile phone shows few signs of slowing in the immediate years ahead, barring a recession.

The above will require innovation, belt-tightening, appropriate pricing decisions, and perseverance, among other virtues, and the consensus on Wall Street is that Sprint will have at most 3-4 quarters or so to show enduring, better results.

If you've concluded that the above is a better-than-modest hurdle, you're correct.

Through The Fly's Eyes: Altera Corporation

2007-10-09T19:36:00.000-04:00

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

Altera Corporation: Trading Channel Possibilities

The user-programmable integrated circuit allows electronics manufacturers to fine-tune its properties to suit themselves. Such devices were pioneered in 1984, by a San Jose, California outfit that still sells a lot of them.

Altera Corporation (ALTR) makes high-density programmable logic devices and associated development tools. PLDs are integrated circuits that clients can program themselves, using software that Altera also provides. This allows clients to provide their customers with special-purpose chips that cost less than equivalent custom-designed devices. Altera's circuits are used by thousands of customers in computing, telecommunications, industrial, and automotive applications. Clients include Honeywell (HON), Johnson Controls (JCI) and Motorola (MOT).

The stock has been a steady gainer, since mid-August, moving higher in response to such issues as solid third quarter revenue guidance ($319.7-329.3M vs. $325.1M consensus) and last week's upgrade to overweight by Morgan Stanley. In fact, the price is cycling through a positive eight-week trading channel.

It is currently consolidating at the base of that channel, suggesting the potential for another swing back toward the top. Correspondence of the stock's 30-day moving average to the channel base backs the rebound notion.

Brokers recommend the issue with four "strong buys," five "buys," 15 "holds" and a "sell." Analysts see a 32% growth rate, through the next year. The ALTR PEG ratio (1.40), Price to Free Cash Flow ratio (33.26), Operating Margin (24.17%), Net Profit Margin (26.72%), Return on Assets (16.37%), Return on Investment (22.63%), Return on Equity (23.89%) and Revenue per Employee ($129k) 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 500 Index. Over the past 52 weeks, it has traded between $17.51 and $26.24. A stop-loss of $21.25 looks good here. Note that firm is expected to report Q3 results in early November.

Through The Fly's Eyes: Garmin

2007-10-09T19:13:00.000-04:00

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

Garmin: Following A Positive Trading Channel

When it comes to global positioning system hardware, there is a firm in the Cayman Islands that can tell you just where you stand.

Garmin Ltd. (GRMN) manufactures products enabled by global positioning system technology. The firm's Consumer segment offers instruments used in automotive navigation, general recreation and business applications. The Aviation segment provides a panel-mounted product line that enables flight navigation, very high frequency communications and instrument landings. Boat manufacturer Ranger and airplane maker New Piper use Garmin equipment in their vehicles. The company's consumer products are sold through such retailers as Best Buy (BBY) and Wal-Mart (WMT).

The stock passed through late July, August and September cycling upward through a positive trading channel. It was sustained in that move by such issues as a better than expected Q2 report, solid upside guidance for FY07 and generally favorable analyst remarks (price targets to $130). Prices fell briefly below the base of the channel last week, on word Nokia (NOK) had made a bid for digital map database firm Navteq (NVT). Analysts had expected that Garmin would make such a move, as it relies heavily on NVT information.

The issue has popped back into the lower portion of the channel, however, as some say Garmin may yet make a bid and most believe it would continue to do business with Navteq under Nokia's ownership, in any event. Analysts are now out reiterating, or upgrading previous positions on the stock and GRMN call options are active. These developments suggest that GRMN shares may resume their positive channel trend.

Brokers recommend the issue with three "strong buys", two "buys", fourteen "holds" and one "sell". Analysts expect an 18% growth rate, through the next year. The GRMN Sales Growth rate (71.58%), EPS Growth rate (78.57%), Operating Margin (31.05%), Net Profit Margin (29.18%), Return on Assets (32.03%), Return on Investment (39.80%), Return on Equity (41.07%) and Net Income per Employee ($144k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 33% of the outstanding shares. The stock is one of those used to calculate the Nasdaq 100 Index. Over the past 52 weeks, it has traded between $44.53 and $122.78. A stop-loss of $94.90 looks good here. Note that the firm is expected to issue Q3 results on October 31st, before the open.

Through The Fly's Eyes: YUM! Brands

2007-10-09T16:12:00.000-04:00

from Eric Buscemi of Theflyonthewall.com

YUM! Brands Keeps on Cookin'

If you had to guess how a popular fast-food chain would fare financially after facing multiple PR nightmares, you'd probably guess that that it wouldn't be doing well. You may even think back and recall all the bad press Wendy's (WEN) got in March of 2005, when a woman allegedly found a finger in her chili. The incident was later reported to be fraudulent, but it still affected sales, with a company spokesman admitting, "This has been an ordeal for all of us. Hopefully there will be a resolution soon."

Well, not so with YUM! Brands (YUM). It just reported excellent results after not one, but two public relations nightmares within the last 12 months. Last December, YUM's Taco Bell chain had an E. Coli breakout stemming from contaminated produce, and then, in February, the YUM's Taco Bell and KFC chains in New York City were found to be infested with rodents.

Before today, despite those horror stories, the stock was up to about $36 from a year ago of about $27. Now, after the results, it has jumped to over $38 a share. What are these results? Third quarter EPS was 50 cents, better than a consensus of 45 cents, and third quarter revenue was $2.56B, better than a consensus of $2.46B. Full year EPS guidance was also a penny over the consensus estimate of $1.64. YUM also announced that it planned up to $4 billion in share buybacks.

Additionally, the CEO of YUM! Brands, David C. Novak, said of Taco Bell, "We're starting to see signs the business is turning, and we expect the business will continue to recover into the fourth quarter and well into next year." If this is merely the beginning of the turn around, this fast-food story will be quite a success for quarters to come.

Through The Fly's Eyes: Children's Place

2007-10-09T14:47:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

Bad Times In Toyland

Children’s merchandise retailer Children’s Place (PLCE) reported lower than anticipated earnings today. The company previously reported a guidance EPS of 94c-$1.02, but third quarter results are now expected to be at least 60% lower than the low-end of that figure.

Children’s Place interim CEO Chuck Crovitz said that “the results primarily reflect inventory levels that are higher than we would like given current sales trends.” He also suggested that higher fuels costs have led to limited clothing and home-good purchases. Consequently, the company will try to clear out inventory through substantial discounts.

The lowered earnings expectations only add to the problems the company has experienced as of late. Two weeks ago, former CEO Ezra Dabah resigned after an internal investigation found that he violated policies for securities trades. The company also stripped former Chief Creative Officer, Nina Miner, after she was also found violating the company’s code of business conduct. Furthermore, the company is a target of a class-action lawsuit alleging that shareholders were misled by company executives which led an artificially inflated stock price.

As a result, the company’s stock has sagged this past year. The stock is down more than 7% in today’s trading to $22.59, well below it’s 52-week high of $71.81. Analysts are also bearish as Sterne, Agee and Leach, Inc. downgraded Children’s Place stock to “Hold” from “Buy” due to lowered guidance, the impending lawsuit and corporate governance issues.

The forecast for Children’s Place remains murky. While the company has a licensing agreement with Disney (DIS), which is always a best seller, the credit and mortgage crisis has affected consumer sentiment more than anticipated. So long as the credit woes and sky-high fuel costs continue, sales are likely to remain depressed as consumers will be looking to curb spending during these uncertain times.

Through The Fly's Eyes: Force Protection

2007-10-09T14:45:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Anticipation of Election Results May Ground Force Protection

Right now, armored vehicle maker Force Protection (FRPT) is rolling along quite well. However, the company’s prosperity may be short-lived -- if it looks in the middle of next year as though a Democratic candidate will win the U.S. presidency.

The Army has ordered more than 1,900 of the company’s mine-resistant vehicles this year. A provision currently being considered by Congress would raise funding for mine resistant ambush protected vehicles, or MRAPs, by $26.3B. Force Protection is seen as one of the major beneficiaries of higher MRAP funding by the government.

Force Protection will also likely bid to fill the military’s request for 8000 light-armored vehicles with its Cheetah series, according to C.E. Unterberg analyst James McIlree, as quoted by CBS Marketwatch. If Force Protection’s bid is successful, the Cheetah may eventually replace the Humvee in the military’s fleet, McIlree suggested.

Force Protection’s stock is only trading at 15 times forward 2008 earnings, leading McIlree to suggest that the company could become a buyout target.

But there could be a good reason why investors are skeptical about paying high prices for Force Protection’s stock. The Army’s demand for MRAPs are largely driven by the war in Iraq, where roadside bombs are responsible for the deaths of many U.S. soldiers. The Democratic candidates for President have all vowed to quickly downscale America’s presence in Iraq. If the Democratic nominee looks set next summer to win the election in November 2008, Force Protection’s stock will likely suffer, as investors anticipate that the Army will need less of the company’s armored vehicles.

The Army could very well still order many MRAPs under a Democratic president in anticipation of future wars. However, it seems unlikely that the government will spend as much on armored vehicles as the Iraq war winds down with a Democrat in the White House.

Through The Fly's Eyes: Aeropostale

2007-10-09T10:46:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Aeropostale’s Big Drop

Shares of Aeropostale (ARO) were sharply down yesterday after analysts at Caris downgraded the retailer to Average from Above Average. On the downgrade, shares dropped 8% at yesterday's close.

Despite rising sales in 1H07, where EPS increased 71% to 36c and revenue increased 13% to $587M, and shares reaching a record high in May of $31.88 per share, the teen retailer saw its shares drop a sharp 42% over the summer. Additionally, its same store sales fell in July, growing less-than-expected in August. The company also lowered its Q3 estimates back in August.

Because of this, it's not surprising shares were downgraded. Caris analyst Scott Birkby explained that shares were downgraded due to less transparency and greater uncertainty of the drivers of gross and operating margin expansion in Q4 and FY08. While he believes the company's Q3 guidance is "not at risk," he said that the Q4 and FY08 EPS views are too aggressive. Why? He said there may have been some sort of "fundamental changes" in the company's operating strategy that could lead to weaker -- or even negative -- SSS for 2H. At the very least, Aeropostale will face difficult comparisons to the year-ago period in 2H, Birkby said.

What's going on here? Sources indicate it may have something to do with "growing pains," or, that the company is looking to expand quickly. For instance, last year alone, the company, which already has 792 mall-based stores, opened 66 new stores. Birkby also said that the company is currently looking to reduce costs of products from its South Bay Apparel vendor, and is attempting to grow margins by operating in a "less promotional environment." This is a stark departure from how the retailer successfully grew margins a year earlier in 2006 when it placed more focus on offering more fashionable merchandise. Further, Birkby believes the company is facing pressure from opening a new distribution center on the West Coast, as well as higher build-out costs from a new store prototype.

Some are still optimistic on the stock. For one thing, shares are still cheap; in particular, shares are significantly cheaper than rivals American Eagle Outfitters (AEO) and Abercrombie & Fitch (ANF). Additionally, NYBusiness.com reported, the retailer may be in a better position than other rival chains to "withstand a softening in the economy and a downturn in consumer spending."

Aeropostale wasn't the only apparel retailer to fall yesterday. Shares of Talbots (TLB) dropped after Friedman Billings downgraded shares to Underperform from Market Perform on weak traffic. Talbots dropped 5.9% to $18.31. Also falling were Gap Inc (GPS), down 6c to $18.85 and Guess Inc (GES), down 1.7% to $51.63.

Through The Fly's Eyes: AMR Corp.

2007-10-08T19:17:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

American Airlines: Short-term Pain For Long-term Gain?

The aviation industry is highly cyclical, competitive and too dependant on external factors. While airlines can be profitable for one quarter, the next quarter can entail a bloodbath. AMR Corporation (AMR)’s American Airlines is the world’s largest airline in terms of passengers. While most airlines have recovered and normalized operations to sky-high oil prices and increased competition from popular low-cost carriers, American Airlines has been slow from the gate.

AMR’s stock has dragged compared to its competitors. While AMR’s stock is down considerably compared to it’s 52-week high ($25.74 vs. $41.00), United Airline’s parent corporation UAL Corp. (UAL)’s stock is $48.72, slightly lower than its 52-week high of $51. Fellow Dallas-based Southwest Airlines (LUV) stock is currently at $14.93, slightly lower than its 52-week high of $16.96. Finally, Delta Airlines’ (DAL) – which recently emerged from bankruptcy – stock is valued at $19.43, only a little lower than its 52-week high of $23.25.

AMR’s CEO Gerard Arpey’s strategy to focus on the long-term is partly to blame for the lag. United and Delta have focused their short-term strategies on aggressively expanding into higher yielding international routes, while American Airlines has halted expansion and focused on improving their balance sheet by prepaying aircraft debt.

Analysts have a different view. Standard & Poor’s Jim Corridore suggests that AMR lags behind because they’re the only major airline carrier than has never declared bankruptcy, thus they have been at a disadvantage and have more work ahead for them. FTN Midwest Securities Corp.’s Michael Derchin believes that AMR’s balance sheet strategy will work and maintains that the stock is a “Buy."

Another potential positive stems from AMR’s largest investor, the FL Group, owns 9.14% of the airline. The investment concern wants AMR to sell its popular frequent flyer program, which would unlock $4 billion in value to shareholders. Barron’s online suggests this stock is a buy because of this.

Further, while good balance sheets and diversification are paramount for successful businesses, the commercial airline industry is much different. External factors, such as high oil prices, affect an airline’s bottom line far more than paying off aircraft debt. AMR’s cost-cutting has been far more aggressive than its competitors, but airlines typically increase revenue by expanding their network, which AMR hasn’t done. AMR’s long-term focus is probably useless since it won’t help the company overcome short-term shocks or gain short-term revenue.

Through The Fly's Eyes: Immucor

2007-10-08T19:11:00.000-04:00

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

Immucor: Upside Potential For The Maker Of Blood Bank Systems

Given the steady need for emergency and surgical transfusions, it's imperative that routine blood bank tests be performed quickly and accurately. A leading maker of systems that automate such work is headquartered in Norcross, Georgia.

Immucor (BLUD) provides automated systems used by hospitals, clinical laboratories and blood banks to detect and identify certain properties of the cell and serum components of human blood, prior to transfusion. Products are primarily used to type blood and detect foreign antibodies. The firm received FDA clearance for its third-generation automated analyzer, the Galileo Echo, in June of this year.

The company made the news last week, reporting fiscal Q1 EPS of 25 cents and revenues of $63.6 million. Analysts had been expecting 22 cents and $59.8 million. It was the sixteenth straight quarter of sequential revenue increases for Immucor. Robert W. Baird subsequently reiterated its "outperform" rating on the shares. BLUD popped into a bullish "flag" consolidation pattern on the news. 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 recommend the issue with one "strong buy" and three "buys." Analysts see a 22% average annual growth rate through the next five years. The BLUD Sales Growth rate (24.61%), EPS Growth rate (38.89%), Operating Margin (41.87%), Net Profit Margin (27.55%), Return on Assets (25.73%), Return on Investment (30.45%) and Return on Equity (33.21%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 88 percent 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 $23.73 and $39.96. A stop-loss of $33.75 looks good here.

Through The Fly's Eyes: Focus Media Holding

2007-10-08T17:35:00.000-04:00

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

Focus Media Holding: Innovation In Chinese Advertising

There is a Shanghai firm that has established itself as an advertising powerhouse by recognizing that innovation generates profits. The company conveys clients' messages by way of 200,000 flat panel TVs.

Focus Media Holding (FMCN) operates an advertising network of public television displays in China. The devices are placed in high-traffic areas, such as office buildings, hotels, airports, retail chain stores and the public areas of residential complexes. In all, the company runs nearly 200,000 display units. It also operates an advertising network for the Chinese mobile telecommunications market and recently acquired China's largest Internet advertising agency. Clients include Coca-Cola (KO), Yum! Brands (YUM) and Procter & Gamble (PG).

FMCN investors were pleased late last month, when the company said that an internal investigation did not find evidence of alleged undisclosed rebate payments to a third-party advertising agency through a related party. Focus Media filed its annual report and audited financial statements for 2006, which had been delayed as a result of the investigation. Susquehanna Financial initiated coverage of the shares with a "positive" rating. Then, management reported fiscal Q2 EPS of 38 cents and revenues of $113.3 million. Analysts had been expecting 34 cents and $102.2 million. Officials also guided Q3 EPS to 41-43 cents (43 cent consensus), Q3 revenues to $132-$135 million ($115.51M consensus) and full-year 2007 revenues to $440-$450 million ($409.65M consensus). CIBC World Market and WR Hambrecht reiterated "buy" recommendations and boosted their price targets to $70. The stock popped into a bullish "flag" consolidation pattern on the news. 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 two "strong buys" and nine "buys." Analysts expect a 34%growth rate, through the next year. The FMCN Sales Growth rate (126.33%), EPS Growth rate (123.53%), Operating Margin (35.75%), Net Profit Margin (37.13%) and Return on Assets (9.46%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95 percent of the outstanding shares. Over the past 52 weeks, FMCN has traded between $26.05 and $61.39. A stop-loss of $50.00 looks good here.

Through The Fly's Eyes: Google, Microsoft, and Apple

2007-10-08T15:04:00.000-04:00

from Larry Ramer of Theflyonthewall.com

The gPhone May Sting Microsoft and Apple

In the long run, Google’s (GOOG) rumored gPhone may hurt Microsoft (MSFT) almost as much as it hurts Apple (AAPL). According to an article in today’s International Herald Tribune, Google’s motive in developing the gPhone is to create software for cellular phones that will be an alternative to current cellular operating systems.

Google’s entrance into the cellular phone operating system market could potentially reduce Microsoft’s revenue. While only 12 million phones with the company’s Windows Mobile operating system were sold last year, that number has been growing rapidly each year. The number of phones running Windows Mobile doubled from the end of 2005 to the end of last year. With only 10% of a rapidly growing market, Windows Mobile had a chance to become a really significant growth engine for Microsoft (one of the company’s few), but Google’s operating system may eliminate that possibility.

Unlike Microsoft, Google is not expected to charge cellular carriers a licensing fee to run its mobile software. Instead, Google plans to rely on advertising that appears on the phones’ screens to profit from the project. And if Google can enhance the mobile Internet experience, cell phone companies will have another reason to use Google’s operating system instead of Windows Mobile.

Indeed, 45% of people polled by The Kelsey Group indicated that they would look for better mobile Internet capabilities on their next cell phone. So, even though Google is not directly targeting iPhone users, the gPhone may wind up pulling some of them away, if it can offer better Internet capabilities. On the other hand, many iPhone users could be turned off by the advertising on the gPhone, and its look, which is reportedly less snazzy than the iPhone.

But, in any case, Microsoft's Windows Mobile looks like it may be somewhat endangered by Google’s impending move into the mobile Internet.

Through The Fly's Eyes: Financial Stocks

2007-10-08T14:57:00.000-04:00

from Theflyonthewall.com

Is It Time To Jump Into Financial Stocks?

Historically, when the Fed has started cutting rates, investing in financial stocks has proven profitable for investors. Will the same hold true in today's easing cycle? Probably not.

The Bear Stearns (BSC) model for its mortgage business might point to problems ahead for the financial industry in general. The financial services industry has done an outstanding job during the past twenty years developing new products and marketing them to institutions who specialize in buying these new instruments -- primarily hedge funds. With mortgage hedge funds, publicly traded vehicles such as mortgage REITs and other investors now shutting their doors to these products, who gets stuck with them? You guessed it! The investment firms and large commercial banks.

Now let's go to $300 billion of private equity debt that needs to be placed. Who is buying that up? While some institutions are, much of it is staying on the books of the investment firms and banks. Will funds be formed to invest in this debt? Yes, but it will take time.

Also, a point worth noting is that much of the debt for private equity deals is in the form of leveraged loans -- meaning floating rate debt. If a series of events unfold where these interest rates have to be set higher, many companies that have gone private will have a tough time making their interest payments. Not too different than what is currently happening to homebuyers who purchased homes with adjustable rate mortgages.

Further, as the Fed starts priming the pump to keep the economy going, the liquidity will not flow into the sector that just went bust. Following the tech and telecom bubble of the late 1990s, when the Fed dropped rates, money went into real estate, not back into tech and telecom. As this current easing cycle unfolds, money is unlikely to flow back into the mortgage market and PE deals.

While the investment firms and commercial banks are not going bust like many did in the earlier 1980s and early 1990s, they will have trouble growing earnings for the next few years. Also, it appears the Fed's easing cycle may not create the steep yield curve for financial firms to make easy money. All totaled, earnings growth in the financial sector will be hard to come by during the next few years and the stocks' performance will mirror the companies' inconsistent earnings performance.

Through The Fly's Eyes: UAW and Chrysler

2007-10-08T13:52:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

With Wed. Chrysler Deadline Set, Analysts Debate UAW Leverage

As United Auto Workers set a Wednesday morning deadline for a new contract agreement with privately-held Chrysler, auto industry analysts and workforce consultants debated the overall strength and leverage of the UAW, given Chrysler's partial operation status.

A strike against a cash-rich, robust automaker with dominant market share is a move that could yield results, labor analysts generally agreed, but automaker Chrysler is not in the that category. Recently taken private by Cerberus Capital Management, Chrysler has already idled five of nine assembly plants in order to eliminate unsold inventory, due to sub-par sales. Hence, any potential strike would not hurt the automaker as much as, for example, when an automaker is loaded with backorders, market share, and has pricing power.

Chrysler has underscored that contract concessions are needed to make the automaker more-competitive with Japan-based and related competitors. Among other concessions, Chrysler wants to adapt its health care plan to better-suit its needs. The UAW has sought to minimize wage & benefits concessions, while also seeking certain guarantees regarding pension payments, among other items.

The negotiations had little affect on the publicly-traded automakers Monday. Ford was down 14 cents to $8.23 while General Motors declined 22 cents to $37.98 in afternoon trading. [As noted, Chrysler is privately-held: Cerberus spent $7.4 billion to purchase 80.1 % of Chrysler this summer.]

Chrysler has the the smallest UAW-represented work force, with about 49,000 workers as members; Ford (F) has 58,000 and General Motors (GM) has 73,000, Reuters reported.

Last month, the UAW struck General Motors for about two days before coming to a tentative agreement with the company; UAW's GM workers are expected to ratify that deal by week's end.

Through The Fly's Eyes: The U.S. Dollar

2007-10-08T12:00:00.000-04:00

from Theflyonthewall.com

Negative Sentiment of the Dollar Continues To Build

Gold, the Canadian dollar, the euro and the lowering of short-term interest rates does not bode well for the U.S. dollar. Or at least that is what conventional wisdom is saying. You will be hard pressed to find a financial TV show or publication saying anything positive about the greenback these days.

Arguments are a plenty: the dollar is weak because the Fed added to much liquidity to U.S. economy in 2001 and 2002, the dollar is weak because of our huge trade and budget deficits, the dollar is weak because we are a people who are undisciplined and cannot save. The arguments go on and on. Someone in Barron's actually wrote that the dollar is weak because inflation is high. Outside of housing there does not seem to be a lot of price deflation, but taking the leap to suggest inflation is pervasive enough to cause the dollar to weaken is somewhat of a stretch.

As we have blogged a few times this past month, the U.S. dollar is weak because currency traders have a trend-is-your-friend mentality. They will lever up and follow that trend until they get spanked by central banks. Currency reversals are driven by Treasury secretaries working with central bankers to change the direction of a currency. Expect that to soon happen particularly with the U.S. dollar reversing against the euro. The seeds are already being sown to spank those currency traders good and to drive the U.S. dollar higher. The U.S. economy remains the place to be and the global leader in new business creation. Do not sell the dollar short, go long the greenback.

Through The Fly's Eyes: Taser

2007-10-07T23:40:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Taser Is Hitting Its Stride

Stun gun company Taser (TASR) is shooting into new markets around the world, and has won acceptance from the national governments here and in France, as well as thousands of police departments in the U.S. Taser develops weapons that emit 50,00 volts of electricity, temporarily incapacitating people.

The French police are reportedly going to spend $17 million-$33 million on the company's stun guns, and the French Interior Ministry ordered 1,249 of the company's weapons last month. The company recently received a follow-on order from the U.S. Marshals, and over 11,000 American police departments are utilizing Taser's stun guns. Even the U.S. Army has become a Taser customer, ordering 2,400 Taser weapons over the summer.

The company moved into the civilian market this summer, with a self-defense stun gun targeted towards women. The pink-colored weapon certainly has a huge potential market, and the company reports that the initial response to its civilian gun has been enthusiastic.

Taser does have more than its share of detractors and legal problems. Some people argue that the company's weapons, advertised as non-lethal, really do cause civilian deaths. But the courts don't seem to agree, as the company has never lost any of the 58 product liability lawsuits against it, and it has only settled a few low-cost cases involving police training accidents. Taser shares closed Friday down 18 cents to $17.87.

In today's world, where violence is increasing while tolerance for the use of lethal force by law enforcement officials and even armies is decreasing, Taser seems well-positioned for a breakthrough. Police can use Tasers instead of guns to subdue violent criminals without killing them. In places like Iraq, armies can utilize the weapons against people whom they believe may be trying to attack them, while at least drastically decreasing the chances of killing an innocent person.

The world is clearly discovering the advantages of Taser, as evidenced by its expanding customer base as well as its Q2 results and share price. In Q2, the company had a record $25.86M in revenue and a profit of 6 cent per share. Its stock has jumped from a low of $13.56 in August to around $18 today - healthy 32% increase. Investors may want to take a look at this stock, especially if it continues to penetrate new markets and win its court cases.

Through The Fly's Eyes: IPO & Syndicate Preview

2007-10-07T23:16:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Wall Street's equity market kicks into fifth gear this week with 8 IPOs and 6 Secondaries on the docket.

Those deals tentatively scheduled to price include:

IPOs:

Possible

SP Acqusition (DSP), a 36M-share IPO for this business financing company. UBS Investment and Ladenburg Thalmann are the lead managers. Filing pricing: $10.00.

Midweek

Mediatech Investment (MDTC), a 10M-share IPO for this business financing company. UBS Investemnt and JMP Securities are the lead managers. Filing range: $14.00-$16.00.

Tuesday

EyeTel Imaging (EYT), 4.025M-share IPO for this blindness systems company. Maxim is the lead managers. Filing range: $7.00-$8.00.

Wednesday

Affinion Group (AFI), a 32.5M-share IPO for this marketing services company. Morgan Stanley and Deutsche Bank are the lead managers. Filing range: $15.00-$17.00.

Compellent Technologies (CML), a 6.9M-share IPO for this network storage company. Morgan Stanley is the lead manager. Filing range: $10.00-$12.00.

Targanta Theratpeutics (TARG), a 5.75M-share IPO for this pharmaceutical company. Credit Suisse is the lead manager. Filing range: $12.00-14.00.

Textainer Group (TGH), a 9M-share IPO for this freight equipment leasing company. Credit Suisse and Wachovia are the lead managers. Filing range: $19.00-$21.00.

Thursday

Virgin Mobile USA (VM), a 27.5M-share IPO for this wireless telecom company. Lehman Brothers, Merrill Lynch, Bank of America and Bear Stearns are the lead managers. Filing range: $15.00-$17.00.

Secondaries:

Midweek

TomoTherapy (TTPY), a 9.78M-share Secondary for this medical devices company. Merrill Lynch and Piper are the lead managers.

Wednesday

Layne Christensen (LAYN), a $173 million Secondary for this drilling services company. UBS Investment and Merrill Lynch are the lead managers.

Neurobiologiacl Technologies (NTIID), an 18.9M-share Secondary for this neurological medicines company. Merriman is the lead manager.

Thursday

Bionovo (BNVI), a 11.4M-share Secondary for this pharmaceutical company. BMO Capital Markets and Canaccord Adams are the lead managers.

JA Solar (JASO), a 6.3M-share Secondary for this solar cell systems company. Credit Suisse and Lehman Brothers are the lead managers.

Friday

Obagi Medical Products (OMPI), a 7.25M-share Secondary for this pharmaceutical company. Thomas Weisel, Robert W. Baird and CIBC World Markets are the lead managers.

- -

For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out The FLY Syndicate at www.theflyonthewall.com. [Subscription required.]

Through The Fly's Eyes: Chattem Inc.

2007-10-05T17:21:00.000-04:00

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

Chattem: OTC Drug Specialist

When it comes to O.T.C. drug products, folks are often surprised to learn that a single Tennessee outfit is responsible for nearly thirty of the best known names. It was founded 128 years ago, as the Chattanooga Medicine Company.

Chattem (CHTT) provides over-the-counter drugs, personal care products and dietary supplements. Offerings include such pain treatments as dental analgesic Benzodent, topical analgesic Aspercreme, muscle pain reliever Flexall, menstrual symptom reliever Pamprin and analgesic Icy Hot. The company also makes sleep aid Melatonex, medicated powder Gold Bond and Mudd facial masks. Chattem sells its products in eighty countries, through such merchandisers as CVS Caremark (CVS), Safeway (SWY) and Walgreen (WAG).

The company surprised investors last week, when it reported Q3 EPS of 83 cents and revenues of $109 million. Analysts had been expecting 74 cents and $106 million. Management also guided FY07 EPS to $2.96-3.06 ($2.95 consensus) and FY08 EPS to $3.69-3.89 ($3.56 consensus).

The stock popped on the news and has since 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. Brokers recommend the stock with two "strong buys", one "buy", six "holds" and a "sell". Analysts see a 24% growth rate, through the next year. The CHTT Sales Growth rate (51.39%), EPS Growth rate (102.44%), Operating Margin (26.81%) and Revenue per Employee ($923.50k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% 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 $34.21 and $74.00. A stop-loss of $63.00 looks good here.

Through The Fly's Eyes: Global Payments

2007-10-05T15:20:00.000-04:00

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

Global Payments: Paying The Electronic Way

If you use a credit card, the chances are pretty fair that you have done some business with an Atlanta outfit that facilitates electronic transactions around the world.

Global Payments (GPN) is a high-volume payments processor of electronic transactions and related money transfers. It performs point-of-sale credit card, debit card and check authorization functions for merchants and financial institutions and offers corporate and government clients benefit transfer processing and electronic tax payment services. The firm also facilitates money transfers from the US and Europe, primarily targeting immigrants who send funds to their home countries. MasterCard (MA) is a client. Western Union (WU) is a competitor.

The firm had good news for investors last week, when it announced fiscal Q1 EPS of 54 cents and revenues of $311 million. Wall Street has been expecting 50 cents and $294.6 million. The company attributed the successful quarter to a solid increase in merchant service revenues, continued organic expansion and favorable results from an Asia-Pacific joint venture with HSBC. Management also guided FY08 EPS to $1.87-1.96 ($1.91 consensus) and FY08 revenues to $1.20-$1.25 billion ($1.19B consensus). Barrington Research subsequently reiterated its "outperform" on the shares.

The news popped GPN into a "pennant" consolidation pattern, from which it is expected to rise. Altogether, brokers recommend the issue with twelve "strong buys," four "buys" and seven "holds." The GPN Price to Book ratio (3.83), Price to Free Cash Flow ratio (22.01), Sales Growth rate (50.75%), Operating Margin (19.85%), Net Profit Margin (13.04%), Return on Assets (12.97%) and Return on Investment (15.02%) compare favorably with industry, sector and S&P 500 averages. Institutions 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 $30 and $49.13. A stop-loss of $38.25 looks good here.

Through The Fly's Eyes: Rumor Mill

2007-10-05T13:46:00.000-04:00

from Tedd Cohen of Theflyonthewall.com

Rumor Round-up

POLARIS (PII)

The stock has unexpectedly been climbing since yesterday, leading to speculation that a suitor may come forward. Honda (HMC) is said to possibly be interested in the high-end snowmobile and motorcycle manufacturer.

CIRCUIT CITY (CC)

Bleeding cash and the stock is way down.

EASTMAN KODAK (EK)

CEO Perez says they’ll be an acquirer; others think the opposite.

THE ST. JOE COMPANY (JOE)

The real estate operating firm’s stock is getting killed. Are they ready to go?

STILL FLYING AROUND

MOTOROLA (MOT)

With apologies Mr. Zander, but what do you say to investors who think that you’re not getting the hint that they want a new CEO?

USG CORP. (USG)

This one’s been around for months and months, but names haven’t surfaced.

BIOGEN IDEC (BIIB)

The drums are beating again. Will it be Pfizer (PFE)?

ANHEUSER-BUSCH (BUD)

This time, could it be Belgian brewer InBev making a move?

BUZZ

Hershey Foods (HSY): Does the CEO turnover mean more changes?...Alexion (ALXN) to Pfizer (PFE)?...Louisiana Pacific (LPX) a target?...The Cheesecake Factory (CAKE) moving on up, but for whom?...Sprint Nextel (S) looking for a new CEO or a new parent?

Through The Fly's Eyes: Sept. 2007 Jobs Report

2007-10-05T12:24:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Jobs Rebound In September, But Long-Term Trend Is Key

September's U.S. job report released Friday reinforced two economics adages. Namely: 1) it's best to not put too much confidence in the U.S. Labor Department's initial monthly job statistic, as it will undoubtedly be revised; and 2) regarding job creation/reduction, it's best to use a 3-month or 6-month average, as it gives a more-complete and more-accurate picture of hiring conditions.

For example, in September's report, which indicated that 110,000 jobs were created - more than analysts had expected - the U.S. Labor Department also its revised the August job report to indicate that 89,000 jobs were created, up from a 4,000-job loss the Labor Department reported in its initial August tally.

Wall Street was encouraged by September's upside jobs surprise with the Dow gaining about 85 points to 14,063 in early Friday afternoon trading.

After the Labor Department reported the initial August tally, the financial community concluded that the U.S economy had slowed dramatically in Q2, perhaps to stall levels.

However, the revised August tally, combined with the September statistic, now suggests that the economy is slowing, but it has not completely collapsed. Further the combined August and September totals, and the mild economic growth implied, may help convince the U.S. Federal Reserve to maintain short-term interest rates at current levels when it meets again in late October.

The revision underscores the difficulty of placing too much emphasis on the Labor Department's initial tally for each month, as there's a significant chance it will be changed. For this reason, many economists and analysts agree it's best to use a 3-month or 6-month moving average, as it gives one a picture of the longer-term hiring trend, a more-indicative statistic. The 3-month moving average indicated a 44,000 job gain per month, through statistics compiled through August 2007. Add September 2007's stat with the August 2007 revision, and the 3-month moving average jumps to more than 90,000 jobs per month - a decidedly healthier job statistic than 44,000 jobs per month.

Further, another fact that demonstrates the danger of focusing on only one monthly job report: it's important to remember that the margin of error for each monthly report is frequently larger than the monthly job total statistic itself.

But the key point here is the inherent inaccuracy of the Labor Department's initial statistic for the month: large revisions - which was the case with August - can yield a substantially different picture of the U.S. economy's health. By extension, basing an investment or a business decision on only one monthly stat can prove to be a major mistake.

Through The Fly's Eyes: XMSR Satellite Radio, Sirius Satellite Radio

2007-10-05T11:21:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Sirius, XM Set Merger Meeting Date; Let the Games Begin

Sirius Satellite Radio (SIRI) and XM Satellite Radio Holdings (XMSR) have finally set a date, to vote at least. On November 13, the satellite radio rivals will hold special shareholder meetings to vote on the "merger of equals." Under the deal announced in February, XM shareholders would receive 4.6 shares of Sirius common stock for each XM share. Upon completion, XM will become a wholly-owned Sirius subsidiary and shareholders will own around 49.7% of the outstanding Sirius common stock.

This merger has been controversial from the get-go. From the time it was announced, the deal has drawn objections from terrestrial radio companies and anti-competition authorities. Even yesterday, Bloomberg reported that the Justice Department is still seeking more details on the $4.8B merger and will rule on whether the deal reduces competition. The FCC is also looking into the transaction for possible anti-trust implications that would occur through a merger. Although the companies have complied with all requests for information, many, including those at the DoJ are worried about the consequences of combining the only two satellite companies out there. The big fear? The combination could lead to higher prices for consumers.

Even analysts aren't sure the deal will go through. Those that are doubtful include analysts at Wedbush. The firm downgraded shares of XM this morning to Sell from Hold and lowered its target to $12 from $14 based on their belief the merger "has a low likelihood of success." Also against the merger is the National Association of Broadcasters, who, this week, expressed its displeasure to the FCC. Despite everything else out there, the BAN filing claims that XM and Sirius are "choosing to ignore the guidelines" the FCC has put into play and instead attempting to "misdirect" the analysis process. Over at the National Review, J. Gregory Sidak agrees with the NAB's point, and points out several ways in which the XM-Sirius filings have "subverted" federal merger guidelines, including that the companies believe they are entitled to a longer period of time than the approved two years "for analyzing whether their proposed merger may substantially lessen competition." Even the officials doubt the acquisition. Reuters reported FCC official Michael Copps "expressed skepticism" on whether or not he could endorse the deal, saying it would be a "steep climb" to vote favorably on the merger.

There are others that are on the fence. TheStreet.com spoke with a money manager, one not involved with either XM or Sirius, who said he believes "the deal should go through...There's no reason this should be blocked..." However -- and it's a big "however" -- he added that he also thinks "the government will block it."

Still, there are those that believe the merger will come to fruition. Sirius's CEO Mel Karmazin, for one, argued that there would still be competition to the Sirius-XM giant, including Internet-based radio and high-definition radio, not to mention Apple's (AAPL) iPods. Of course, as the man who would head the merged companies, he has to say that. Also optimistic are analysts at Gabelli, who believe the merger will close by the end of 2007. In fact, because of "probable" merger approval, Gabelli feels Sirius shares are likely to become more attractive to investors. The firm believes merger synergies would be substantial and that within 3-5 years, annual synergies could near $1B. RBC Capital also believes there is a "high probability" -- greater than 50% -- the DoJ will issue a favorable ruling for the merger sometime within the next two months.

Through The Fly's Eyes: A Quick Look Ahead

2007-10-05T11:07:00.000-04:00

from Eric Buscemi of Theflyonthewall.com

Highlights For Next Week

Monday October 8

* PDUFA date for Theravance's (THRX) Telavancin for complicated skin and soft tissue infections caused by gram-positive bacteria

Tuesday October 9

* Yum! Brands (YUM) to report Q3 earnings; conference call at 9:15am
* Optimal Group (OPMR) to hold conference call at 11am to discuss the WowWee acquisition
* Penn Treaty American Corporation (PTA) to hold operational update at 11am
* Alcoa (AA) to report Q3 earnings; conference call at 5pm

Wednesday October 10

* Costco (COST) to report Q4 earnings; conference call at 11am
* Hot Topic (HOTT) and Zumiez (ZUMZ) reporting monthly sales at 4pm

Thursday October 11

* Pepsi (PEP) to report Q4 earnings; conference call at 11am
* Bebe Stores (BEBE) to report monthly sales at 7am, Limited (LTD) and Children's Place (PLCE) at 7:30am, Gymboree (GYMB) at 7:55am, Ann Taylor (ANN), Gap (GPS) and Wal-Mart Stores (WMT) at 8am, Target (TGT) at 8:30am.

Friday October 12

* PDUFA date for GlaxoSmithKline's (GSK) Hycamtin for relapsed Small Cell Lung Cancer

Through The Fly's Eyes: Level 3 Communications

2007-10-05T10:48:00.000-04:00

from Theflyonthewall.com

Service Provider Attempts To Show Its Power

Level 3 Communications (LVLT) flexed it muscles yesterday when it announced that it would be dropping prices for its content delivery network (CDN) services. Level 3's stock jumped over 4% on the news.

The IP-centric service provider has boasted for years about its low-cost structure and constant inferences that it could slash prices and drive volume unlike any other network provider in the country, if not the world. This is the first time the company has been so public about a specific price action.

Lisa Guillaume, VP of CDN Product Development for Level 3, said CDN services usually carry a 20 to 30% premium over the cost of transport, in a LightReading.com interview. This pricing action eliminates that differential. The ownership of a massive long-haul network and CDN platform will allow Level 3 to do this profitably, she added.

Level 3's network was designed to play the price-elasticity curve for bandwidth consumption in the Internet age. Volume increases in bandwidth consumption would offset per-unit price declines for transporting all those bits of information for MySpace, YouTube and Wallstrip.com.

Level 3 reported light revenue and earnings in the most recent quarter as it attempts to integrate seven acquisitions that it has completed during the last eighteen months. Demand for its services is strong, but the company is having issues getting the new customers onto their network.

After years of anticipation, possibly yesterday's announcement is a sign that Level 3 is finally ready for prime time and will be able to drive its business model, leading to higher revenue and profit growth. The company is due to report earnings on October 23 -- a must listen to call for investors.

Through The Fly's Eyes: NutriSystem

2007-10-04T21:23:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

NutriSystem Lowers Guidance, And Stock Plunges

Leading dietary system provider, NutriSystem (NTRI), lowered its third quarter guidance, which sent its shares plummeting. The company said it expected its third quarter revenue to be $188M, much lower than its earlier guidance of $200M-$208M. Analysts had expected the company to post revenue of $207M for the third quarter. The stock is down more than 33% to $31.59, and is now less than half of its 52-week high of $76.20.

NutriSystem blamed declining new customers for its lowered guidance. Increased competition from GlaxoSmithKline’s (GSK) new diet drug Alli, which costs $49 a month compared to NutriSystem’s $250 monthly price tag.

Earlier, major banks had divergent ratings for NutriSystem’s stock. Broadpoint was bullish, upgrading it to Strong Buy from Buy. Citigroup was less optimistic, on the other hand, Citi cut NutriSystem’s share price to $81 from its previous $90 target. Lazard also downgraded the diet giant’s stock to “Hold” from “Buy."

And while the company’s stock declined on lackluster sales, NutriSystem’s CEO Michael Hagan announced that the company would boost its stock buyback plan by $100M. Also, the company had already obtained $200M through an unsecured credit facility, potentially expandable to $300M.

Regardless of the buyback, analysts were not too pleased. BB&T analyst Laura Richardson concluded that Alli hurt potential sales. Canaccord Adams analyst Scott Van Winkle cut his price target to $42 from $74, saying that the business model is broken.

Fly Analysis: With increased competition from new diet drugs and other companies like eDiet (DIET), it’s no surprise that NutriSystem lowered guidance for its third quarter. And it’s quite possible that disappointing results might continue for some time to come.

Through The Fly's Eyes: WESCO International

2007-10-04T18:55:00.000-04:00

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

WESCO International: Electrical And Industrial Products For Big Business

When they are in the market for electrical and industrial construction products and MRO supplies, many of the biggest firms around go to an outfit that represents some 29,000 suppliers and offers more than a million products. It serves about 110,000 customers worldwide.

WESCO International (WCC) is a leading distributor of electrical construction products and electrical/industrial maintenance, repair and operating supplies. The firm operates seven automated distribution centers and approximately 400 full-service branches around the world. Clients include ConAgra Foods (CAG), Goodyear Tire & Rubber (GT) and Tyson Foods (TSN).

The company pleased investors last week, when it announced that it had completed a $400 million stock repurchase program and had authorized a new program for the same amount. CIBC World Markets and Bank of America Securities subsequently initiated coverage of the stock with "buy" ratings. The stock popped on the news and has since 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 four "strong buys," seven "buys" and three "holds." Analysts see a 15% growth rate, through the next year. The WCC P/E ratio (10.42), PEG ratio (0.77), Price to Sales ratio (0.36), Price to Book ratio (3.68), Price to Cash Flow ratio (7.78), Price to Free Cash Flow ratio (7.79), Return on Investment (17.23%) and Return on Equity (37.94%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $37.65 and $71.10. A stop-loss of $38.90 looks good here. Note that the firm is expected to announce Q3 results on October 18, before the open.

Through The Fly's Eyes: GSI Group

2007-10-04T17:40:00.000-04:00

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

GSI Group: Industrial Laser Maker

Manufacturing processes that were unimaginable a generation ago are now commonplace, thanks to the development of laser technology. A leader in the art of fabricating lasers for the broad spectrum of current industrial applications is headquartered in Billerica, Massachusetts.

GSI Group (GSIG) supplies precision technology components, lasers, and laser-based manufacturing systems to the electronics, semiconductor, medical, aerospace and industrial markets. Its Precision Technology segment offers air bearing spindles; encoders; optical scanners; thermal printers; general optics; and lasers that are used for welding, cutting, drilling, surface marking and engraving of metal and plastic parts. The company's Semiconductor Systems segment designs, develops and supplies production systems that enable the manufacturing of semiconductor chips. Hitachi (HIT) is a competitor.

The company pleased investors last week, when it guided Q3 EPS to 16-18 cents and Q3 revenues to $82-84 million. Its previous predictions had been for 9-13 cents and $77-82 million. Analysts were expecting 11 cents and $80.6 million. Management cited follow-on orders from an existing customer and final acceptance of a multi-system order from a new customer for the improved view.

The stock popped on the news and has since 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 issue with one "buy" and one "hold". Analysts see a 15% average annual growth rate, through the next five years. The GSIG Price to Sales ratio (1.58), Price to Book ratio (1.35), Price to Cash Flow ratio (14.62) and Price to Free Cash Flow ratio (17.77) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 62% of the outstanding shares. Over the past 52 weeks, the stock has traded between $8.21 and $11.55. A stop-loss of $9.75 looks good here. Note that the firm is expected to announce Q3 results on October 23rd, after the close.

Through The Fly's Eyes: Crude Oil

2007-10-04T14:56:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

CIBC's Rubin Also Sees Oil Above $100, Soon

The thesis arguing that oil is headed toward $100 per barrel, soon, and is likely to remain above that level for years to come received another data point of support from an economist with a major investment bank.

Jeff Rubin, chief economist with CIBC World Markets, said $100 per barrel oil could become normal as early as 2008. Speaking at CIBC's 2nd Annual Industrials Conference, Rubin said declining supplies and rising consumption are driving oil's price higher. In addition, oil consumption is growing faster in OPEC countries themselves, who will start using more of their resources for domestic consumption.

Rubin's analysis is compelling and illuminating for two reasons.

First, Rubin joins research conducted by Goldman Sachs that argues that a continual rise in global demand for oil will push oil's price inexorably higher - to levels that first exceed $90, then $100 by the end of 2008 at the latest, then higher. [Oil closed Thursday, October 4, 2007 up $1.55 to $81.44.]

Second, Rubin analysis touches on a factor that much of the developed world has largely overlooked, namely: declining exports from major oil producers to meet rising domestic demand. The global oil market has largely factored-in rising consumption in the developing world, but the pressure that markets are likely to receive when producers like Russia, Mexico and Middle East nations keep more oil produced at home for use in their domestic market, has not been discussed as much in oil circles.

Rubin told The Associated Press he sees Russia and Mexico cutting exports by about 3 million barrels per day over the next five years. The reduction's impact on the United States, a major importer of oil? A U.S. supply reduction of about 2 million barrels per day, Rubin said. Further, Rubin sees all Mexico oil exports to the U.S. ending by about 2012.

Hence, Rubin's analysis further supports the argument that oil's current elevated price is not a spike, and is not temporary: "Triple digit prices is not a spike," Rubin said. "Triple digit oil...is what is going to be required to maintain, let alone grow, world oil supplies. We're basically replacing low-cost oil with high-cost oil," he said.

And there are even more stark scenarios: these argue that given oil's vital commodity status -- currently oil is the essential energy source for much of the industrialized world -- oil's price continues to rise despite falling demand from a +$100 per barrel price, due to competition that breaks out among nations as shortages develop.

Rubin does see one silver lining to oil's climb beyond $100: the sky-high price will encourage the development of alternative sources of energy, as well as increased use of nuclear power and biofuels. Still, those potential alternate sources do not alter the reality of the era of elevated energy prices: that absent a major, sustained reduction in oil consumption globally, oil marches higher.

Through The Fly's Eyes: Ford

2007-10-04T13:49:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Ford's Labor Contract Dilemma

Ford (F) Chairman Bill Ford said yesterday that the "broad framework" of the agreement between General Motors (GM) and the United Auto Workers union is something "we can work with."

That is actually less than a ringing endorsement of the pact between General Motors and the union. The actual translation of what Ford said is probably something along the lines of, "We like the concessions that GM got from the union, but there's no way we can afford to make as many concessions on job guarantees."

As part of the agreement, GM agreed to make new products at 16 new plants in the U.S., thereby saving union jobs. GM also agreed to hire union members to fill over 3,000 jobs that are now outsourced to non-union companies. The GM contract also seems to stipulate that GM can only close a few plants over the four-year deal.

But General Motors can afford to make these concessions, in order to obtain givebacks on health care benefits that will help it over the long-term. The company's sales in some large overseas markets are surging, and its sales in the U.S. have risen over the last two months, compared with the same months in 2006.

Ford, by contrast, has been doing very badly. It hasn't had a monthly year-to-year sales gain since October 2006, and the company lost $12.6B last year. Ford said a few days ago that it was disappointed by the sales of its new Taurus. How can Ford promise to avoid closing U.S. plants, let alone commit to making new products here, under these conditions?

Ford executives were probably alluding to this dilemma when they told the Wall Street Journal that the company would not be able to provide the union with details about new vehicle programs. The executives said they were concerned about GM's willingness to provide the union with a detailed product roadmap. Ford probably can't provide these details because of its tenuous financial situation. The company most likely can't be sure how many new products it will be able to afford to make, and how many workers it will be forced to lay off, as a result of its poor performance.

Given Ford's struggles, it cannot provide the union with the same job security guarantees that GM has been able to make. As a result, Ford will likely either receive far fewer concessions from the UAW, or its negotiations with the union will be far more contentious than GM's were.

Through The Fly's Eyes: Sprint-Nextel

2007-10-04T07:39:00.000-04:00

from Theflyonthewall.com

Sprint's Gary Forsee Seeing More Pressure

Activist investor Ralph Whitworth of Relational Investors is increasing the heat on Sprint-Nextel (S).

As we have been blogging for a while, Sprint Nextel CEO Gary Forsee's plan to turn the wireless service provider around has not worked. Forsee, a year following its merger with Nextel, targeted EBITDA of around $20 billion, however, now sees 2007 EBITDA of around $11.3 billion. And this is in an industry where the number of competitors has decreased.

The results of Whitworth's activist-shareholder efforts have been somewhat mixed. His most high-profile effort, forcing change to Home Depot's (HD) management and board, has yet to prove rewarding for shareholders, as Home Depot's price is down since he took his activist stance.

What will Whitworth do? Hopefully, he will force Forsee out and force the sale of the company to Verizon (VZ). AT&T (T), which has combined the Cingular and AT&T Wireless businesses, is a huge competitor and is being well-managed. Sprint has fallen way behind its competitors and some serious changes are needed.

Through The Fly's Eyes: Retail

2007-10-04T07:35:00.000-04:00

from Theflyonthewall.com

More Retail Weakness

NutriSystem (NTRI), the provider of weight management and fitness products and services, said it would miss Wall Street expectations last night. Shares dropped over 22% in after-hours trading.

Select Comfort (SCSS), the super-expensive bed maker who has been coming in light on revenue and earnings since May of 2006, warned again in mid-September that its results would be light. Select's stock has dropped from $27 to $14 during the past eighteen months.

Both home improvement retailers, Lowe's (LOW) and Home Depot (HD), continue to push out any recovery.

The weakness in consumer spending is getting more and more pronounced. This is definitely a sign that more rate cuts are on the way.

Through The Fly's Eyes: Darden Restaurants

2007-10-03T19:28:00.000-04:00

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

Darden Restaurants: What's For Dinner?

An Orlando outfit became the number one casual dining operator in North America by offering multiple dining experiences to the critical family crowd.

Darden Restaurants (DRI) operates more than 1,300 casual dining restaurants in the United States and Canada. Its Red Lobster (seafood), Olive Garden (Italian cuisine) and Bahama Breeze (Caribbean items) chains cater to families, with mid-priced menu items and suburban locations. A small group of Seasons 52 restaurants feature a casual grill and wine bar concept. Brinker International (EAT) and Chipotle Mexican Grill (CMG) are competitors.

The company pleased investors last month, when it reported fiscal Q1 EPS of 73 cents and revenues of $1.47 billion. Analysts had been expecting 70 cents and $1.45 billion. Management also guided FY08 revenues to about $6.25-6.31 billion, versus consensus of $6.08 billion. The company confirmed that it plans to buy back $125-175 million of its common stock in FY08.

The news popped the shares out of an early September "cup" into the late September "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 stock with four "strong buys," six "buys," six "holds" and one "sell." The DRI P/E ratio (16.25), PEG ratio (1.36), Price to Sales ratio (1.08), Price to Cash Flow ratio (10.32), Price to Free Cash Flow ratio (27.63), EPS Growth rate (19.67%), Return on Assets (13.03%), Return on Investment (19.72%) and Return on Equity (31.81%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 81% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $38.11 and $47.60. A stop-loss of $37.80 looks good here.

Through The Fly's Eyes: Azz Inc.

2007-10-03T18:04:00.000-04:00

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

AZZ Inc.: Infrastructure Play In Steel And Electronics

There is an outfit in Fort Worth that is best known for its operations in the heavy industry electronic products arena. It has an interest sideline, though. Being mindful of the benefits of diversification, the company also operates a nationwide chain of plants that galvanize big industry steel.

AZZ Incorporated (AZZ) makes electrical products that distribute power to and from generators, transformers, switching devices and other electrical configurations. It also offers lighting products for the petroleum, food processing, and power generation industries. Its Galvanizing Services segment provides hot dip galvanizing to the steel fabrication industry. Competitors include General Electric (GE) and Eaton Corporation (ETN).

The company pleased investors last week, when it reported fiscal Q2 EPS of 66 cents and revenues of $81.6 million. Analysts had been expecting 48 cents and $78.5 million. Management also guided FY08 EPS to $1.95-$2.05 ($1.82 consensus) and FY08 revenues to $315-$325 million ($316.31M consensus). The CEO noted that the firm is operating with a record backlog. The stock popped on the news and has since 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.

Brokers recommend the issue with one "buy" and two "holds." The AZZ P/E ratio (17.68), Price to Sales ratio (1.42), Price to Book ratio (3.30), Sales Growth rate (29.79%), EPS Growth rate (46.67%), Return on Assets (13.51%), Return on Investment (17.97%) and Return on Equity (21.40%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 72% of the outstanding shares. Over the past 52 weeks, the stock has traded between $17.30 and $41.58. A stop-loss of $31.95 looks good here.

Through The Fly's Eyes: Google

2007-10-03T15:06:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Google $2,000 May Not be a Pipe Dream

Former analyst Henry Blodget is being ridiculed in some quarters for suggesting that Google's (GOOG) stock -- in two or three decades -- could reach $2,000 per share.

It's certainly not easy to predict what might happen 20 or 30 years from now. It's entirely possible, for example, that some sort of technology will come along and replace the Internet, leaving Google's search engine obsolete. Internet Protocol Television, or IPTV, already does look like it may be poised to steal a bit of the Internet's thunder.

But, if we assume that there will be no radical changes in technology or consumer tastes by 2030 or so, there do seem to be some factors supporting the plausibility of Blodget's theory. For one thing, Internet advertising is still growing 15%-20% annually, and there doesn't seem to be any end in site. Every year, retailers take more money from newspaper and radio ad budgets and plough it into the Internet. If this trend continues and Google can retain its position as the top beneficiary of increased Internet ad spending, the company's revenues and cash flows are guaranteed to keep growing at high rates.

New applications on the Internet continue to sprout up and draw in people for longer periods. Many more people are watching TV on the Internet. Social networking blogs are a relatively new phenomenon drawing in young people in gigantic numbers. As the Internet draws in people for longer periods of time, advertisers will want to continue to spend more of their advertising budgets on the Internet. As the owner of the most popular Internet search engine and the most popular Internet display advertising company (DoubleClick), Google is very well-positioned to keep capturing a big share of the world's ever-expanding Internet advertising expenditures.

Information Week columnist Stephen Wellman, in a retort to Blodget, notes that some people in the mid-1990s thought Microsoft (MSFT) would continue growing at its peak rates. Those predictions failed to pan out, says Wellman, concluding that "all companies, no matter how powerful they are at their apex, stop growing at their peak rates."

But Microsoft could have kept growing at its peak rates. It really just made a bad bet, by trying to develop a variety of Internet services, including a browser, email service, content, and instant messaging, instead of concentrating on developing a simple, efficient search engine supported by advertising revenue, as Google did. If Microsoft had taken Google's approach, it could have kept growing at its peak rates. And in the last decade, Microsoft just hasn't entered any rapidly growing new markets with any new, exciting, widely accepted products. The reduction in Microsoft's growth rate certainly wasn't as natural as death and taxes, which is what Welman seems to suggest.

It seems that Google, by contrast, is either entering or is about to enter several new, rapidly expanding markets with products and services that have a chance to make a big splash. YouTube has become a huge franchise, and Google is beginning to exploit it by running paid video ads on the site. Google is developing advertising technologies for the wireless Internet, which seems as though it's about to explode. The company seems poised to become as dominant in wireless Internet advertising as it is on traditional Internet advertising. And, if the company can bring out the rumored gphone soon, it can capitalize on the trend towards smart phones. If Google can introduce a good, reasonably priced smart phone, it can certainly take substantial market share away from Apple (AAPL) and AT&T's (T) iPhone.

Stranger things have certainly happened than Google $2,000 in two or three decades.

Through The Fly's Eyes: Countrywide Financial

2007-10-03T15:03:00.000-04:00

from Tedd Cohen of Theflyonthewall.com

Countrywide PR offensive: “Protect Our House.” Sure thing

Oh, the power of public relations. Having seen its stock cut in half and with the loss of 20% of its work force, Countrywide Financial (CFC) is counterattacking with a pricey PR campaign designed to pump up its employees. They have a slogan: “Protect Our House.” Brilliant! They’re going to reward employees who do well. Great! They have an executive cheerleader in executive managing director of residential lending Andrew “Drew” Gisssinger III, a former professional football lineman. Awesome! “…our integrity is being attacked. Now it’s personal!...We’re not going to take it!,” he says, supercharging the offensive effort. Wow! If that is what the nation’s largest home mortgage lender is doing to re-establish its leadership position, what’s next? Seminars, TV appearances, press conferences, a book deal? Amazing! How about those foreclosures? How about that projected upcoming third quarter loss expected to be over $2B? Just great! The investors must be ready to scream.

Through The Fly’s Eyes: Midway

2007-10-03T14:37:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

Midway Cuts Guidance on Delays

Video game developer Midway (MWY), which broke into the ranks with titles such as Mortal Kombat, reported today that it would see a much bigger third quarter loss than than it previously anticipated. The company now expects its third quarter loss to be an EPS of (33c) versus the previous forecast of an EPS of (23c). This was much higher than the analysts’ projections of a loss of EPS (22c).

Midway explained that the loss was due to delays in releasing much anticipated games “Unreal Tournament,” which has been delayed to the first quarter of 2008, and “Stranglehold," by action movie director John Woo, which has been delayed to the fourth quarter of this year. Furthermore, the company expected lower sales of its “BlackSite: Area 51” game because the European release has been delayed until next year. The company did not explain the reason for any of the delays.

Midway’s stock has declined 3.80% so far in today’s trading to $4.05, less than half the 52-week high of $9.20.

Other video game developers Take-Two Interactive (TTWO) and Electronic Arts (ERTS), have had some of their star titles suffer delays or bugs. Take-Two’s franchise title “Grand Theft Auto” has been delayed until next year and Electronic Arts’ "Madden Football 2008" on the Playstation 3 has been plagued by bugs, though there is a patch disk available.

Still, the other companies’ delays have not affected the bottom lines or guidance the way it has impacted Midway. While title launch delays may be an industry-wide concern, Midway’s delays are unique because of its multitude, which is affecting its bottom line and, hance, its stock price.

Through The Fly's Eyes: Verizon, AT&T and Apple

2007-10-03T11:59:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

iPhone Killers Coming?

Although Apple (AAPL) only launched the iPhone in June, it looks like the company has a slew of competition coming up before the holiday season, as several companies are planning rival offerings.

Who are the rivals and what are they looking to offer?

Verizon (VZ) is arguably the biggest iPhone competitor at this point. Verizon, which is revamping several phones this fall, isn't kidding around in trying to take market share -- and consumers' dollars -- away from Apple and its rival AT&T (T). Current Analysis analyst Avi Greengart said that the new phones are "a reaction to the market realities that the most desirable consumers are looking to do more with their phones than just talk." And, so they won't lose subscribers to AT&T and the iPhone, Verizon has had to adapt and evolve. The Wall Street Journal reported the company will launch its response to the iPhone soon with a line of devices that includes technology similar to the iPhone's touch screen. Flashy new devices from the company include the LG Electronics' Voyager, which has the iPhone-like touch screen. The Voyager, however, may have an advantage over the iPhone with its second screen and keyboard, which can be revealed when folded out. The new LG Venus also has two screens, including a smaller touch screen and a main viewing screen. One major advantage of the new phones is the price, which executives at Verizon say is "cheaper than that other touch-screen phone." Voyager and Venus will launch before the end of November.

Google (GOOG), the rumored competitor. Rumors have been swirling for some time that Google could bid more then $4.6B on wireless spectrum in the U.S. next year. This follows rumors the company is hard at work on the Gphone, its own mobile phone, and Gpay, a mobile payments service. Analysts and industry executives have reportedly seen prototypes of the oft-rumored device. Will it be an iPhone killer? CNet said earlier this year that if the phone does come to fruition, "people will be tossing their iPhones."

Microsoft (MSFT). According to MacWorld, the software super-company may be launching an iPhone rival as well, which may be based on Windows Mobile OS. In September, executives added that it would not be "unreasonable" for consumers to believe Microsoft could add to the phone music, photo and touch screen features, not unlike the features on the iPhone, "in the future." As for the music, it's rumored the company may add features of the Zune music device -- an iPod rival -- into the phone. It is unclear when a phone would be released, or if it would offer the phone itself or through a third party, but it would surely pack a punch to the iPhone.

It sure does look like there's going to be pressure on Apple in the near future. At $400, the iPhone is expensive, and many people have not been thoroughly impressed by the device. Plus, since it's being released so close to the holiday season, those consumers looking for "the new thing" may turn to Verizon for one of its new phones.

Through The Fly's Eyes: Gold vs The Dollar

2007-10-03T08:09:00.000-04:00

from Theflyonthewall.com

Bernanke's Big Test Begins

Gold dropped close to $20 an ounce in yesterday's trading as press reports increasingly circulate that the U.S. dollar/euro exchange rate is unsustainable.

We blogged last week that Fed Chairman Bernanke has to test whether gold's recent price appreciation has to do with concerns over global inflation or investors seeking a safe haven as the dollar continued to weaken versus euro.

While yesterday's appreciation versus the euro was modest, it was a slight shift in direction and will likely get the support of both European and U.S. treasury secretaries. This is one trade to stay with--go long dollar and short the euro.

Through The Fly's Eyes: Micron Technology

2007-10-03T07:47:00.000-04:00

from Theflyonthewall.com

Nothing Exciting Happening at Micron; But Still Worth a Trade

Micron Technology (MU), the well-known DRAM manufacturer that has been expanding into new areas, reported results last night that simply will not get anyone excited.

What was interesting is how much DRAM growth has slowed during the past ten years, with management forecasting bit consumption of just 5% to 20%, not high for an industry that showed bit growth closer to 50% during much of its existence. Since this is an industry that always shows price declines -- expecting a 10% drop in DRAM pricing in the current quarter -- this slowdown in volume growth is not good.

Hoping to offset a structural slow down in DRAM growth, MU has expanded into the image sensor and NAND flash memory business, two more commodity-chip products. Micron's strategy appears to be to invest in businesses that do not earn their cost of capital.

However, with that said, Micron is selling for 1.2x book value, which is at the lower end of its historical trading range. Also, the seasonally strong demand for these commodity products last into November. As blogged yesterday, it is still worth a trade into November, when chip demand will moderate.

Through The Fly's Eyes: NetScout Systems

2007-10-02T19:07:00.000-04:00

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

Quantifying Your Network Performance

When you want to gauge the efficiency of a computer network, it makes sense to monitor its performance at various points along the way. A leading provider of products designed to collect and analyze such information is headquartered in Westford, Massachusetts.

NetScout Systems (NTCT) provides a family of integrated software and hardware products that enable an enterprise to monitor the performance of its computer network. Administrators place NetScout monitoring appliances throughout the network and then use associated software to collect information about traffic flow to optimize efficiency. The products ensure that critical business applications such as e-mail, Voice over IP, supply chain management and customer resource management run effectively and reliably. The firm works with such strategic partners as AT&T (T). Verizon Communications (VZ) and Merrill Lynch (MER) are major customers.

The company pleased investors about two weeks ago, when it raised its Q2 EPS guidance to 9-10 cents and revenue guidance to $29-$30 million. Analysts had been looking for 8 cents and $28.33 million. The CEO cited increased demand across the firm's various markets for the upside view. Also, the company announced that it would acquire network management hardware firm Network General for $205 million. NetScout officials anticipated that the combined firm would enjoy significant cost savings, better operating margins and improved EPS. Brean Murray subsequently reiterated its "buy" rating on the shares and boosted its price target to $15.

The news popped the shares out of an early September "cup" into the late September "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 issue with two "strong buys" and one "buy". Analysts see a 33% growth rate, through the next year. The NTCT Price to Sales ratio (3.32), Price to Book ratio (2.48), Sales Growth rate (18.22%) and EPS Growth rate (100.00%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 59% of the outstanding shares. Over the past 52 weeks, the stock has traded between $6.44 and $11.36. A stop-loss of $9.60 looks good here. Note that the firm is expected to report fiscal Q2 results on October 25th, after the close.

Through The FLy's Eyes: Amgen

2007-10-02T17:57:00.000-04:00

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

Amgen: A Biotech Bellwether

In biotechnology, corporate success is a function of approved drugs, pipeline activity and positive cash flow. By those standards, one of the most successful firms in the industry is a 27-year-old Thousand Oaks, California outfit that was among the first developers of blockbuster biopharmaceuticals.

Amgen (AMGN) is a biotechnology firm engaged in the discovery and manufacture of human therapeutics. It markets products in the areas of supportive cancer care, nephrology, inflammation, and oncology. Principal offerings include anemia treatments Aranesp and Epogen, rheumatoid arthritis drug Enbrel, and white blood cell stimulator Neupogen. Amgen has marketing alliances with Hoffmann-La Roche and Kirin. Competitors include Baxter International (BAX) and Novartis (NVS).

The stock popped last month on word an FDA advisory panel had rejected a proposal to set a specific target for red blood-cell levels in kidney-failure patients being treated with Aranesp, Epogen and Procrit. The latter is manufactured by Amgen, but sold by Johnson & Johnson (JNJ). The panel's decision, if accepted by the FDA, could boost sales of the medications. Since the initial gain, the AMGN share price has been defining 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 six "strong buys," six "buys," 18 "holds" and one "sell." The AMGN P/E ratio (16.19), PEG ratio (1.50), Price to Book ratio (3.73), Price to Cash Flow ratio (12.07), Price to Free Cash Flow ratio (16.98), Operating Margin (32.57%), Net Profit Margin (27.35%), Return on Assets (12.65%), Return on Investment (15.02%), Return on Equity (24.41%) and Net Income per Employee ($203.25k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 76% of the outstanding shares. The stock is one of those used to calculate the S&P 100, S&P 500 and Nasdaq 100 Indexes. Over the past 52 weeks, it has traded between $48.30 and $77. A stop-loss of $48.65 looks good here. Note that the firm is expected to release third quarter results on October 25, after the close.

Through The Fly's Eyes: eBay

2007-10-02T15:24:00.000-04:00

from Theflyonthewall.com

eBay Cleans Out Skype's House

Meg Whitman's "Power of 3" looks like it is about to become the "Power of 2". eBay's (EBAY) 3 primary businesses -- marketplaces, payments and communications--looks as though they might be missing the communications business as the on-line auction powerhouse announced yesterday it plans to take a $1.43 billion writedown for the Internet phone service division.

Additionally, eBay is cleaning the managerial house at the VOIP provider, announcing Skype's CEO Niklas Zennstrom will become non-executive chairman of Skype's board and likely spend more time working on independent projects.

While it is hard to throw a positive light on the Skype announcement, cash-flow generating machines like eBay can absorb these hits and simply write-down the assets and position the company for much higher EPS growth if a successful turnaround can be accomplished.

Skype has a powerful first mover advantage on a global basis. If Whitman can get this thing turned around as other initiatives in the marketplace and payments businesses continue to take hold, eBay could become the "Power of 3" once again. Do not read too much into the eBay announcement, this is a company with multiple businesses that are beginning a serious upswing.

Through The Fly's Eyes: TD Bank and Commerce Bancorp

2007-10-02T15:08:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Investors are Unhappy with TD-Commerce Deal

The investors on both sides of Canada-based TD Bank's (TD) $8.5B acquisition of Commerce Bancorp's (CBH) don't seem too thrilled with the deal.

During a conference call Commerce held to discuss the deal, Friedman, Billings, Ramsey Group banking analyst Gary Townsend let Commerce's executives know just how unhappy their investors are with the acquisition.

"The clients that I'm speaking to think you're giving away the franchise, "said Townsend, as quoted by an Associated Press article today.

Meanwhile, TD shareholders are voting with their dollars (Canadian and American), as the company's shares on the New York Stock Exchange have been down a little more than 5% all day.

There are certainly good reasons for both Commerce and TD investors to dislike this acquisition. The deal gives Commerce shareholders a premium of about 6% over Monday's closing price. That premium certainly doesn't give Commerce shareholders a reason to dance in the streets. Meanwhile, TD's earnings per share are going to drop 28 cents in fiscal 2008 and 22 cents in its 2009 as a result of the acquisition.

But, on the other hand, there are good reasons why long-term investors on both sides should not be too upset. Commerce investors should not be devastated because the bank has not exactly been thriving. It reported that its earnings dipped 3% in Q2 to 39 cents per share. Before the bank became the subject of takeover speculation at the end of July, its stock had sagged to around $34. Meanwhile, its longtime CEO, Vernon Hill II, abruptly stepped down in late June, as Commerce reached a settlement with regulators over alleged related-party transactions, according to The Wall Street Journal. Commerce's investors will have the option of hanging on to shares of TD, whose shares and profits seem to have largely been on an upswing for the last several months.

For its part, TD was able to take advantage of the plunging U.S. dollar, the American mortgage crisis, and Commerce's internal problems to double its banking operations in the U.S. at a fairly cheap price. (The mortgage crisis has not affected Canada's banks too much, according to Brad Smith, an analyst at Toronto's Blackmont Capital who was quoted in today's Globe and Mail newspaper). Over the long-term, this deal should be a plus for TD investors.

Other Canadian banks have also been rumored to be looking to take advantage of the weak U.S. dollar and America's mortgage woes by buying U.S. regional banks. American regional banks that could appeal to Canadian financial giants include Westamerica Bank (WABC), Sovereign Bank (SOV), South Financial Group (TSFG), and The Astoria Federal Savings Bank (AF), according to Peter Winter, managing director of BMO Capital Markets. Winter was quoted in an August 22 article in Canada's Financial Post. All four of those stocks were up slightly at about 2:15 p.m today., with Westamerica up 0.66% to $50.36, Sovereign Bank up 2.15% to $17.61, South Financial Group rising 0.64% to $23.45, and Astoria Financial up 2.05% to $27.38.

Through The Fly’s Eyes: United Parcel Service

2007-10-02T14:50:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

UPS-Teamsters Agreement May Sour Credit

United Parcel Service (UPS) has finally reached and agreement with the Teamsters Union over pensions and benefits. The five-year tentative agreement will allow the union to pay $6.1B to get greater control of worker benefits. The contract still has to be approved by the employees, but if approved, UPS will finally be able to achieve their goal of withdrawing from the Central States Fund.

UPS’ stock is down slightly on this news, down 0.5% to $75.53, off it’s 52-week high of $79.72.

Analysts deem this to be a good deal for UPS. Morgan Stanley’s William Greene said the new deal gets rid of any uncertainty that existed and that this could allow the company to “take a more aggressive approach to balance-sheet management, including more leverage to buy back shares.”

While analysts generally think this is a good deal for the company, credit rating agencies disagree. Standard & Poor’s downgraded UPS rating from “AAA” and placed it on “negative watch”. S&P said that the withdrawal payment and other benefit increases as part of the agreement could potentially lower UPS’ strong financial standing.

Overall, Wall Street remains skittish on the news, encouraged that the deal is finally done and there is potential for a buy back, but worried that this one-time payment will hurt their fiscal status. The stock will move in either direction depending on how the deal impacts UPS’s bottom line.

Through The Fly's Eyes: Dean Foods

2007-10-02T14:39:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Dean Foods Cuts Earnings Guidance, Again

The news just continues to be 'decidedly less than stellar,' to be diplomatic, regarding Dean Foods' (DF) business execution.

Dean Foods cut its full-year EPS estimate to about $1.25 versus the Reuters consensus estimate of $1.47 - citing a consumer pull-pack prompted by rising dairy prices at the retail level.

If was the second time this year that Dean Foods had cut full-year earnings estimates. In a statement, CFO Jack Callahan said the company expects an oversupply of organic milk to continue to affect results for the balance of this year and into at least the first half of 2008. In addition, overall sales have softened as consumers adjusted their consumption habits to cope with record-high food prices, Callahan said.

Further, Dean Foods also announced that it plans to cut 600-700 jobs, and take a restructuring charge in Q3 in connection with the cuts, but it did not furnish a charge figure. Dean Foods said it would first immediately seek voluntary job cuts, with an involuntary reduction to follow, if needed.

Analysts generally interpreted Dean Foods' lowered guidance as another disappointing data point for food processing company. According to analyst Jonathan Feeny of Wachovia Securities, Dean is experiencing a unfavorable headwind as consumers shift from branded to private labels in some big markets. Dean Foods sells dairy goods under more than 50 local and regional brands. DF's shares traded 10 cents lower to $26.19 in late Tuesday afternoon trading.

Fly Analysis: To-date, Dean Foods has not adjusted well to the era of higher commodity and ingredient costs, and compensation pressures, hence DF is a high-risk stock not suitable for moderate-risk and low-risk investors. Further, until Dean Foods can demonstrate higher sales for key brands, investors should keep to the sidelines regarding DF.

Through The Fly's Eyes: McDonald's

2007-10-02T11:23:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Coffee Wars Heat Up

Watch out Starbucks (SBUX): Lattes are coming to a McDonald's (MCD) near you.

The war between the coffee retailer and fast food chain has been heating up for the past several years, particularly since Starbucks began offering breakfast and lunch sandwiches and McDonald's began offering premium coffee. Now, McDonald's is taking the next step, with its plans to make specialty coffee drinks available by 2008 in its U.S. restaurants -- all 14,000 of them.

McDonald's began talking about making the move to introduce drinks like cappuccinos and lattes over a year ago, even test marketing the drinks in different markets. Now, it looks like the plans are green lit. The coffee drinks will appear in nearly 1,500 McDonald's restaurants by the end of the year and the rest will occur by the end of 2008. McDonald's expects the new drinks will add over $1B annually to its sales, the Associated Press reported, citing Crain's Chicago Business.

A McDonald's spokesperson said the company is "testing" specialty coffees, but no final decisions have been made on specific products.

Will this help McDonald's get a leg up on Starbucks? RBC Capital Markets analyst Larry Miller said "it really depends on how much it will cost," although he concedes that "it is a great opportunity" for the company. As for costs, the process to introduce drinks like lattes will be quite costly, and will likely require major renovations of all restaurants to become a reality. The company will have to install specialty machines and pay for training, among other things. The company has reportedly agreed to pay for half of the upgrades' cost, which is estimated to be somewhere in the $25K neighborhood. Individual franchise owners will be responsible for all remaining costs. Analysts at Bear Stearns believe that the company, which may introduce smoothies in the future as well, may face some stiff competition by, in particular, Starbucks and coffee chain Dunkin' Donuts.

Additionally, the news of this new venture may inspire further investor and analyst confidence in the stock. Over the course of the past several weeks, the company reported its August SSS were up 8.1% (7.4% in the U.S.) and increased its annual cash dividend by 50% to $1.50 from $1.00. Starbucks, on the other hand, was downgraded last week at Banc of America to Sell from Neutral and cut its price target to $23. With these factors in mind, McDonald's may really take away from Starbucks earnings and SSS.

The facts, simply, are these: McDonald's is matching with Starbucks each product it brings out, and is completely willing and able to put in the vast sums of money required to do so. At prices that are generally cheaper than those at Starbucks, McDonald's may yet win this round.

Through The Fly's Eyes: Palm, Inc

2007-10-02T11:02:00.000-04:00

from Theflyonthewall.com

Pretty Sloppy Results at Palm; Elevation Partners Next Focal Point

Palm (PALM) reported weak smartphone sales, weak average selling prices and weak gross margins last night. A triple whammy for the struggling device maker. Investors will need to see if new board members from Elevation Partners will have any impact on Palm.

Palm reported Q1 smartphone sell through up 21% to 689K units, however, sell through declined 8% versus the previous quarter with ASPs declining 7%.

Current guidance is for $370 to $380 million in revenue as the company cuts prices to remain competitive. Revenue estimate was for $414 million. As per the Palm-Sprint (S) announcement last week, if Palm wants to hit the mass market, its ASPs are going to have to come down for quite a while. Gross margins came in at 36.3% versus estimates of 37%.

Also, Palm's next generation software will not be ready until the end of 2008.

All told, there is not much for investors to do here except wait. Any catalyst to drive this stock higher will have to come from the actions driven by Elevation Partners. The one positive for Palm is that it can produce some pretty high-quality products for relatively low cost, meaning they have some staying power. But this is one company that is in search of a product and a serious marketing strategy.

Through The Fly's Eyes: Micron Technologies

2007-10-02T07:21:00.000-04:00

from Theflyonthewall.com

Shortage of NAND Flash Memory

Toshiba (TOSBF), the large memory chip manufacturer, said that it has sold out of its supply of NAND flash memory. Also, there have been reports that increased handset and smartphone demand is leading to a pick up in demand for chips in general.

Micron (MU) reports results on Tuesday so it will be interesting to see what they have to say and whether any of their diversification efforts are having success.

Intel (INTC) recently upped its revenue guidance, National Semiconductor (NSM) reported results in line with positive guidance and Texas Instruments (TXN) provided mid-quarter guidance with no positive surprise.

Micron is one moribund stock sitting at a low. The stock looks pretty washed-out with limited downside risk. It may be worth a trade going into Tuesday's earnings release.

Through The Fly's Eyes: IPO & Syndicate Preview

2007-10-01T22:09:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Wall Street's equity market offers a full schedule this week, with 8 IPOs and 5 Secondaries on the docket.

Those deals tentatively scheduled to price include:

IPOs:

Possible

Merrion Pharmaceuticals (MERR), a 4M-share IPO for this pharmaceuticals company. Punk Zeigel is the lead manager. Filing range: $10.00-$12.00.

Early Week

Liberty Acquisition (LIA), an 86.25M-share IPO for this reorganization services company. Citigoup is the lead manager.

Wednesday

Bioheart (BHRT), a 3.575M-share IPO for this heart treatments. Merriman is the lead manager.

Constant Contact (CTCT), a 6.7M-share IPO for this web mail marketing company. CIBC and Thomas Weisel are the lead managers. Filing range: $12.00-$14.00

SP Acquisition (DSP), a 34.5M-share IPO for this blank check investment company. UBS Investment and Ledenburg, Thalmann are the lead managers. Filing price: $10.00.

Thursday

Main Street Capital (MAIN), a 5M-share IPO. Morgan Keegan and BB & T Capital Markets are the lead managers. Filing price: $15.00.

Friday

China Digital (STV), a 12M-share IPO for this digital media company. Morgan Stanley and Credit Suisse are the lead managers. Filing range: $11.00-$13.00.

MAP Pharmaceuticals (MAPP), a 5M-share IPO for this repository medicines company. Merrill Lynch, Morgan Stanley and Deutsche Bank are the lead managers. Filing range: $14.00-$16.00.

Secondaries:

Wednesday

AngloGold Ashanti (AU), a 61M-share Secondary for this mining company. Goldman Sachs and UBS Investment are the lead managers.

Sierra Wireless Holdings (SWIR), a 3.5M-share Secondary for this telecommunications equipment company. CIBC is the lead manager.

Thursday

Aircastle (AYR), a 20M-share Secondary for this aircraft leasing company. JP Morgan, Bear Stearns, and Citigroup are the lead managers.

Solera Holdings (SLH), an 18.1M-share Secondary for this insurance software company. Goldman Sachs and JP Morgan Chase are the lead managers.

FTI Consulting (FCN), a 4.2M-share Secondary for this reorganization services company. Duetsche Bank, Bank of America and Goldman Sachs are the lead managers.

- -

For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out The Fly Syndicate at www.theflyonthewall.com. (Subscription required.)

Through The Fly's Eyes: EchoStar Communications

2007-10-01T20:04:00.000-04:00

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

EchoStar Communications: A Change In The Wind

Firms in the communications sphere seem to be constantly readjusting themselves, to find the most successful balance between size and efficiency. The most recent move involves an Englewood, Colorado outfit that is leaning toward a spin-off. There is also talk that the company may be an acquisition target.

EchoStar Communications (DISH) offers satellite digital television to customers in the United States. The firm's DISH Network delivers programming to more than 13 million subscribers and subsidiary EchoStar Technologies provides dishes, set-top boxes and other digital equipment to both the DISH Network and others. EchoStar has formed alliances with Internet service providers and voice communications companies to offer combined services. Among those partners are EarthLink (ELNK), Qwest Communications (Q) and Sprint Nextel (S).

The stock popped last week, on good news for the firm and a subsequent rumor. The first jump was on Tuesday, when the Board decided to pursue a possible separation of its businesses into two distinct publicly traded companies. EchoStar's consumer pay-TV business would continue to operate as the DISH Network and most of the firm's other technology assets would be spun-off. Shareholders would receive pro rata ownership interests in each of the new entities. Then, on Thursday, the brokerage community renewed speculation that DISH might be acquired by AT&T (NYSE: T). Oppenheimer seemed to think the move was reasonably certain. Kaufman Brothers later viewed such a transaction as possible.

That popped the shares again and now they appear to be initiating a consolidating of the gain in a bullish "pennant" 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 recommend the stock with two "strong buys," four "buys," 12 "holds" and four "sells." Analysts see a 40% growth rate, through the next year. The DISH Price to Sales ratio (2.00), Price to Cash Flow ratio (10.85), Price to Free Cash Flow ratio (28.41) and EPS Growth rate (31.58%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 43% of the outstanding shares. The stock is one of those used to calculate the Nasdaq 100 Index. Over the past 52 weeks, it has traded between $31.73 and $49.69. A stop-loss of $40.75 looks good here. Note that the firm is expected to release third quarter results in early November.

Through The Fly’s Eyes: UBS And Citigroup

2007-10-01T15:07:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

UBS And Citigroup Q3 Results Less Than Stellar

Banking giants Citigroup (C) and UBS reported disappointing results today. Citigroup reported a 60% decline in third quarter profits while UBS announced that it would be having a loss for its third quarter, its first in five years. These are signs that the subprime woes are far from over.

Despite the negative news, UBS’s stock has risen more than 3% to $54.95 while Citigroup’s has over 2% to $47.78. With this movement, it appears that Wall Street is rewarding the banking giants for the companies' up front honesty and for trying to get the bad news out of the way ahead of time.
Citigroup CEO Charles Prince said that the company lost $1.3B on subprime assets and $600M on fixed-income trading. He expected fourth quarter results would get back to normal.

UBS’s losses mostly came from its currencies division, which was backed by US-based subprime mortgages. The deterioration in the market in August was much more severe than the company anticipated. UBS plans to cut 7% of their staff to offset losses. The European giant will also shuffle their executive staff, with CEO Huw Jenkins retiring and being replaced by Marcel Rohner. The company’s CFO and COOs will also be replaced.

While Wall Street seems to be rewarding these companies now, anticipating that the mortgage crisis almost over, the true extent of the damage remains to be seen. While it’s important to be optimistic, many believe that the subprime woes will continue for the near future. This may mean that UBS and Citi’s stock and quarterly results could continue to be less than stellar.

Through The Fly's Eyes: Fuel Tech

2007-10-01T14:52:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Fuel Tech is Ready to Clean Up China

Fuel Tech (FTEK) looks poised to benefit in a big way from moves by China to curb pollution.

Fuel Tech's technology cuts the production of pollutants, including carbon dioxide, by coal plants. The company's technology reduces the emission of NOx, a major coal and air pollutant, by 30%-85%. Its technologies are already installed worldwide on more than 450 combustion units, the company reports.

Fuel Tech's biggest opportunity is probably in China. According to the September 14 issue of Business Week, pollution in China, which burns 1.7 billion tons of coal annually, is costing the country $200B annually. Workers are getting sick, and the lack of clean air and water is even hurting the country's industry.

Chinese leaders know that air pollution is a big problem for the country. "Our country is a major coal producer and consumer, and reducing polluting emissions is a responsibility we must bear," said Chinese Premier Wen Jiabao at the end of April, as quoted by China Daily. Wen also said the country would try to develop a system for forcing companies to pay for the pollution they cause.

Fuel Tech is taking steps to seize the initiative in China. In June, the company announced that it was partnering with a Hong Kong-based company to demonstrate its technology on a combustion unit in China. Fuel Tech has also formed a Chinese subsidiary. In a report released today, Roth Securities predicts that Fuel Tech will begin getting meaningful revenue from China in Q4.

"We continue to view China as a substantial opportunity [for Fuel Tech]," Roth added.

It seems like a good bet that other rapidly developing countries, such as India and Eastern European nations, will also look to cut coal-generated pollution in the next few years. Fuel Tech will be a prime candidate to pick up a large proportion of that business as well.

Fuel Tech's technology can reduce carbon dioxide emissions from coal by 1%-1.5%. While that may not sound like much, U.S. electric utilities that are desperately trying to reduce their CO2 emissions in order to comply with state limits will probably take any reductions they can get. Also U.S. states and cities are always looking for ways to cut down on air pollution.

Fuel Tech is actually already profitable. In the first six months of the year, the company reported profits of 4c per share, down from 14c per share in the same period in 2006. However, the company said the drop-off was caused by the timing of new project awards. Roth seems to agree, as the firm predicts that Fuel Tech's will report earnings per share of 24c in 2007. For 2008, Roth predicts EPS of 68c for the company. Roth has a Buy rating and $33 target on the shares, which stood at $23.31 at 2:26 p.m. today.

Through The Fly's Eyes: Actuant Corp.

2007-10-01T14:44:00.000-04:00

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

Actuant Corp.: Higher Earnings, Bullish Stock

Actuant Corporation (ATU) is engaged in the manufacture and marketing of industrial products and systems. Its Tools and Supplies group offers high-force hydraulic tools, electrical tools and electrical consumables to the general industrial, construction, production automation and do-it-yourself retail markets. Its Engineered Solutions group provides motion control systems for the heavy-duty truck market. These include recreational vehicle slide-outs and leveling systems, heavy truck cab-tilt systems and electro-hydraulic convertible top actuation systems. Eaton Corporation (ETN) is a major competitor.

The firm pleased investors last week, when it reported Q4 EPS of 99 cents and revenues of $390 million. Analysts had been expecting 94 cents and $366.7 million. Management also guided Q1 EPS to 93-97 cents (92 cent consensus), Q1 revenues to $390-$400 million ($382.90M consensus), FY08 EPS to $3.80-$3.95 ($3.86 consensus) and FY08 revenues to $1.55-$1.60 billion ($1.54B consensus). The stock popped on the news and has since 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 issue with two "strong buys," three "buys" and four "holds." Analysts see a 15% average annual growth rate, through the next five years. The ATU P/E ratio (19.36), PEG ratio (1.29), Price to Sales ratio (1.23), Price to Book ratio (3.59), Price to Cash Flow ratio (12.74), Price to Free Cash Flow ratio (12.51), Sales Growth rate (20.15%), EPS Growth rate (25.32%) and Return on Equity (24.33%) compare favorably with industry, sector and S&P 500 averages. Over the past 52 weeks, ATU shares have traded between $45.72 and $67.86. A stop-loss of $57.75 looks good here.

Through The Fly's Eyes: Nokia, Navteq and Garmin

2007-10-01T11:35:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Nokia to Acquire Navteq; Garmin Plummets

Nokia (NOK) this morning announced its biggest acquisition to date. In a move to continue its transition into more of a software and services company rather than a hardware marker, the company said it would acquire Chicago-based Navteq Corp (NVT) for $8.1B, or $78 per share, through a combination of cash and debt. Through the acquisition, Nokia will gain digital maps of nearly 69 countries and 6 continents, allowing it to add navigation features to the company's phones.

The acquisition will allow the Finland-based Nokia to compete more effectively in the mobile-services space that includes companies like TomTom, which bought map maker Tele Atlas NV in July for $2.55B. FIM Securities analyst Jussi Hyoety believes an acquisition of Navteq is an essential move for Nokia if it wants to be a leading player in the sector, after entering the navigation space last year with its acquisition of Gate5. Gartner research director Carolina Milanesi agrees, and believes the deal makes "strategic sense." She said that the acquisition will allow Nokia to strengthen its position in the GPS/maps market. Although investors were concerned Navteq is "too expensive," they may also want to consider that according to research firm iSuppli Corp, navigation products sales is likely triple to nearly $12.8B by 2010. Sales of Nokia phones with cameras and music players shot up 74% in 1H07, and one can only imagine how the addition of maps will add to this.

While the Navteq acquisition should be positive for Nokia in the future, Garmin Ltd (GRMN) will likely not fare as well. There had been some speculation that Garmin, which is one of Navteq's largest customers, would consider a bid for Navteq. Although a Garmin spokesman said the company should continue to have a good relationship with Navteq, analysts and investors aren't so optimistic.

Analysts at CIBC downgraded Garmin to Sector Performer from Outperformer, also removing its $120 price target. The firm believes that Nokia's Navteq acquisition poses a long-term threat to Garmin, which may suffer despite having strong success in the market. Aside from threatening Garmin's ability to negotiate pricing on maps, the acquisition will reduce Garmin's influence -- particularly in features -- on Navteq when it's owned by a powerhouse like Nokia. CIBC's Yair Reiner believes that while Garmin may still be interested in extending an offer for Navteq, it may be too late: Garmin may have to defend its own stock for the time being, which Reiner believes may become "quite volatile" from the news. It may also be too late for Garmin to make an offer because it would haev to pay for Navteq in equity; since Nokia is able to pay in cash, that's a much better deal.

Shares of Garmin were down nearly 15% at this morning's open.

Through The Fly's Eyes: Airline Stocks

2007-10-01T09:17:00.000-04:00

from Theflyonthewall.com

Positive Momentum Building in Airline Sector

Barron's piece on AMR Corp's (AMR) American Airlines points to how investor sentiment might be changing toward the airline industry. The airlines are profitable, have huge cash positions and little debt outside of the leases for their planes.

One potential catalyst could be the spinning off of many of the industry's frequent flyer programs, similar to what Air Canada did with its Aviation Holdings frequent flyer program.

Also, as American Airlines and UAL Corp (UAUA) are getting pitched by investment bankers about spinning off assets, the supply-and-demand balance for oil and jet fuel are looking more favorable for a price decline. With demand slowing and new supplies coming to market from Saudi Arabia, the drop in fuel could be considerable.

With American having corrected from $40 and now selling for $22, and UAL Corp holding up better, but still selling for a cheap valuation, both stocks seem to have a number of catalysts in place to drive both airline stocks higher.

Through The Fly's Eyes: Intersil Corporation

2007-09-28T15:04:00.000-04:00

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

Intersil Corporation Supplies Semiconductor For Apple's iPod Nano

Competition among makers of electronic devices is intense and that gives component suppliers known for reliability and reasonable prices a solid advantage. When it comes to analog chips, many of the big name OEMs look to an outfit in Milpitas, California.

Intersil Corporation (ISIL) is engaged in the design and manufacture of analog integrated circuits. Its product families address power management and signal processing functions. The firm offers a portfolio of application specific standard products and general purpose proprietary products for high-end consumer, industrial, communications, and computing markets. The company sells its devices to original equipment manufacturers, original design manufacturers and contract manufacturers in the United States, Europe and Asia. The Intersil customer list includes Dell (DELL) and IBM (IBM).

Shareholders were pleased last week to learn that the company is also a supplier of semiconductor components for the new Apple (AAPL) iPod nano. The stock popped on that news and has since 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 issue with six "strong buys," nine "buys," six "holds" and three "sells." Analysts expect a 23% growth rate, through the next year. The ISIL Price to Book ratio (1.86), Price to Free Cash Flow ratio (22.90), Operating Margin (20.15%) and Net Profit Margin (19.48%) compare favorably with industry, sector and S&P 500 averages. Institutions own 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 $22.42 and $35. A stop-loss of $28.60 looks good here. Note that the firm is expected to announce Q3 earnings and revenues in mid-October. Management issued upside guidance for those results, on September 4.

Through The Fly's Eyes: Chinese Stock Exchange

2007-09-28T13:20:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Chinese Stock Exchange May Have Gotten Pre-Holiday Jump

Reports today are suggesting that a planned shutdown of the Chinese stock exchange for all of next week helped boost Chinese equities today.The Shanghai Stock Exchange will be closed all of next week in honor of National Day, a Chinese holiday. The exchange will not be reopened for trading until Monday, October 8.

Shanghai hit a record today, and Great Wall Securities analyst Du Changjiang believes the long upcoming holiday had something to do with it.

"Since China's bull market began, the markets have opened higher each time a long holiday ends," he told the Associated Press. "Investors are snapping up shares today in the hope that they'll earn an automatic profit once the markets open again," he added.On the other hand, Haiton Securities strategist Wang Sheng said yesterday that some Chinese investors were “taking a wait-and-see” attitude ahead of the holiday and the once-every-five years Communist Party congress that is scheduled to kick off on October 15.

At any rate, the volume of trade in the American Depository Receipts of Chinese stocks, such as China Eastern Airlines (CEA), China Mobile (CHL), and PetroChina (CHL), may be low next week, as there probably won’t be much news coming out of the country. Meanwhile, a Taiwan Stock Exchange broker told the China Post that foreign investors looking for East Asia investments will flood the Taipei exchange on Monday, causing the market to surge.

Through The Fly's Eyes: A Quick Look Ahead

2007-09-28T13:09:00.000-04:00

from Eric Buscemi of Theflyonthewall.com

Highlights For Next Week

Monday October 1

* Beijing Med-Pharm Corporation (BJGP) to hold a conference on the acquisition with Sunstone Pharma at 9am.

Tuesday October 2

* Ford (F) to report monthly sales at 1pm, General Motors (GM) to report monthly sales at 2pm.
* PDUFA date for Biovail (BVF)/Depomed (DEPO)/King Pharmaceutical's (KG) Glumetza for glycemic control in diabetic adults.

Wednesday October 3

* Threshold (THLD) to discuss Glufosfamide results from Phase III Clinical Trial at 4:30pm.

Thursday October 4

* Constellation Brands (STZ) to report Q2 earnings; conference call at 10am.
* Lawson Software (LWSN) to report Q1 earnings; conference call at 4:30pm.
* Research In Motion (RIMM) to report Q2 earnings; conference call at 5pm.

Friday October 5

* PDUFA date for Bristol Myers's (BMY) Abilify for the treatment of schizophrenia and manic episodes associated with Bipolar I Disorder.

Through The Fly's Eyes: Rumor Mill

2007-09-28T12:25:00.000-04:00

from Tedd Cohen of Theflyonthewall.com

Rumor Round-up

YRC WORLDWIDE (YRCW)

Deutsche Post, the largest European mail carrier, is said to be eyeing the trucking firm that’s parent to Roadway Corp. and DHL. Many observes think it’s nothing, but it’s worth watching.

STILL FLYING AROUND

QUEST DIAGNOPSTICS (DGX)

Over the summer this leading medical testing firm was said to be on the block, and being pursued hotly by private equity investors. Nothing happened. As yet, no suitor names are about.

SPRINT NEXTEL (S)

BT Group? Verizon (VZ) Comcast ? SK Telecom? All could be interested.

DEVON ENERGY (DVN)

Exxon was once said to be interested in the oil and gas producer, which remains a U.S.-based growth opportunity.

BUZZ

New York Times (NYT): A far fetched target? Most likely. But the company continues to struggle, and the Wall Street Journal (DJ, NWS, NWS.A) is about to run right at them…Motorola (MOT): CEO Zandler continues to be on the hot seat. Is he ready to go?...China Automotive (CAAS): Deal to come with Toyota?...Sify (SIFY): Literally around for years, and back again: Will this Indian Internet firm finally be bought?...Take Two Interactive Software (TTWO): For sale?

Through The Fly's Eyes: First Data

2007-09-28T09:01:00.000-04:00

from Theflyonthewall.com

Bond Market Mending Its Wounded Ways

First Data, the first of the large PE deals seeking financing following the meltdown of the credit markets, placed $9.4 billion in loans yesterday. Supposedly, the amount of debt sold was nearly double the $5 billion banks targeted.

Also, Oaktree Capital Management, BlackRock and Eaton Vance are forming funds to buy up some of this debt. The 400 bps banks have had to add on to yields are beginning to pique investor's interest.

What should also begin to be seen is that the amount of debt that needs to be placed should start coming down. News reports cite as much as $330 to $370 billion in loans need to be placed. However, this number seemed to grow as the credit-market meltdown fears hit the markets. Prior to the panic hitting a crescendo, $200 billion in leveraged loans and some $75 to $100 billion of high yield bonds were the target that needed to be sold.

However, take away First Data and TXU, the two large deals being financed, and add to that Harman and Sallie Mae that look like they might not get financed, and this number drops rather quickly. Plus add all the smaller deals that are not household names that will not get done and next thing you know this problem is being resolved.

Once again, free markets are correcting the problem that they created.

Through The Fly's Eyes: Bunge Limited

2007-09-28T08:56:00.000-04:00

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

An Agricultural Play

Dealing with agriculture on an international basis requires that a firm understand global trends in demographics, economics and cultural development. A White Plains, New York firm is one of the most highly respected practitioners of the art.

Bunge Limited (BG) is an integrated agribusiness, fertilizer and food products concern. The company is a leading global processor of soybeans and other grains, a leading provider of products and services to the South American farming community and a major U.S. food processor. Some of Bunge's agribusiness products are used for industrial purposes, including renewable fuels like biodiesel. Archer-Daniels-Midland (ADM) is a major competitor.

The stock has been a solid performer over the past six weeks, rising 27% on word of such developments as a big upward revision in the 2007 USDA farm income estimate, a BG "buy" initiation at Matrix, and Bunge's acquisition of the Agroindustrial Santa Juliana ethanol production facility in Brazil. The news has kept BG shares cycling through a positive trading channel. Further definition of the upside move is expected to coincide with the run-up in key agricultural commodity prices.

Brokers recommend the stock with four "buys" and five "holds." The BG P/E ratio (21.63), Price to Sales ratio (0.38), Price to Book ratio (2.28), Price to Cash Flow ratio (12.13), Sales Growth rate (65.22%), EPS Growth rate (394.17%) and Revenue per Employee ($1.454M) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 77% of the outstanding shares. Over the past 52 weeks, the stock has traded between $56.71 and $105.82. A stop-loss of $90 looks good here. Note that the firm is expected to release third quarter results in late October.

Through The Fly's Eyes: Internet video

2007-09-27T15:05:00.001-04:00

from Larry Ramer of Theflyonthewall.com

Internet Video Boom Should Boost Shares of Infrastructure Providers

Stocks of companies that facilitate Internet video may boom as the medium continue to proliferate at rapid rates. While tight competition and excess bandwidth have pushed down these shares recently, Internet video is growing and maturing so quickly that the companies in this sector, including Akamai (AKAM), Big Band Networks (BBND), LimeLight (LLNW), and On2 Technologies (ONT), seem likely to rebound in a big way soon.

How quickly is consumption of Internet video growing? According to research company comScore, nearly 75% of American Internet users watched Internet video in July, up from 71% in March. While an increase of 4% may not seem like much on the surface, each percentage point represents about 1.3 million people. And, despite the 75% figure, Internet video still has a great deal of room to grow, because each user only spent an average of 3 hours per month watching Internet video. (And summer is probably not the most popular time of year to sit home and watch Internet videos).

As more content providers, including everyone from the largest TV networks to Major League Baseball to Apple (AAPL), begin to make video content easily accessible on the Internet, we can expect that Internet video viewing will explode. Meanwhile, content providers will be ready to spend more money in order to improve the Internet video experience, as Internet video advertising proliferates and makes the entire enterprise much more lucrative. Google's (GOOG) move this summer to introduce advertising on YouTube should accelerate the transition towards more Internet video advertising.

It will then be up to the Internet video enablers to find ways to more meaningfully differentiate themselves and their products from the competition. There are already signs that companies in the industry are moving in that direction. For example, Akamai announced on August 27 that it was enabling the delivery of high definition video over the Internet. According to the research company Frost & Sullivan, On2 Technologies has developed a product that enhances video quality for mobile Internet users. BigBand Networks last month announced new technology enabling the delivery of Internet video advertising to individual users.

There is no doubt more competition is coming to the sector. Level 3 (LVLT), along with some smaller companies, are getting into the Internet video business and pushing down prices. But the Internet video market is growing so rapidly that this may be a rising tide that really could lift all boats. Also, as the industry becomes more lucrative, content providers may be willing to pay a high premium for important innovations.

Through The Fly's Eyes: iRobot

2007-09-27T15:05:00.000-04:00

from Eric Buscemi of Theflyonthewall.com

iRobot Announces Two New Robots at Digital Life

Today, iRobot (IRBT) CEO and co-founder Colin Angle spoke as the keynote at the Digital Life expo in New York City's Jacob Javits Center. He announced not one, but two new robotic products: the Looj, a gutter cleaning robot, and the ConnectR, a virtual visiting robot.

He first warmed up the crowd by reminding them of the television cartoon The Jetsons, which was once a vision of futuristic household robots. He said that although his robots were not humanoids, they are "fantastically useful." He said, "Goodbye Jetsons, goodbye Hollywood robots." And hello new product announcements.

After running through the company's current product line -- which features the Roomba, a vacuuming robot, the Scooba, a floor washing robot, the Dirt Dog,a shop sweeping robot, and the Verro, a pool cleaning robot -- Angle detailed the two new robots.

First, he introduced the gutter cleaning Looj, which he desribed as a "mini tank." It is low profile, meaning it can drive under gutter straps, as well as water proof, making for easy cleaning. The Looj is remote controlled and drives in forward and reverse, meaning you only need to climb a ladder once to drop it and retrieve it. It even comes with an optional belt attachment carrying case, making for safe ladder climbing. It retails for $99 ($129 with the belt attachment carrying case), starting today on iRobot.com, and will be at "select retailers shortly."

Then he introduced the ConnectR, a "thought provoking" device giving the owner "telepresence." The device looks similar to the Roomba and Scooba, but is meant for interactive communication. It has a camera and VoIP technology built in, and only requires a wireless router to function. It can be best described as a video teleconferencing robot, that giving the remote user, using a computer anywhere, the ability to control movement and camera functionality while seeing and hearing what the robot does. As Angle said, the ConnectR "allows you to call a place rather than a person." This robot launches early next year and will cost $499, although the pilot program is starting this year for a limited number of people (To try to join the pilot program, visit iRobot's website).

The market has reacted positively to iRobot's announcement, as the stock is up 4.67% in trading today.

Update:

I caught up with CEO Colin Angle after the keynote and got a few words from him. He, not surprisingly, wouldn't say what the next robot idea from the company would be, although he did admit to thinking about the challenges of lawn mowing and laundry folding. He added that while lawns of the future will definitely be mowed by robots, there was no timetable on when we would see it happen.

He did want to stress that these initial launches of the Looj and the ConnectR would not be material for the company in '07, but would be to test and get feedback for them. One of the particular challenges with the ConnectR is finding the target buying audience. Although the company is looking at travelling adults with children, they also see grandparents and pet lovers as potential ConnectR consumers.

Finally, discussing the problems of convincing the general public that these robots can work, Angle left me with was this thought: "If nothing else, we are passionate about being the real deal."

Through The Fly's Eyes: KB Home

2007-09-27T14:02:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

KB Home's Gory Q3 Report

No matter how one tries, there's virtually no way to sugar-coat KB Home's Q3 earnings report.

Los Angeles-based KB Home (KBH) Thursday posted a Q3 EPS loss of $6.19 compared to the Reuters consensus estimate of a loss of 71c.

The company said Q3 revenue totaled $1.53B, down 33% from a year ago, and below the $1.59B Reuters consensus estimate.

KB Home said net orders for new homes, one indicator of future sales, were down 6% to 3,907, while unit deliveries plunged 28% to 5,699. Also, the average selling price declined 7% to $267,700. Further, the cancellation rate increased to 50% from the prior quarter's 34%.

New orders down significantly. Deliveries plunge. Average selling prices decline. Can one discern any positive data points from KBH's report? Not really, and KBH's CEO Jeffrey Mezger's comments spoke to that reality.

The results "reflect the seriously challenging market conditions that prevail for home builders across most of the nation," said CEO Jeffrey Mezger in a statement. "At this time, we see no signs that the housing market is stabilizing and believe it will be some time before a recovery begins."

KBH's share traded 5 cents lower to $24.04 in Thursday afternoon trading.

[ Note: Technical analysis agnostics stop reading here. All others, continue. ]

Further, KBH 's chart provided clues that the Q3 report would not be favorable. Technicals analysis assumes that all information that can be known about a stock has already been arbitraged into a stock, and if that information has been negative, the stock's chart should reflect a bearish trend; positive, a bullish trend. A trend can change with new, contrary information, but absent that, the current trend continues, andKBH provides a case study for that theory. KBH's stock has been below its 50-day moving average for more than 4 months, and for more than 7 months if one discounts a minor breach this spring - a bearish trend.

Further, KBH's relative strength index, or RSI, has not hit "overbought" levels for more than six months, which indicates that when buying pressure has occurred, it hasn't lasted for very long. And by extension, absent sustained buying pressure, it's difficult for a stock's price to rise.

Fly Analysis: KB Home is a high-risk stock not suitable for low- and moderate-risk investors. Investors, except those with risk capital to deploy, should avoidKBH at least until the rise in both subprime mortgage defaults and better-credit mortgage defaults ends and the U.S.'s large inventory of unsold homes begins to decline.

Through The Fly's Eyes: Tween Brands

2007-09-27T13:57:00.000-04:00

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

Tween Brands Boosts Forecast

There is virtually no end of shops offering fashions for young women and the number of stores catering to the older crowd is on the rise, but where do you go for haute couture and you are eight? There is an outfit headquartered in New Albany, Ohio that has an answer.

Tween Brands (TWB) is a specialty retailer that features apparel for tween girls (ages 7-14). The stores also carry such items as purses, watches, backpacks, jewelry, footwear, bedroom furnishings and age-appropriate cosmetics. The firm operates 583 Limited Too shops and 221 Justice outlets, in 46 states. It was spun off from former parent, Limited Brands (LTD), in 1999.

The company pleased investors earlier in the month, when it boosted earnings forecasts on the basis of quarter-to-date operating results and expected benefits from a newly authorized stock repurchase program. Management now sees Q3 EPS of 43-47 cents (42 cent consensus), Q4 EPS of $1.03-$1.13 (97 cent consensus) and FY08 EPS of $1.84-$1.98 ($1.84 consensus). Susquehanna Financial subsequently upgraded the stock to "positive" and Friedman Billings reiterated its "outperform" rating. The news popped the shares out of an early September "cup" into the mid-September "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 issue with two "strong buys," three "buys" and eight "holds." Analysts see a 26% growth rate, through the next year. The TWB P/E ratio (16.18). PEG ratio (1.01), Price to Sales ratio (1.01), Price to Book ratio (2.85), Price to Cash Flow ratio (9.95), Return on Assets (11.53%) and Return on Investment (14.34%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% 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 $27.23 and $49.00. A stop-loss of $27.70 looks good here. Note that the firm is expected to report Q3 results in mid-November.

Through The Fly’s Eyes: ABN Amro

2007-09-27T11:30:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

As The Takeover Talks Turn…

The takeover battle continues over ABN Amro (ABN). The Royal Bank of Scotland (RBSPY) has now doubled their interest in the financial services holding giant to 8%, which would cut the takeover bid cost by 1%. RBS, along with Santander (STD) and Fortis (FORSY), are the parties involved in the takeover bid. The deal is said to be worth approximately $100B.

Barclays (BCS) is also seeking to buy ABN, as they admitted they made their own offer of 31.4 euros per share at current prices. This offer, however, might be overshadowed by the RBS-led proposal.

ABN’s stocks are flat in today’s trading, at $52.10, a shade below it’s 52-week high of $52.21.

The ease of the takeover, however, is far from easy. Turmoil in the credit markets are stroking worries that the consortium is struggling to raise the funds for the takeover. Still, this is far more than Barclay’s bid and analysts expect the deal to finally go through. Still, some question whether this is the right time for a takeover as the financial services industry in general is set for slow to flat growth in the near future. Perhaps this is not good investment for RBS or investors.

Through The Fly's Eyes: Accuray Inc

2007-09-27T11:04:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Analysts Urge Investors to Buy Accuray

Analysts at Jefferies & Co made a big call on Accuray Inc (ARAY) on Tuesday. The firm says investors should buy the stock ahead of its first-ever analyst day on October 4th in Las Vegas.

Accuray, which is a global leader in the radiosurgery field, has developed the next-generation radiosurgery CyberKnife system, which is a system designed to treat solid tumors anywhere in the body as an alternative to traditional surgery. According to the company, CyberKnife has been used to treat nearly 35,000 patients worldwide.

The company will hold an analyst day on October 4th ahead of a two-day Robotic Radiosurgery conference featuring the CyberKnife system. Analysts believe the company will speak about the two-day event on October 5th-6th, which includes sessions on coding and reimbursement, contract negotiation and physics. Additionally, the company will present an introduction to CyberKnife, including strategies, processes and techniques experienced users used to build and expand the programs. Specifically, the company will likely focus on both intracranial and extracranial treatment outcomes.

Why is Jefferies so positive on the stock? One benefit for Accuray is that many of the claims for CyberKnife procedures are reimbursed. The firm feels shares have the best risk/reward profile in their coverage universe. The analysts believe the company's long-term growth opportunity is being bolstered by rapidly expanding SRS procedure volumes. The firm notes that a competitor has incorrectly estimated new CyberKnife orders over the past two quarters, a "mistake" that has caused a lot of "undue pressure" on shares. While the competitor stated Accuray only grew new CyberKnife orders by nine systems, from discussions with management, Jefferies put that number more at around 2x that estimate, or somewhere around 19 systems, in Q3. While the competitor eventually corrected this figure, the very same competitor said Accuray had 15 new orders in Q4 for CyberKnife, but management said they actually had around 30 new orders, which indicates strong demand for the device. These factors, Jefferies says, caused shares to drop.

On top of that, they believe the company's Q1 results should exceed their expectations. They believe the company's EPS, revenue and CynerKnife placement results should come in at 5c, $45.6M and 11 revenue generating units, respectively. Consequently, the firm rated Accuray with a Buy and $29 target and believe shares should be on their way up in the near-term.

The stock had traded around the $15 range for the two weeks prior to the analyst report's release. Since then, the shares have been steadily rising, hitting $17.82 this morning. With Jefferies' rating, the stock should climb further in the near-term.

Through The Fly's Eyes: Sprint & Palm

2007-09-27T09:19:00.000-04:00

from Theflyonthewall.com

Will Sprint-Palm Agreement Hold Much Meaning?

Sprint (S) will announce at 12:15 today that it will market a new Palm (PALM) smartphone. It certainly does not carry the same buzz as the iPhone-AT&T (T) announcement.

As a reminder, Sprint never caught on to the importance of Motorola's (MOT) Razr, only beginning to market the slim-downed phone after the fad had run its course.

Yesterday, Goldman Sachs downgraded Sprint Nextel shares to Neutral from Buy, citing the company's ongoing struggles to turnaround its business.

There was nothing pretty about the downgrade "The near-term trajectory appears more challenging. Visibility into improvement and tangible milestones for investors to use as benchmarks are also missing. While the company has a great set of assets and operates as a near pure-play into secular growth of the U.S. wireless end market, we cannot recommend buying the stock at this point," the report says.

In other words, good industry, bad management. While Sprint did show some beginning signs of a turnaround earlier in the year, it has all since faded.

Also, the much anticipated partnership with the cable companies to be their wireless provider appears not to be getting much momentum. Actually, Comcast (CMCSA) is looking around at buying up its own wireless spectrum.

It will be worth listening to the lunch time conference call to see if there is a sign of meaningful innovation from either Sprint or Palm. At some point Elevation Partners, Palm's new large shareholder, will have some influence on the company. However, do not expect much from either company today.

Through The Fly's Eyes: Savvis Communications

2007-09-27T08:43:00.000-04:00

from Theflyonthewall.com

Evidence Of Successful Product Transition for Savvis

Evidence of a successful product transition for Savvis (SVVS) should come out in its October earnings conference call. The data-center company had a nice run post-restructuring, but we blogged as the stock was hitting $50 per share that it was worth taking some money off of the table.

With the stock having corrected to $36, it is worth chipping away at this growth company.

Savvis is building four new state-of-the-art centers which will expand capacity by 160,000 sq. ft. around the country. The company also has utilized options to take back below-market-rate contracts which it is in the process of re-marketing and repricing. Further, the data-center company is upgrading its network with new Cisco equipment, getting rid of older Nortel gear, and will link its metropolitan data centers with fiber to improve service for customers.

Savvis also has completely overhauled its balance sheet with lower cost-of-capital converts.

Earnings from these new investments and balance sheet changes should begin to be seen when the company reports in October. It is worth doing some bottom fishing at this price level. If the product transition is slow, the stock has limited downside; if it is ahead of schedule, you can make some good money.

Through The Fly's Eyes: Monsanto

2007-09-26T19:43:00.000-04:00

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

Monsanto Company Looks Bullish

Monsanto Company (MON) provides agricultural products to farmers worldwide. The company produces seeds and develops biotechnology traits that assist farmers in controlling insects and weeds. Products include canola, corn, soybean, fruit, cotton, sunflower and sorghum seed. Monsanto also manufactures the world's leading herbicide, Roundup. Further, it provides products that focus on improving dairy cow productivity and it sells genetics lines for improving the productivity and meat quality of swine.

Early last week, the firm issued upside guidance for FY07. Management boosted its EPS estimate from $1.75-$1.80 to $2.00. That topped the consensus Street estimate of $1.83. The news popped the shares out of an early September "cup" into the mid-September "handle" of a Cup & Handle formation. The price is now completing the pattern with a bullish rise from the right-hand side of the "handle," on word the company believes the opportunity for its biotech traits outside the United States could nearly triple the 95 million acres penetrated today.

Brokers recommend the shares with four "strong buys," four "buys," five "holds" and one "sell." Analysts see a 28% average annual growth rate, through the next five years. The MON Sales Growth rate (23.08%), EPS Growth rate (67.21%), Operating Margin (18.53%) and Net Profit Margin (12.92%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 86 percent of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past twelve months, it has traded between $42.75 and $83.97. A stop-loss of $72.50 looks good here. Note that the firm is expected to release fourth quarter results in the second week of October.

Through The Fly's Eyes: General Motors and the UAW

2007-09-26T17:54:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

General Motors And The UAW Strike A Deal

The short-lived strike is over! General Motors (GM) and the United Auto Workers Union, or UAW, have reached a tentative agreement to end their first strike in 37 years. Workers reported back to work today. The UAW is now focusing on inking a deal with other auto giants Chrysler and Ford (F) after ironing out the deal with GM.

The crux of the acrimony focused around retiree healthcare and how to fund it. Under the new deal, GM will set up an independent retiree health-care trust, which would alleviate the company of $50B it owes to the UAW. This would likely cost GM about $35B, but will limit the future health care liability for the company. Other terms of the agreement include a new wage increase system which limits raises and creates more job security.

Wall Street responded favorably to the UAW / GM deal: GM’s stock soared nearly 7% to $36.59, slightly off its 52-week high of $38.48.

Analysts generally believed that the strike would be short-lived. Dan Schroeder, a labor attorney from Mintz Levin, argued that the automotive industry in financial straits that a long strike would have crippled everyone.

GM is also hopeful that this new deal will help the company improve its competitiveness and will allow it to maintain its U.S. manufacturing operations.

This is win-win situation for both GM and its investors. GM offsets its soaring healthcare costs, which would have been its biggest expense in the future; also, investors will win with GM’s stock, as the company will now have lower costs, which should help its bottom line.

Through The Fly's Eyes: IHS

2007-09-26T17:36:00.000-04:00

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

IHS Inc.: Technical databases for big business

Any firm doing business with a significant science & engineering component needs quick access to organized, up-to-the-minute technical information. There is an Englewood, Colorado outfit that provides that access to some of the biggest corporations in the world.

IHS Inc. (IHS) provides documents, decision-support tools and related services to customers in a variety of technical fields. The firm's Energy division delivers oil and gas data on exploration, development, production, and transportation activities to energy producers and oil companies. Its Engineering division provides technical specifications and standards, regulations, parts data, design guides and other information to customers in the defense, aerospace, construction, energy, electronics and automotive industries. Customers include Boeing (BA) and DuPont (DD) and Exxon Mobil (XOM).

The company surprised the Street last week, when it reported Q3 EPS of 43 cents and revenues of $183.4 million. Analysts had been expecting 36 cents and $174.9 million. Management also guided FY07 revenues to about $672-$683 million, versus consensus of $666.92 million. The share price popped on the news and then began consolidating the gain in a bullish "flag" 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 issue with two "strong buys," three "buys" and two "holds." Analysts see a 19% growth rate through the next year. The IHS Price to Free Cash Flow ratio (30.89), Sales Growth rate (31.07%), EPS Growth rate (48.28%) and Net Profit Margin (11.30%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 66% of the outstanding shares. Over the past 52 weeks, the stock has traded between $30.82 and $57.64. A stop-loss of $49.25 looks good here.

Through the Fly's Eyes: UAL

2007-09-26T13:56:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Is UAL Looking to “Sell High?”

Shareholders of UAL Corporation (UAUA), the parent company of United Airlines, are reportedly thinking of getting out of parts of their company while the getting is good, as the expression goes.

According to a report in today’s Chicago Tribune, UAL’s board is considering spinning off parts of the company. Analysts believe the company may consider selling parts of its real estate portfolio and some of its airline routes, landing slots, and airport gates. The company has said publicly that it was looking at options for its frequent flier program, and considering a sale of its large maintenance facility in San Francisco.

There were also indications that UAL had been pursuing a merger or acquisition, but it could have had a tough time finding a buyer or partner due to the travails of the airline industry, analysts told the Tribune. The company may have decided instead to sell itself in parts, while the economy is still somewhat vibrant, said R.W. Mann & Co. consultant Robert Mann.

UAL’s largest shareholders may have simply decided that they want to divest themselves, as much as possible, of the unstable, highly competitive, unpredictable airline industry. The industry has to deal with intense labor disputes, heated price competition, and ever-rising fuel prices. A recession or a terrorist attack would cripple every airline company for many months, if not years.

The old principle of “sell low, buy high” would certainly dictate selling off parts of the company’s operations now. On September 19, the company released a relatively rosy forecast for Q3, saying that it expected passenger revenue per available seat mile to jump by as much as 8.5% during the quarter. The company added that it was benefiting from crowded planes and higher fares. United, along with other U.S. airlines, enjoyed high demand during the summer.But the good times probably won’t last much longer, so UAL seems to be looking to “sell high.” One question is, what will the company do with all the cash it generates from selling off its assets? It is always possible that UAL will enter a new business altogether.

Through The Fly's Eyes: Fortress Investment Group

2007-09-26T13:12:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Fortress Shutters Its Subprime Operations

Fortress Investment Group's (FIG) decision to shutter its subprime mortgage division, Nationstar Mortgage, generated only a mild reaction from traders and analysts alike. Nationstar, a leading U.S. subprime lender, has sustained substantial losses due to rising defaults and foreclosures.

Nationstar said any approved mortgage applications in its pipeline would be honored. Nationstar will also continue to service the $10 billion in subprime loans in its portfolio.

Wall Street took Fortress' subprime decision in stride: Wall Street appreciates all the candor and data in can get regarding the status of subprime loans and operations, and Fortress' announcement will helps analysts compose a more-complete report on Fortress, one reason the Street did not punish FIG's shares. FIG's shares were down 20 cents to $20.66 in Wednesday afternoon trading.

Moreover, Wall Street's clamor for "the more data, the better" regarding the subprime sector is not without justification. Late payments and defaults on subprime mortgages are already four times the historical U.S. average, and many analysts expect that percentage to rise in the quarters ahead: about $350 billion in subprime home loans will shift to higher interest rates, with initial rate increases boosting costs by 30% or more, according to research by Credit Suisse.

Nationstar, formerly Centex Home Equity, was bought in 2006 by Fortress, a manager of private-equity and hedge funds, for about $554 million. It had been owned by Dallas-based Centex, the fourth-biggest U.S. homebuilder.

Through The Fly's Eyes: DreamWorks Animation, Viacom

2007-09-26T11:47:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

DreamWorks Appoints Ex-Viacom CEO to Board; Chaos Ensues

Earlier this week, DreamWorks Animation SKG (DWA) appointed Tom Freston would join its board of directors. While this may not have been a big deal if it was anyone else, Tom Freston is the former CEO of DreamWorks rival Viacom (VIA). Was it a move designed to provoke Viacom? Seems that way, doesn't it?

Tension has been running rampant between the two companies for some time now. The major players? Viacom CEO Philippe Dauman, executives at Viacom unit Paramount Pictures and DreamWorks Studios, including David Geffen and Steven Spielberg, and DreamWorks Animation's CEO, Jeffrey Katzenberg.

Last week, Dauman told an investment conference that his company, its Paramount Pictures and its DreamWorks Studios units would do "just fine" without famed director Spielberg. Spielberg -- who, by the way, founded DreamWorks along with Katzenberg and Geffen and sold it to Viacom for $1.6B a few years ago -- couldn't have been too happy with the remarks, as his and Geffen's contract with Viacom ends next year. In fact, Dauman's comments increased industry speculation Spielberg and Geffen would leave Paramount at the end of their contract, a move which would probably please Brad Grey, Paramount's chairman, who has had his share of disputes with Spielberg, Katzenberg and Geffen. As Paramount's chairman, Grey gets to share credit for hit films at DreamWorks, which has angered the formerly supportive Geffen. If Geffen, Spielberg and Katzenberg plan to remain at DreamWorks, they will have to start negotiating -- and soon.

What would happen to Paramount and Viacom should the “national treasure” and team leave? Recent successes at DreamWorks include summer blockbuster "Transformers," "Disturbia," and the "Shrek" movies. Next on tap for Spielberg is "Indiana Jones and the Kingdom of the Crystal Skull." According to Dauman, the financial impact would be "completely immaterial," and would not have an impact on earnings. Paramount, indeed, does have several movies coming out that would prevent significant financial losses -- "Iron Man," "Star Trek," as well as several films from DreamWorks, such as "Tropic Thunder." Hopefully, for Dauman and Viacom, he's right in thinking the upcoming movies would be able to compensate for the $300M in domestic box office sales "Transformers" alone brought in this summer.

However, as the New York Times reported, just because a departure by Spielberg and company may not have a "material impact" on earnings does not mean it won't have an effect on the company, and, in particular, management. The Times speculates that other DreamWorks execs, including CEO Stacey Snider, could "follow the co-founders out the door." And that, according to this blogger, could certainly be considered “material.”

What a story. And now, perhaps in response to tension so thick you could cut it with a knife, DreamWorks elected Viacom's former CEO to its board. Freston, who was one of the founding executives of MTV Networks, was famously fired by Viacom chairman Sumner Redstone last year after serving the company in some respect for over 26 years. Redstone then re-hired Dauman, who left the company after acquiring CBS (CBS).

Employment Opportunities at Theflyonthewall.com

2007-09-26T11:36:00.000-04:00

Theflyonthewall.com is now seeking Experienced Financial Reporters for various shifts

Theflyonthewall.com is an established and growing financial news service looking for smart, motivated, and detail-oriented experienced financial reporters.

You will:
- Analyze U.S. Equity Research
- Review news concerning U.S. companies
- Identify catalysts for stock price moves
- Create brief and clear summaries for our news feed

Your work will go out to our institutional, corporate and retail subscribers through our web, newswire and audio services. Our subscribers rely on our unique ability to gather, interpret and report information quickly. You must be able to respond quickly to breaking news items. The position requires strong verbal and written communication skills. You must be able to work independently.

Staggered shifts are available: Early morning/afternoon (Monday through Friday) and afternoon/evening positions (Sunday through Thursday).

Our offices are in Summit, NJ and Bayside, NY. For immediate consideration, please forward a cover letter, resume, and salary history to resumeforward2006@yahoo.com.

Employment Opportunities at Theflyonthewall.com

2007-09-26T11:33:00.000-04:00

Theflyonthewall.com is now seeking a Senior Sunday-Weekend Financial Editor

Theflyonthewall.com is an established and growing financial news service looking for an experienced Weekend Senior Financial Editor for Sundays. You will analyze U.S. equity research; review news concerning U.S. companies; identify catalysts for stock price moves; and create brief and clear summaries for our print news feed and website. Your work will go out to our institutional, corporate and retail subscribers who rely on our unique ability to gather, interpret and report information quickly.

Ideally, you have front office market experience, and understand how news affects markets. You must be able to respond quickly to breaking news. The position requires strong verbal and written communication skills. You have to be motivated, detail-oriented, and be able to work independently. Some of the material for Sunday can be prepared on Saturday. This opportunity can lead to a full time position.

Our offices are in Summit, NJ and Bayside, NY. For immediate consideration, please forward a cover letter and resume to: resumeforward2006@yahoo.com.

Through The Fly's Eyes: Housing

2007-09-26T08:33:00.000-04:00

from Theflyonthewall.com

Housing Results Remain Ugly; Start Doing Your Homework

Any way you slice it, the housing industry data remains very ugly. Yesterday, the day started off with the Standard & Poor's/Case Shiller national home price index showing a month-over-month drop of 0.4 percent in July from June, and a year-over-year decline of 3.9 percent.

This was followed up by data points from Lennar (LEN) which were simply not good.

Revenue fell 44 percent
41 percent drop in the number of home deliveries
6 percent decrease in the average sales price of homes delivered in 2007
Construction starts were down 62 percent year-over-year

Wow! Talk about poor results. While it is definitely still too early to buy these stocks, the numbers are so bad that it is time for investors to start doing their homework. The slicing of home inventories and the huge writedown of land for new construction means the industry is aggressively cutting back on inventory. This means we should see things begin to stabilize in the next twelve to eighteen months.

Through The Fly's Eyes: American Greetings

2007-09-25T17:11:00.000-04:00

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

American Greetings: A Long History Of Salutations

A well-known Cleveland-based greeting card company was founded over a hundred years ago by a family that bought ornate post cards from German manufacturers and sold them to local merchants. The firm subsequently introduced the self-serve card display, developed the number one online greeting card destination in the world and invented such iconic characters as Holly Hobbie, Strawberry Shortcake and the Care Bears.

American Greetings Corporation (AM) designs, manufactures and sells greeting cards and other social expression products. It offers everyday and seasonal cards, gift wrap, party goods, stationery and giftware. It also distributes greetings over the Web. The company operates about 500 retail outlets in North America. Its products are sold in some 125,000 retail stores worldwide. Target (TGT) and CVS Caremark (CVS) are major retail customers.

Investors were pleased last week, when the company reported Q2 EPS of 16 cents and revenues of $377.4 million. Analysts had been looking for a seven cent loss and $337.5 million. The CEO attributed the solid numbers to improved performance in the firm's card business and careful management of costs. Management also guided FY08 EPS to $1.35-1.55, versus Street consensus of $1.45.

The stock popped through 50-day and 90-day moving average resistance on the news and has since begun to consolidate the gain in a bullish "flag" 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 currently recommend the issue with three "holds". Analysts see a 21% growth rate, through the next year. The AM P/E ratio (19.15), Price to Sales ratio (0.83), Price to Book ratio (1.39), Price to Cash Flow ratio (11.54), Price to Free Cash Flow ratio (6.10) and EPS Growth rate (-0.23 to +0.16 yr/yr) 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 $22.12 and $29.10. A stop-loss of $22.75 looks good here.

Through The Fly's Eyes: Comtech

2007-09-25T16:58:00.000-04:00

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

Comtech Telecom: Communications And Tracking Specialists

No matter what your business, you are in good shape when you develop solid client bases in both the commercial and government arenas. There is a Melville, New York telecom equipment outfit that is firmly established on both sides of the equation.

Comtech Telecommunications (CMTL) designs and produces equipment used in telecommunications systems. Products include modems, frequency converters, RF microwave amplifiers, microwave radios and satellite transceivers and antennas. The devices are used by satellite systems integrators, communications service providers, defense contractors, medical system manufacturers and oil companies. Comtech also provides satellite-based messaging services and location tracking. Customers include Northrop Grumman (NOC), Raytheon (RTN) and the U.S. Army.

The company pleased the Street last week, when it announced fiscal Q4 EPS of 63 cents and revenues of $117.8 million. Analysts had been looking for 44 cents and $113.6 million. Management also guided 2008 EPS to $2.72-$2.78 ($2.28 consensus) and 2008 revenues to $500-$515 million ($500.6M consensus). The CEO attributed the solid guidance to sizable bookings received in recent weeks on key programs. AG Edwards, Needham and Collins Stewart subsequently reiterated "buy" ratings on the issue. CMTL shares popped on the news and have since 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.

Brokers recommend the issue with three "strong buys" and three "buys." Analysts see a 17% average annual growth rate, through the next five years. The CMTL P/E ratio (21.82), PEG ratio (1.28), Price to Sales ratio (2.83), Price to Book ratio (3.63), Price to Free Cash Flow ratio (16.35), Sales Growth rate (17.56%), EPS Growth rate (40.00%), Operating Margin (19.05%), Net Profit Margin (14.63%), Return on Assets (12.89%), Return on Investment (15.82%) and Return on Equity (21.74%) compare favorably with industry, sector and S&P 500 averages. About 95% of the outstanding shares are held by institutional investors. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past fifty-two weeks, it has traded between $32.45 and $54.75. A stop-loss of $46.25 looks good here.

Through The Fly's Eyes: Film Studios

2007-09-25T15:09:00.000-04:00

from Eric Buscemi of Theflyonthewall.com

'Transformers', 'Shrek' flex muscles: Review of Summer Blockbusters

This summer was a very profitable one for box offices nationwide, with four movies grossing over $300M, and at least another nine grossing over $100M -- signaling in a big way the resurgence of the movie industry, which had been struggling for the last few years.

The four big $300M+ winners of the summer were Sony Corporation's (SNE) Spider-Man 3, which grossed $336M in the U.S., Viacom Inc's (VIA) Paramount's Shrek the Third, which grossed $320M, Transformers, also from Paramount, which grossed $311M, and Walt Disney's (DIS) Pirates of the Caribbean: At World's End, which grossed $308M.

Three of the four were third installments of well established big-budget franchises, so their success is hardly shocking, but Transformers success clearly marks the start of a new blockbuster franchise (the release date of the sequel has been announced -- June 26, 2009). The robot-action extravaganza, which was directed by Michael Bay, was definitely a surprise, as I remarked in my summer movie preview that Transformers "has flop written all over it... there cannot possibly be enough substance in a story about alien robots that transform into vehicles to make this a hit with the general public." I was wrong -- very wrong. The movie killed at the box office, grossing over $330M on a $150M budget, and prompting a re-release on IMAX, which opened last week.

Shrek the Third also had similar financial results, grossing $320M on a budget of $160M, prompting the announcement of not one, but two more sequels. Although Spider-Man 3 grossed the most of all the summer blockbusters, it sequel status is in doubt, as the director, Sam Raimi, and the stars, Tobey Maguire and Kirsten Dunst, are waffling about returning to the franchise. Then there is Pirates of the Caribbean. Although Johnny Depp has said he is willing to come back to reprise his role as Captain Jack Sparrow, there may not be the opportunity, as IMDB's figures say that the movie grossed $308M, which sounds like a lot, until you see the estimated budget for the film was $300M.

With the big boys out of the way, lets look at the real surprise hit of the summer. It's not a movie, actually -- it's a guy by the name of Judd Apatow, who happened to be the director of both General Electric's (GE) Universal's Knocked Up and Sony's Superbad, which were made with a combined estimated budget of $53M, and both grossed over $100M at the box office.

But for every sleeper hit in the film industry (or hits, in Apatow's case), there is a colossal flop. This summer, that distinction goes to Universal's Evan Almighty, the biblical comedic extravaganza, which elicited neither laughs nor theatergoers -- it grossed just under $100M on a budget of $175M. Also underachieving expectations this summer were News Corp's (NWS) 20th Century Fox's 28 Weeks Later, which grossed only $28.6M without 28 Days Later director Danny Boyle at the helm, and Time Warner Inc's (TWX) New Line Cinemas' Rush Hour 3, which grossed $128M on a $140M budget after a six year layover from the more commercially successful Rush Hour 2, which grossed $226M.

Now all we can do is wait for what the studios have lined up for us next summer -- including Indiana Jones and the Kingdom of the Crystal Skulls, the fourth Indy installment; Harry Potter and the Half-Blood Prince, the sixth and second to last of the Potter book adaptations; Iron Man, Hulk and Punisher reloads; Pineapple Express, which is another Apatow comedy; and Wall-E, the latest from uber-digital studio Pixar. If that is not enough to anticipate, New Line Cinemas is releasing the Golden Compass this Christmas season, an adaptation of the first book of a fantasy trilogy, which New Line seems to be grooming as its next Lord of the Rings franchise.

Through The Fly's Eyes: Westwood One

2007-09-25T14:56:00.000-04:00

from Larry Ramer of Theflyonthewall.com

A Risky LBO Play

Investors looking for a high-risk LBO bet should examine radio content provider Westwood One (WON).

In a note to investors today, Deutsche Bank wrote that the foundering company could become an LBO target. According to Deutsche, a new deal between CBS (CBS) and Westwood, which the two parties are currently negotiating, could entice a private equity firm to buy Westwood. Deutsche is confident that CBS and Westwood, which syndicates CBS Radio programming, will sign a deal. The firm forecasts that a new deal with CBS will likely be viewed as a positive development for Westwood. Private equity firms may also be enticed by the broadcasting company's substantial cash flow. In Q2, Westwood had $15.8M of free cash flow.

But there are also plenty of factors that could make potential private equity buyers decide not to pursue Westwood. The company's results have been in a freefall, as advertisers desert radio for the Internet in droves. For example, Westwood's revenue in Q2 plunged 17.4% to $111.1M, versus $134.5M a year earlier. Private equity firms also will not be thrilled by Westwood's substantial long-term debt, which stood at $365.6M at the end of Q2.

While the company has said that it believes its results will improve by Q4, competition from the Internet isn't going to go away, and overall advertising spending isn't likely to increase any time soon, as U.S. consumer spending seems to be declining. In addition, despite recent sharp declines in the share price, Westwood is still trading at 10.7 times its estimated 2008 earnings before interest, taxes, depreciation, and amortization (EBITDA), versus an average multiple of 8.3 for radio stocks as a whole, according to Deutsche.

Westwood could be helped somewhat by a new device that gives advertisers more certainty about how many people are listening to each station (for more information about this development, see a blog we published on September 6), and the company does syndicate well-known political pundit Bill O'Reilly's show. But unless Westwood finds a few new popular radio personalities who can create a buzz and bring in new ad dollars, or the economy suddenly turns around, the company will have a hard time breaking out of its current malaise.

Taking all these factors into account, an LBO of Westwood One seems possible, but not likely. Continuing drops in the company's share price seem more probable.

Through The Fly’s Eyes: Lennar

2007-09-25T14:19:00.000-04:00

from Louis Jacobs of Theflyonthewall.com

Housing Woes Hurting Lennar

The housing slump continues. Number two homebuilder Lennar Corp (LEN) posted its worst-ever quarterly results. Lennar posted a Q3 loss of $514M, versus a $207M profit for the same quarter last year.

Not surprisingly, Lennar’s stock plunged to a five-year low, down over 4% to $23.14, 48% lower than their 52-week high of $56.54.

Analysts are not surprised about the continued loss. Thomas Leriz of Argent Capital Management says that “they’re still dealing with a lot of excess capacity. In addition to that, you have foreclosures, so there’s excess supply coming back into the market from the foreclosures as well.” Peter Schofield, from Knott Capital, said, “The builders are doing everything they can to create incentives for buyers, but the lending standards, having gotten so much tougher, present a quandary.”

Lennar CEO Stuart Miller said, “We have seen further deterioration throughout our third quarter, [but August] was clearly worse than the prior two months.” He also stated that the company sells more than a third of its homes to first-time buyers, who have been most affected by the subprime crisis. To stem the losses, Miller stated that the company will have to cut jobs to reestablish profitability.

With the credit worries continuing, mortgage brokers more reluctant to lend, and housing and land value declines continuing, Lennar’s prospects for the near future look bleak. As Morgan Stanley analyst Robert Stevenson says, “People are going to be loath to put their hard-earned money down with the prospect of it evaporating in a relatively short period of time through continued falling home prices.” This same idea applies for the stock, too.

Through The Fly's Eyes: Defensive Plays

2007-09-25T13:57:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

The Journal's Defensive Plays

The Wall Street Journal's "Heard On The Street" column has published examples of recession resistant stocks, in order to better-prepare individual investors for a potential additional downturn in the U.S. economy.

Further, in order to provide investors and readers with a more-panoramic view of each stock, the following summarizes The Journal's list and adds chart analysis for each stock:

AT&T (T), the telecom giant has become a growth company. T's chart is healthy with the stock having broken out to $42.50.

Citigroup (C), the diversified retail/investment banking giant still must do more to cut costs. Technically, C may have formed a bottom, but investors should consider waiting until C trades continually above $48 - above its 50-day moving average - before purchasing shares.

Diageo (DEO), a well-positioned distiller / beverage company, DEO's chart is solid, but investors should consider waiting for DEO to clear resistant at $88 before purchasing shares.

Genentech (DNA), analysts project solid earnings growth for DNA, and the stock's appears to have bottomed around $71 about a month ago.

Hess (HES) has kept costs under control while benefiting from oil's elevated price and the barely-adequate refinery infrastructure in the U.S. HES's chart is solid with the stock having registered a high for 2007 above $69 in the last few weeks.

Lockheed Martin (LMT) will continue to benefit from large U.S. Department of Defense contract work. Meanwhile, LMT's chart recently broke out of a $93-$98 trading range, and is trading once again above $100.

Microsoft (MSFT) has the products and resources to weather any potential recession storm, but its stock has traded in a $27 - $32 for about nine months; MSFT currently trades in the middle of that range, hence investors should take note of any prolonged failure to move and stay above $32 in the months ahead.

Sempra Energy (SRE), a utilities play currently trading around $58.70, SRE's stock corrected with the market this summer but has recently cleared its 50-day moving average.

Sigma-Aldrich (SIAL), a solid chemical manufacturing play, investors should let SIAL clear resistance at $50 before considering a share purchase.

Walgreen (WAG), drug store chains usually perform adequately during downturns but investors should consider waiting until WAG clears resistance at $48 before purchasing shares.

Through The Fly's Eyes: Wheat

2007-09-25T12:04:00.000-04:00

from Theflyonthewall.com

Holy Wheat Bubble

The price of wheat says it all. Terrible drought conditions in Australia and poor supplies from Canada are driving prices for the crop through the roof.

This is occurring while demand is soaring as Iraq recently imported 700,000 tonnes and Algeria took in 100,000.

While prices are also being impacted by typical seasonal demand, there are plenty of buyers who put off purchases waiting for prices to moderate, which could keep prices high for awhile.

However, with that said, this is one commodity where the rug will be pulled out from under investors' feet. This looks like a short to this blogger.

Through The Fly's Eyes: Microsoft

2007-09-25T11:55:00.000-04:00

from Tedd Cohen of Theflyonthewall.com

Microsoft to buy Facebook, or Yahoo!, or…

A lot of Microsoft (MSFT) watchers think the company has to do a deal. With a reported $21B in cash, that seems like a reasonable idea. Some say it will be Facebook. Others say it’ll be Yahoo! (YHOO). Which is the better deal? Or is no deal better still?

Privately held Facebook would like to be valued at $10B or $15B ahead of a much discussed IPO. So would a lot of companies. Last year, Yahoo! offered to buy them for $1B. Didn’t happen. Facebook hasn’t been interested in selling, and rumor has it that Microsoft could put in between $300M and $500M and get 5% back. A Microsoft investment could set a higher valuation in motion. Is that what Facebook wants? Or are they playing Microsoft in the hope that Google (GOOG) steps in?

Meanwhile, the Redmond, WA crew has toyed with going public and announcing Yahoo! as their target, forcing management to do a deal, or no deal.

Then why not do both? One at a time, goes the thinking. OK, then, with Facebook you get right in the face of News Corp.’s (NWS) MySpace. Social networker versus social networker. That would be fun to see. And with Yahoo, maybe Google backs away.

Through The Fly's Eyes: Target Corp and Lowe's Cos

2007-09-25T11:04:00.000-04:00

from Laurie Pasternack of Theflyonthewall.com

Target and Lowe's Predict Dry Spell

Target Corp (TGT) and Lowe's Companies (LOW) may both be facing rough waters ahead. Yesterday, the two leading U.S. retailers lowered their sales forecasts, a move which may imply the credit crunch has hit consumers' wallets.

In a recorded message on Monday, Target cut its forecast for September SSS growth, reducing its projection to a range of 1.5%-2.5% vs. a prior forecast of 4%-6% growth. The retailer cited weaker store traffic, particularly in Florida and the Northeast U.S., for its reduction. It is of note that if the new forecast comes to fruition, it would be a sharp departure from the company's year-ago sales, which rose 6.7%.

Similarly, Lowe's cut its forecast for FY07, and now projects earnings at the "low end or slightly below" its prior forecast due to lower-than-expected sales trends. Lowe's prior forecast was for earnings between $1.97-$2.01. The company now expects earnings to increase from 12%-15% per year between 2008 and 2010 and sees sales climbing 8%-11% per year. In a statement, Lowe's Chairman and CEO, Robert A. Niblock, explains, "Even as we face easier prior year sales comparisons as we progress through the year, many uncertainties remain, and it seems prudent to further temper our sales and earnings outlook."

Although Lowe's said it reduced its outlook because of drought conditions in the mid-Atlantic, Southeastern and Western regions that have hurt performance in its outdoor segment, what's Target's reason? The weather, which has been great recently, is an unlikely cause. Odds are, consumers have been a lot more conscious of their budgets with rising fuel prices and the housing market crisis.

Should investors be worried? Analysts at Credit Suisse believe Target shares could be down 4%-5% because of the disappointing forecast, while the firm sees Lowe’s shares down 6%-8% today. ThinkEquity analyst Edward Weller said Target's new forecast is surely "a little bit surprising. It seems to be a setback." On the positive side, however, he believes that the company should be able to rebound quickly as it adapts and adjusts to the current environment. Additionally, with the upcoming holiday season, both Target and Lowe's should see their sales increasing.

In aftermarket trading yesterday, shares of Target dropped 4.% to $61.74 and Lowe's fell 6.3% to $28.64. Target is planning report actual September sales on October 11.

Through The Fly's Eyes: Countrywide Financial

2007-09-25T08:07:00.000-04:00

from Theflyonthewall.com

Countrywide Showing Some Class and Good Business Sense

Countrywide Financial (CFC), the leading stand-alone mortgage lender, said yesterday it will modify terms on some 25,000 home loans this year to help homeowners avoid foreclosures.

To date, the lender has already modified more than 17,000 home loans in 2007 and provided assistance to an additional 35,000 mortgages, via adjusting prepayment plans, postponements of payments and refinancings.

Countrywide said by limiting foreclosures it actually may be able to better control expenses since restructuring mortgages can be costly. It also will be pleasing to politicians as a report released by the Joint Economic Committee, chaired by Democratic Sen. Chuck Schumer of New York pointed out foreclosure can result in up to $80,000 of losses for the homeowner, lender, local government, and neighbors whose homes fall in value. Preventing a foreclosure costs $3,300, the report said.

Once again, Angelo Mozilo, Countrywide's CEO, appears to have found the balance of good business, good politics and good customer service.

Through The Fly's Eyes: Best Buy

2007-09-24T19:43:00.000-04:00

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

Best Buy Pleases Investors

North America's number-one specialty retailer of consumer electronics began life as a 1960s St. Paul, Minnesota shop called the "Sound of Music." The firm is more diversified now, but still does a good business in tune-oriented devices. Its yellow tag logo is one of the best recognized corporate symbols anywhere.

Best Buy Co. (BBY) is a specialty retailer of consumer electronics, offering home-office products, entertainment software, appliances and related services. The firm operates through some 1,200 retail stores across the United States, throughout Canada and in China. Subsidiaries include Best Buy, Future Shop, Geek Squad, Pacific Sales Kitchen and Bath Centers, Magnolia Audio Video, Jiangsu Five Star Appliance and Speakeasy. Major competitors include Circuit City Stores (CC) and Dell (DELL).

The firm pleased investors last week, when it reported Q2 EPS of 55 cents and Q2 revenues of $8.75 billion. Analysts had been expecting 44 cents and $8.45 billion. A 3.6% comparable store sales gain was driven by higher revenue from the computer, flat-panel television, video gaming and mobile navigation areas. Management also guided FY08 EPS to the upper end of the range $3.00-$3.15 ($3.03 consensus). The stock popped above 50-day and 90-day moving average resistance on the news and then began defining a bullish "flag" consolidation pattern. Stocks often leave 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 seven "strong buys," eight "buys," ten "holds" and one "sell." Analysts see a 17% growth rate, through the next year. The BBY P/E ratio (16.71), PEG ratio (1.09), Price to Sales ratio (0.58), EPS Growth rate (17.02%), Return on Assets (11.04%), Return on Investment (25.32%) and Return on Equity (30.74%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 71% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past twelve months, it has traded between $41.85 and $58.49. A stop-loss of $40.65 looks good here.

Through The Fly's Eyes: Warnaco Group

2007-09-24T17:35:00.001-04:00

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

Warnaco Group: Strategic Slimming In Progress

There is an outfit in New York with a foundation in corsets, but a current portfolio that encompasses a variety of well-known intimate and sports apparel brands. Lately, it is trying to lose a little weight.

The Warnaco Group (WRNC) designs, manufactures, markets, licenses and distributes a range of intimate apparel, sportswear and swimwear. Items are offered under such owned and licensed brands as Warner's, Olga, Lejaby, BoDY Nancy Ganz, Speedo, Anne Cole, Cole of California, Catalina, Chaps, Ocean Pacific, Nautica, Michael Kors and Calvin Klein. The firm sells apparel to about 50,000 department, mass merchandise and specialty stores in North America, Europe and Mexico. Customers include Wal-Mart (WMT), Target (TGT) and Costco Wholesale (COST).

The firm pleased investors last week, when it announced that it intended to sell its Catalina, Anne Cole and Cole of California swimwear brands. Management also said it engaged Goldman Sachs to explore strategic alternatives for its Lejaby, Rasurel and Elixir intimate apparel and swimwear brands. Further, the company boosted its 2007 EPS guidance to $2.05-$2.15 ($2.02 consensus) and 2007 revenue guidance to about $1.98-$2.03 billion ($1.99B consensus). JP Morgan subsequently raised its rating on the shares to "overweight." Lazard Capital reiterated its "buy" and boosted its price target to $47. The stock popped on the company announcement and then began defining a bullish "flag" consolidation pattern. Stocks often leave flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers now recommend the issue with two "strong buys," four "buys" and four "holds." The WRNC P/E ratio (17.92), PEG ratio (1.04), Price to Sales ratio (0.92), Price to Book ratio (2.43), Price to Cash Flow ratio (11.63), Price to Free Cash Flow ratio (26.05) and EPS Growth rate (150.38%) 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. Through the past 12 months, it has traded between $18.86 and $41.78. A stop-loss of $33.90 looks good here. Note that the firm is expected to report Q3 results in early November.

Through The Fly's Eyes: IPO & Syndicate Preview

2007-09-24T15:36:00.000-04:00

from Joseph Lazzaro of Theflyonthewall.com

Wall Street's equity market offers full slate this week - with 5 IPOs and 6 Secondaries on the docket.

Those deals tentatively scheduled to price include:

IPOs:

Tuesday

Venture Financial Group (VNBK), a 1.8M-share IPO for this bank holding company. Keefe, Bruyette & Woods and D.A. Davidson are the lead managers. Filing range: $21.00-$23.00

Zars Pharma (ZARS), a 5.75M-share IPO for this pharmaceuticals company. Cowen and Co. and CIBC are the lead managers. Filing range: $14.00-$16.00.

Wednesday

Bioheart (BHRT), 3.75-share IPO for this heart treatments company. Merriman is the lead manager. Filing range: $14.00-$16.00.

Thursday

Babcock & Brown Air (FLY), a 18.9M-share IPO for this aircraft leasing.com. Morgan Stanley, Citigroup, and Merrill Lynch. Filing range: $22.00-$24.00.

Friday

Duff & Phelps (DYF), a 9.545M-share IPO for this financial services company. Goldman Sachs and UBS Investment are the lead managers. Filing range: $16.50-$18.50.

Secondaries:

Tuesday

USEC (USU), an 18M-share Secondary for this uranium enrichment company. Goldman Sachs and Merrill Lynch are the lead managers.

Wednesday

Empresas ICA SAB de CV (ICA), a 78.2M-share Secondary for this construction services company. Credit Suisse, Goldman Sachs, and UBS Investment are the lead managers.

Thursday

Capstead Mortgage (CMO), a 8.5M-share Secondary. Bear Stearns, Keefe, Bruyette & Woods and JMP Securities are the lead managers.

Sigma Designs (SIGM), a 4.6M-share Secondary for this multimedia displays company. Deutsche Bank and UBS Investment are the lead managers.

Concur Technologies (CNQR), a 4.7M-share Secondary for web human resource services company. Credit Suisse and Deutsche Bank are the lead managers.

Friday

Environmental Power (EPG), a 4.5M-share Secondary for this utilities company.

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For the latest market intelligence on IPOs, Syndicate, and after-market trades, check out The Fly Syndicate at http://www.theflyonthewall.com/. (Subscription required.)

Through The Fly's Eyes: Xerox

2007-09-24T15:21:00.000-04:00

from Larry Ramer of Theflyonthewall.com

Xerox Goes After HP's Printers with Cheaper Color Results

It looks like Xerox (XRX) has found a way to jump-start its printing business. The company announced today that it will produce and sell new types of printers that can print color documents for the same price as black and white copies. Color toner for laser printers currently in use costs companies up to five times as much as black and white toner, according to The New York Times.

Xerox's new printers work by utilizing solid ink that can produce a higher total number of color pages more cheaply. These printers use solid ink as a substitute for laser printing, currently the leading technology used for printing.

Most commentators view the move by Xerox as a direct assault on Hewlett Packard (HPQ), which currently enjoys a 40% slice of that pie, according to market research firm IDC. Xerox, which has but 10% of the market, admits as much.

"If you compare HP color toner to what our inks will be, we will be one-fifth the price. We think it's going to help us grow our market share and attract a lot of customers who maybe don't consider Xerox today," Xerox's Jim Rise told Reuters.

Of course, there is a catch to the "one-fifth the price" contention. The new Xerox printers that make color printing so much more economical are going to cost $2,499 each, about $900 more than conventional printers that operate at similar speeds. Xerox is reporting that companies will need to print a little over 31,000 pages in order to make up for the increased printer costs, according to Computerworld. Companies that print 4,000 pages per month will make up the increased costs in eight months. Computerworld says Xerox printers generally last between three and six years.

For companies that print many pages in color, Xerox's new printers seem to be a worthwhile investment, based on Computerworld's calculations. Companies that print out multiple drafts of color brochures or color presentations, for instance, would likely save money in the long run with the new Xerox equipment. Some may even like the idea of paying more up front while keeping their monthly costs lower.

At the very least, Xerox has given businesses that print many color pages a reason to think about switching to Xerox. And in the process they may give the business to HP as well.