Cramer's "Mad Money" Evening Picks for May 31, 2006

Cramer started the show by providing background on the emerging markets and made the theory that "BRIC" [Brazil, Russia, India, China] economies are still growing another bullish trend for emerging markets. He said they aren't typical emerging markets and they are cheap. Also in the "Feature Round," Cramer evaluated emerging market plays: Cramer: I like - America Movil (AMX), and BancoColumbia (CIB), Tele Norte (TNE), Homex (HXM), Tata Motors (TTM). They are risky stocks but on sale as strong companies that have pulled back considerably and are good investments. In the "Lightning Round," Cramer was POSITIVE on Banc of America (BAC), Citigroup (C), Checkfree (CKFR), BP plc (BP), Conocophilips (COP), Energy Partners (EPL), JP Morgan (JPM), Mastecard (MA), Schering-Plough (SGP), and Pioneer Drilling (PDC); and he was NEGATIVE on Intercontinental Exchange (ICE), Wrigley (WWY), Urban Outfitters (URBN).

The more and more I follow the Cramerization and the more we see the weak markets, the more and more I think Cramer's "Mad Money" should be segregated and isolated to one or two shows per week. This has been my opinion for a long time now, but maybe it will happen. Covering too many stocks and sectors in pure generalist terms on the fly just doesn't seem right and may even be just outright dangerous. He can impact more of the stock names he covers if it was less and less hype and more and more in-depth of reactionary detail combined with some proactive thought. Well, that's my two cents.

Jon C. Ogg
May 31, 2006

More Realistic IPO Pricing on CTC Media

Maybe they looked at the prior post I hinted at as sleazy? I doubt it. But who cares in the end if the right thing happens.

Russian-based broadcaster CTC Media (CTCM-NASDAQ/ADR) sold its 24.7 million share offering for $14.00 per share, compared with a lowered forecast range of $13.50 to $15.50; and this is lower than the original forecast of 29.4 million shares at a range of $16.00 to $18.00 per share.

Read our previous article here

Sell in May and Go Away? Shoulda, Coulda, Woulda

It seems as though every year we get the "Sell in May and go away" as the prelude to the Summer Doldrums, and even if it doesn't really occur it is on many traders' minds. The trade is not 100% and summers have shown to hold some nice rallies in certain years. But when the trade lives up to the name you typically get the whole street saying "Shoulda, coulda, woulda!"
Today and even last week, this is exactly what the street was thinking. What you have to ask yourself is if this is just the beginning of a long drawn out summer for the stock markets, or is it the chance to buy shares on a substantial discount to their highs.

The DJIA closed the month at 11,168.31, down from the April 28 Close of 11,367.14 and down from the intra-month closing on May 10 of 11,642.65. The S&P 500 closed the month at 1,270.09, down from the April 28 close of 1,310.61 and down from the intra-month closing high on May 5 of 1,325.76. The NASDAQ closed out the month at 2,178.88, down from the April 28 close of 2,322.57 and down from the intra-month closing high on May 8 of 2,344.99.

Perhaps one of the few things that can be said is that the CBOE Volatility Index (the VIX), also known as the complacency index, has finally crept back up. The VIX closed out the month at 16.44, and that is UP from the April 28 close of 11.59 and down 2.22 from yesterday's close of 18.66. When volatility is low, it shows that the investment community expects low volatility (thus is complacent) and when the number is higher they expect more volatility (or more worrying on their part).

Semiconductors posted a dismal month with the Semiconductor HOLDRs (SMH-NYSE) losing almost 10% from its May 5 closing high of $38.06. This is probably of little surprise with Intel (INTC-NASDAQ) being in the soup and its chief rival Advanced Micro Devices (AMD-NYSE) still under pressure on Intel's price cuts affecting forward sales and margins. Despite the upcoming ASCO conference that has propelled so many biotech stocks in the past, the AMEX Biotech Index (BTK) continued its mudslide to close the month at 657.73 comparted to ts April 28 close of 682.45, and that was down significantly from the March 1 close of 745.93.

As you can get the reference we are in a stock market that has no leaders. The very recent safe-haven commodity and gold stocks have come far off their highs, and the bounces have not been indicative of any key reversals. The streetTRACKS Gold Shares (GLD-NYSE) closed down nearly 10% from the closing highs of $71.12 on May 12. Even the Oil Service HOLDRs (OIH-NASDAQ) closed down over 10% from the May 10 closing high of $167.45. If it was an emerging market leader just 3 weeks ago then guess how poorly they performed. The India Fund (IF-NYSE) has come off nearly 33% from its peak close of $12.77 on May 10 and the Templeton Russia Fund (TRF-NYSE) fell over 20% from its high close of $95.95 on May 2. Even the iShares MSCI Emerging Markets (EEM-NYSE) closed down about 16% from its May 9 closing high of 111.10.

The Dow Jones U.S. Home Construction Index Fund (ITB-NYSE) is relatively new, but it closed almost 15% down from its May 5 closing price of $50.10.

We got rid of Treasury Secretary Snow in what was the longest and most telegraphed replacement cycle of the Treasury's chief position in memory. The head of Goldman Sachs Hank Paulson set to take the reins, but despite that Wall Street approves appointment the DJIA fell 184 points on the day this was announced.

Right now the street is trying to determine exactly when the FOMC will feel comfortable putting on the brakes on their tightening cycle, and the new fed Chief Bernanke is still trying to establish himself with Wall Street and Main Street alike. Today the minutes of the last FOMC meeting showed mixed signals as to when or at what level the rate hikes would end.

If this last market meltdown just ends up being another fire sale, then there is going to be a pretty penny made by the street. If the typical mantra of May continues, then we have some more pain to endure. Unfortunately, whenever the trend reverses Joe Q. Public may miss the boat again and end up buying after the institutions and hedge funds have made their bets.

Our crystal ball is in the shop this week, so we'll have to wait to see too.

Jon C. Ogg
May 31, 2006

Google's Investor and Analyst Conference Call

This is entirely in notation format, so please understand any lower casings that should be upper case and vice versa may not be formatted properly because of it being notation. Also please forgive any minor typos ahead of time.

At 2:00 PM EST Google (GOOG-NASDAQ) initiated its investor and analyst call.

It was all Q&A, but they said up front that they would not answer quarterly performance and that they will not offer financial guidance. I put in the firm name when applicable but some where hard to hear because of static.

on the AOL partnership......AOL deal signed a little over a month ago and took place today...they provide search services to AOL. so far everyone is pleased with the deal. Will add a mechanism where the Instant Messengers could add Google Talk. Said Nokia and RIMM ramping to include Google Talk too.

on CAPEX....they get advantage by building their own infrastructures (supercomputers in data centers). numbers are large but they look for additional performance out of what they build as opposed to renting their capital equipment (said renting is not an option)

on product development.....asked if they would single out the winner and loser.....biggest success was the keyhole of ads to mapping and satellite integration as well as building out the local ad information other than just yellow page equivalent......they said their off-line print has been nascent and they think the format and content working has been a laggard compared to their hopes.

on clickthru rates......ranking algorithims use keyword purchasing and targeting.....display ads being tested to see if people are really responding or not so they can make the current model even better......did say their high quality shopping is not really a takeoff of an Amazon or eBay system on payments as it is more advertiser-targeted

UBS asked about the Dell deal.......goog says they are ecstatic but there are not any barter deals for hardware.....they wont go into financial or contract details of the DELL deal b/c of confidentiality.....also asked if they will be hiring more than last year and they said they are looking to hire the best and brightest in each field and lower job postings shouldnt be read into.....

CSFB asked more on CAPEX about real estate......at the rate of headcount growth they have to keep pace and try to get more real estate that is in the same geographic area.....bought some properties to redevelop in Mountain View and Bay areas........when asked on municipal wi-fi in Mountain View and other impacts it can have on the business......they know that users that switch up to broadband are much wider users of Google....said it isnt a requirement taht Google does all of this nationwide and globally but it is important that Everyone do it......large urban development wifi initiatives are going to require more partners than just Google because of the vast demands in each local effort.....said partners are bearing much of the physical equipment costs so it is good for Google

on Google potentially building a Browser........said they have active partnership with Firefox, said Safari is good in Mac space and that the consumer has enough browser choices because of these and opera and others......the implication is that there is not a need for GOOG to build their own browser

on Best Buy and other searches...........Best Buy efforts just getting started as they expand local and w/ click to call....on Base and Yellow Pages they are working with may providers and lauched local AD WORD STARTER EDITION to get their campaigns started.....local is becoming significant component of their business.....

ThinkEquity.....asked about valuing content strategy......right now they don't offer broad ramming products that they see demand for and they want to but havent figured out how to build it yet, working on it for the next year w/ hopes of finding more.....they added demographic site collections similar to what movie studios have done prior to DVD and movie launches.

Piper Jaffray......asked about Google Base on traction and listings, but harder to see if it is living up to user adaption: Google said they use Google Base to blend search results into Google search experience.....they dont see it as a large separate site but more as another point within Google like Froogle was 2 years ago.....wants to offer more integration and that it will lead to higher traffic overall......they are going with more "refinement boxes" on things like recipe searches and will integrate these in other searches around Base and maybe others......also PJ asked about difficulty in gaining ground on search in China.....Google said they havent seen the need to segregate the Chinese user from the rest of the world users as they seem similar internet users and they want to give their local team in China more time to build out and adapt over a multi-month or longer period

Jefferies....asked about clicks on video formats and if Google will offer this on search plans...........right now strictly on AdSense networks and they want to do it on user choosing to initiate the ad rather than the many annoying video ads out there right now....still on a CPM model just like on image campaigns.....

Merrill Lynch......asked about financial goals in general as far as objectives of the company........Google said they monitor financials daily but want to run it for long-term by making best decisions they can.....

Susquehanna.....asked on testing with DELL was it new users or just higher use from existing; also asked if google will the build their own in other areas or would they do M&A for traffic acquisition strategies.......on Dell they saw both new users and increase use from existing; on M&A they said they wouldnt rule out M&A to just buy customers, but they said it traditionally hasnt worked for companies to go out and just buy customer traffic and they prefer to do the partnership model.......they also asked how the street should interpret the financial models....Google said they want to think of it as a model that increases traffic and increases top-line.......as far as when they go cashflow positive, Google said they look for up-front pay or thru revenue sharing and that they should be considered multi-year deals that may not be positive cashflow fiirst year but definitely over the life of the deal.......

Goldman Sachs....asked on Korean market and increasing share there.....Google said Korean market is somewhat unique and they will expand their own engineering and local partnerships....said Korean and Chinese markets are somewhat similar in the local competition.

more on DELL, Google didnt want to comment on rumors of the pricing and noted the confidentiality agreement......said they would like to do more deals like this bundling deal....

Oppenheimer.......on efforts of improving quality of advertising.......Google wants to do better and more highly targeted ads when it is appropriate rather than just a basic ad rather than competitors doing general distracting ads.....they think behavioural model may be better than just local search ad model.....

William Blair & Co....asked about investing in competing ads out there versus what competitors are doing......they arent seeing much change in structure of partnerships but seeing some traffic go up in the partnership deals.....stability of ad network seems to be strong......saying entrance of new competitors in new areas that are not yet tapped increases overall ad and overall traffic, so it will ultimately benefit them too.....

Prudential (last one)..........asked about if the company will be at disavantage because of new Internet Explorer with search and if Dell's deal will alleviate the pressure......said that MSFT default in IE7 is set to Microsoft search but that that use of the power in Windows is done in the appropriate legal and competitive way......

Sirius's Dead Cat Bounce

Stocks: (SIRI)(XMSR)(GOOG)(CBS)(AAPL)

After a sharp drop from its December 12, 2005 high of nearly $8, the shares of Sirius, the big satellite radio provider and home of Howard Stern, dropped to $3.68 on May 24. The company then ran through a week of great news. First, Sirius reaffirmed that it would end the year with 6.2 million subscribers, up 87%, while its rival, XM, cut its forecast for their end of the year subscriber base. Then, several banks, including Bear Stearns and Oppenheimer, made positive comments. Sirius then settled its long-running dispute with CBS over Stern's departure. For the paltry sum of $2 million. Then, news came that Sirius's CEO was buying stock. And, to top it off, XM suspended shipping some of its radios because of concerns at the FCC.

Naturally, the Sirius share price rose and hit $4.51. With all the good news, investors might have expected a bit more.

What happened? The story behind the story at Sirius is still not good. Morningstar has a "fair value" estimate on the stock of $2.00, and does not recommend buying shares unless they drop to $1. Wow. The thesis supporting this low valuation is that XM has a significant edge in terms of the chips it uses, and that the number of competitors that are vying for the consumer's entertainment time is growing at lightning speed.

There is some merit to both arguments, but they do not go far enough. It is true that the chipset that Sirius uses does not allow it to easily created smaller, more flexible portable devices. It is also true that everything from the Apple iPod to old-time over-the-air radio competes for listening time.

But, Sirius has more serious problems. Despite its troubles, XM still has a considerable lead over Sirius. The larger company expects to have 8.5 million subscribers at the end of this year, a lead of almost 40%.

Another issue is the valuation of the Sirius stock. The company has a market cap of $6.3 billion to $3.7 billion for the larger XM. According to Yahoo!Finance, Sirius also trades at about 19 times sales. Google can only manage 16x.

Sirius is also not helped by the fact that in the last quarter, ending March 31, the loss from operations was $446.2 million on revenue of $126.7 million. Cash and cash-equivalents have fallen to $630.8 million and long-term debt is $1.084 billion. Between this debt and contracts for items like satellite time, the company has obligations of over $2.6 billion.

With all of this headwind, the Sirius 10-K may state the market's concerns more eloquently than outsiders can: "Our business might never become profitable".

Sirius's 200-day simple moving average is about $6.00, and, given the skepticism that has built up around the stock, even with recent good news, it may not be back there again for a long, long time.


Douglas A. McIntyre

Brunswick-Bargain Basement Boating?

By Rick Konrad of Value Discipline

Brunswick Corp (BC) is the leading global manufacturer of boats including everything from inflatables, deck and pontoon boats, to sportfishing convertibles and motoryachts. As well, the company manufactures sterndrives, outboard and inboard

engines and trolling motors, GPS navigation and marine electronics and even marina management systems. In other recreational product areas, the company manufactures fitness equipment, bowling products, billiard tables, and foosball and Air Hockey tables. Finally, it does operate Brunswick bowling centers as well as retail billiard stores.

The company is explicit in its strategy. Growth, operating margin improvement, and creation of shareholder value are company mantras.

Growth will be achieved by innovation, by deployment of leading edge technologies, by brand building, by internationalization, and by improving and leveraging the core competencies of its supply chain.

Operating margin improvement will be achieved by technological investment and effective cost management.

Finally, the objective of shareholder value enhancement will be achieved by getting returns on investment that exceed cost of capital...I just love seeing this explicitly proclaimed!

The Boat segment represents some $2.8 billion in sales. Brands include Albemarle, Hatteras, Sea Ray, Bayliner, Maxum, and Meridian as well as Boston Whaler, Baja, Crestliner, Lowe, Princecraft and many more. In short, if you are a boat dealer, to satisfy your customers' needs, you almost certainly need to carry some aspect of the Brunswick line. About 2300 dealers carry at least one of the boat brands.

Marine Engines has the largest dollar sales volume of recreational marine engines in the world and had sales of $2.7 billion last year. Brands include Mercury, MerCruiser, Mercury Marine, and Mercury Jet Drive. Engines and propulsion systems are sold through over 7000 dealers and distributors.

Fitness is focused on commercial fitness and includes the Life Fitness and Hammer Strength lines, again representing the largest dollar sales volume of commercial fitness equipment in the world. Sales here are about $550 million.

Bowling and Billiards is a $465 million segment. As well as manufacturing and distributing products, this segment operates 113 bowling centers in the US, Canada, and Europe. The company has manufactured billiards tables since 1845!

Finally, the company has a 49% interest in a joint venture finance company, Brunswick Acceptance that is co-owned with GE Commercial Finance. This segment provides floor-plan financing to boat and engine dealers.

International sales represent about 35% of total sales with boat segment sales constituting 29% of international sales and marine engines 52%.

This is a cyclical growth business that Brunswick continues to dominate. The valuation of the business is extremely cheap in my opinion at EV/EBIT of 8.3 times. EV/EBITDA is only 6.1 times. These valuations are based on trailing twelve month numbers.

In a recent TWST interview, Elizabeth Osur, an analyst with Citigroup indicated :

"While 2006 could be a tough year for boating sales, the stock is attractively priced, likely limiting the downside and providing some potential forsizable upside. If they can execute a couple of acquisitions in Europe, the company may see some accretion."
The margins in Europe tend to be somewhat better than North American
margins, and the company has been highly successful in building its
brands through acquisition.

Cash flow from operations have always exceeded net income over the last five years and have totalled about $2 billion over that time. Contrast that with reported net income of $950 million. Capex over that time was also substantial representing almost $800 million. Free cash flow for the period totalled about $1.2 billion. Only about $60 million in stock has been repurchased in that time (all of that in 2005) and dividends totalled about $250 million.

Return on invested capital tend toward 5% in the cyclical low years and upwards of about 12% in the cyclical peak years though in 2000, ROIC hit 15.6%. The company generates about $2.19 in sales for every dollar of capital employed. Receivables and inventory tunover numbers have steadily improved over the last five years.

Long term debt to capital has tended down from what generally has been about 33% debt to its current 27%. Cash per share is over $5.00.

The stock is down about 25% from its peak valuation.

"The average boat buyer is 49 years old, very near the "sweet spot" pf the baby boomer population" according to Mark Keller of A G Edwards in an interview with TWST. The trade-up boater is becoming a more important part of the boating population and Brunswick is gearing its product line to satisfy that demand.

Though fuel prices and the economic outlook have made investors near-term skittish about ongoing demand, in my view the long term competitive advantages that Brunswick possesses should make this an attractive investment from these levels.

http://valuediscipline.blogspot.com/

Sleeping with an Elephant- Emerging Markets-How Diversified are You?

By Rick Konrad of Value Discipline

In a terrific U.S. Equity Strategy piece from Citigroup's Tobias Levkovich, dated May 25th, he reminds us of some interesting connections that he sees among emerging markets, energy, and commodities.

The important observation that Tobias makes is that bets on many emerging economies have a sinister side...they are merely leveraged trades on the U.S. consumer. China and India may well develop their own consumer base over time, but for the next few years, success relies on exports to the U.S.

Pierre Trudeau, the late former prime minister of Canad observed that Canada's relations with the U.S. were like sleeping with an elephant..."no matter how friendly and even-tempered the beast, one is affected by every twitch and grunt."

Weakness in the U.S. consumer will be a twitch and grunt that will be amplified through these emerging economies and markets.

Weakness in the U.S. dollar won't do others any good either.

As Tobias observes, money flows into emerging markets has been astonishing...in fact, money flows into emerging markets funds as a percentage of total money flows, is four standard deviations above the average. If regression to the mean is something you believe in, and I do, the outflow will not be pretty, especially if the US consumer economy softens.

If commodities and basic materials markets are a derivative on global growth in the developing world, there may be negative impact felt here.

Think about the sectors that got killed this month...basic commodities, energy, and emerging markets. It may not be a coincidence. There appears to be considerable convergence and consequent correlation in the economic drivers for each of these sectors.

You may be less diversified than you think. Simply owning different names across different economies does not provide risk reduction. If your holdings correlate in the market, they may have common economic drivers.

Now that the term BRIC (Brazil, Russia, India and China) has entered the investment lexicon, think of the derived demand picture. Back in 2000-2002, media and Internet convergence killed many investors. Diversification by names alone provided false comfort. Most companies were rooting for exactly the same thing and there was a common driver to the stocks.


Don't let it happen to you again.

http://valuediscipline.blogspot.com/

InfoSpace Buyback: Who Cares?

Stocks: (INSP)(GOOG)(YHOO)(NWS)

InfoSpace (INSP) announced a $100 million share buyback today. The stock did not react.

InfoSpace revenue in Q1 was $90.3 million up from $87 million in the prior year. The company had a gain of $77 million from a lawsuit in 2005, and adjusted EBITDA that backs this out was $12.7, down from $21.9 million in 2005. The company guided that Q2 would be an uninspiring $90 to $90 million with adjusted EBITDA of $5 to $6 million.

InfoSpace's online revenue was down and mobile revenue was up. The company provides online and mobile content such as yellow and white page data.

Stanford Group Company's Clayton Moran summed up what much of Wall Street thinks of InfoSpace recently at forbes.com: "The opposite is true for InfoSpace, which Moran rates as a "sell." Its mobile unit acts as a middleman between content providers and phone companies, a relationship Moran says is unnecessary and will eventually end. The Internet ad firm bucked an industry-wide trend last year and lost market share."

Over the last four quarters, the company has seen an erosion of its operating income. In the quarter ending June 30, 2005, this figure was $13.4 million. It dropped to $1.6 million in the quarter ending March 31, 2006.

InfoSpace's stock has dropped from a 52-week high of $36.81 to a low of $21.26. Even with the buyback, the stock only trades at $22.72.

InfoSpace's business is being targeted by companies like Google, Yahoo! and online community giant MySpace, owned by News Corp., so perhaps very few people are surprised that a decision to buy in shares was not greeted with any enthusiasm. A very large amount of InfoSpace's customers make up the bulk of its revenue, as the company's Q states: "Our top five customers represented approximately 84% and 80% of our revenues in the first quarter of 2006". One of the large search companies only has to pick off one of two of these to significantly hurt Infospace's revenue.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

IPO Preview: Russia's CTC Media (CTCM) Set to Price Tonight

Tonight we are set to get a pricing of the CTC Media (CTCM-NASDAQ/ADR) IPO, a Russian television network operator. The company broadcasts directly over the airwaves and directly by satellite and has also expanded its reach nationally by launching its own CTC network rated #4 in Russia according to reports.

Lead underwriters are Morgan Stanley and Deutsche Bank, with J.P.Morgan as the Co-Manager. The current plans are for 29.4 million shares at a proposed range of $16.00 to $18.00 per share, giving CTC Media a potential market value of $2.75 billion depending on price.

CTC Media owns and operates Russia’s CTC Television Network, which now apparently serves 1,100 cities across the country. It has a 10% audience and its signal is carried by more than 300 television stations and cable operators. It does not look as though it owns its programming, but licenses a limited number of runs for each program. Advertising currently accounts for 19% of its total broadcast time and 25% of its primetime broadcast time, which is actually at some risk due to advertising time change laws in Russia (see below). CTC Media also recently launched its Domashny Network in 2005, which is the only domestic broadcaster to exclusively target women. CTC Media has supposedly been able to monitor expenses because of agreements with independent affiliates instead of having to spend as heavily on its infrastructure.

This ad model does not come without risks as hinted above. As of July 2006, new Russian law will supposedly limit ads to only 15% of total broadcasting time and a total of 20% of broadcasting time per given hour. That percentage may also be declining to 15% per hour beginning in 2008. CTCM has reportedly signed agreements with most of its affiliates to raise its ad allocation and it looks to have price hikes of 15%, but there will not be any way to confirm this data on any exact basis. As Russia is often considered the Wild West of lawmaking and governing for near-Western capitalism, we'll have to see how the changes are implemented and how the new rules change the company.

On the IPO it looks like insiders are selling 24.5 million shares, 4.4 million of which will be acquired by exercising options concurrent with the IPO at only $1.33/share. This has impacted how investors have wanted to gobble up shares in an unfavorable stock market. It almost even has the feel of back-dating because of the fact that the options grant is concurrent with the IPO at such a low price, but Russia is Russia and the shot of making an instant 10-times the money may be the norm for corporate insiders there in a world that doesn't seem to care about these practices. These figures have been implied in the prospectus and there are descrepancies from source to source on these numbers, so this needs to be confirmed independently before hanging your hat on any firm numbers.

Current market conditions have made IPO's that aren't a lay-up somewhat challenging. The deal has also not been able to attract the massive interest initially hoped for, and it looks like it is a combination of the Russian-market volatility and the insider share sales on the IPO that have weighed on the offering. If it comes to market tomorrow, we'll get to see how the market treats it versus what the buzz has been before the deal.

Pre-Market Notes

Main Stock Tickers: ADCT, AH, ANDW, ALTR, CATT, CFC, COST, HNAB, HWAY, INSP, LEXG, NRG, MVL, ONXX, PORK, PWEI, REGN, SVVS, TIF, VG

S&P FAIR VALUE +$1.94.

(AA) Alcoa customers are reportedly worrying about a strike potential according to the WSJ.
(ADCT) ADC Telecom $0.29/R$365.6M vs $0.29/$348M(e); sees 2006 EPS $1.00-1.15 vs $1.09e; stock down 6% after acquiring Andrew.
(AH) Armor Holdings gets an $87M add-on order.
(AHOM) American HomePatient's $3.40 buyout offer from Highland Capital has reportedly been withdrawn.
(ALOY) Alloy registered 958,000 shares for sale.
(ANDW) Andrew up 20% after getting $12.76 equivalent buyout from ADC Telecom.
(ALTR) Altera reaffirmed Q2 sales will be in line with previous guidance for 7%-10% growth, but sees additional SG&A expenses from its announced review of stock option granting practices and related accounting.
(ASYT) Asyst Tech said its CFO has left to join another company.
(BNE) Bowne added $45M to its existing share buyback plan.
(BIIB) Biogen Idec is acquiring privately held Fumapharm AG for undisclosed terms.
(CATT) Catapult Communication lowered guidance.
(CBST) Cubist filed to sell $275M in convertible subordinated notes.
(CFC) Countrywide reaffirmed $3.90 to $4.80 EPS guidance for 2006; consensus estimate is $4.45.
(COST) CostCo $0.49 EPS vs $0.50e; stock down 2%.
(GMTN) Gander Mountain -$0.97/R$155.6M vs -$0.75/$157.75M(e).
(HNAB) Hana Bio says Zensana oral spray statistically bioequivalent to Zofran tablet and remains on track for FDA submission and 2007 launch.
(HSII) Heidrich & Struggles announced new $50M allotted for share buybacks.
(HWAY) Healthways is acquiring private LifeMasters for $307M cash to add 600,000 lives to its customer base.
(INSP) Infospace added $100M to its existing share buyback plan.
(LAYN) Layne Christensen $0.30 EPS vs $0.30e.
(LEXG) Lexicon Genetics gets 2-year Bristol-Myers pact extension for its target discovery alliance.
(MCDT) McData $0.04 PES & R$168.3M vs $0.04/$170.25M(e).
(MCRI) Monarch Casino's CFO resigned.
(MVL) Marvel Entertainment announced the head of its Studios has resigned as part of an agreement to head a new studio and will continue to have working relationship for coming slate of films.
(NPSP) NPS Pharmaceuticals has a 6.8% stake taken by George Soros according to filings.
(NRG) NRG gets a 33% premium buyout offer of $57.16 from Mirant in an $11.5 Billion deal; NRG has reportedly rejected the offer.
(ONXX) Onyx Pharmaceuticals filed to sell $300M mixed securities shelf.
(PORK) Premium Standard Farms $0.24 EPS vs $0.19e.
(PWEI) P.W.Eagle confirmed its board has formed a committee to evaluate strategic alternatives.
(REGN) Regeneron gets FDA fast track designation for IL-1 Trap in CIAS1
(RMBS) Rambus said its audit committee is evaluating its stock option grant practices.
(SAFC) Safeco named Ross Kari as CFO as of June 21.
(SMTC) Semtech $0.16 EPS vs $0.14e; adds $50M to its share buyback plan.
(SNE) Sony has ended most film distribution deals with MGM Studios.
(SVVS) Savvis Communications' Jack Finlayson, President & COO, has resigned to pursue other opportunities.
(TIF) Tiffany's $0.30 EPS vs $0.28e; s-s-s -1%.
(WRE) Washington REIT filed to sell 2.6M shares.

ANALYST CALLS:
ACR cut to Hold at Stifel Nicklaus.
AMD lowered estimates by JMP.
ASD cut to Hold at Deutsche Bank.
BHE started as Equal Weight at MSDW.
BNT raised to Mkt Perform at Raymond James.
BOT raised to Mkt Perform at KBW.
BVN cut to Underperform at Goldman Sachs.
CE raised to Outperform at Goldman Sachs.
CNXT started as Buy at AGEdwards.
CPX started as Buy at UBS.
DVW reitr Buy at Needham.
DWA started as Equal Weight at Lehman.
EAS raised to Buy at Jefferies.
FFIV raised to Buy at Citigroup.
GFI raised to In-Line at Goldman Sachs.
GGG raised to Outperform at FBR.
GME started as Buy at Lazard.
GM maintained as In-Line at Goldman Sachs.
HCA raised to Outperform at Wachovia.
HOKU cut to Underperform at Thomas Weisel.
HXL raised to Buy at Deutsche Bank.
IDEV started as Strong Buy at JMP.
IR cut to Hold at Deutsche Bank.
IVAN raised to Buy at Jefferies.
KSS & TOO started as Buy at Stifel Nicklaus.
LLL cut to Sector Perform at CIBC.
LNC started as Equal Weight at MSDW.
NCTY raised to Buy at Citigroup.
NFG cut to Hold at AGEdwards.
NOOF started as Positive at Susquehanna.
NWRE started as overweight at Lehman.
NWS tgt raised from $21 to $22 at Citigroup.
NRG reitr Overweight at Prudential.
OMRI started as Neutral at Oppenheimer.
OS raised to Buy at UBS.
PLA started as Neutral at Susquehanna.
RBAK started as Buy at UBS.
RHAT reitr Buy at Robinson Humphreys.
RIMM raised to Overweight at JPMorgan.
SIGM started as Buy at Needham.
SMTC raised to Neutral at Merrill Lynch.
SNMX started as Outperform at Bear Stearns.
TIN reitr Overweight at MSDW.
TX started as Overweight at JPMorgan.
VG raised to Hold at Soleil; stock up 1%.
WIND maintained Buy at ThinkEquity.
ZZ started as Overweight at JPMorgan.

On Wells Fargo & Company

By Geoff Gannon from Gannon On Investing

Wells Fargo & Company (WFC) is a huge Western and Midwestern bank that provides a diverse array of financial services to its more than 23 million customers. The company employs more than 150,000 people at its over 6,000 locations nationwide. Wells Fargo has about $500 billion in assets.

While the company continues to derive more than half its revenues from interest income (about $26 billion), its activities are not limited to collecting deposits and lending money. Wells Fargo engages in other businesses such as brokerage services, asset management, and investment banking. The company also makes venture capital investments.

Over the last ten years, Wells Fargo has averaged a 1.57% return on assets and an 18.19% return on equity.


Location

Wells Fargo is closely associated with California in the minds of most investors. The company now operates in 23 different states. However, the concentration in California remains.

Mortgage lending in California accounts for approximately 14% of Wells Fargo’s total loan portfolio. Commercial real estate loans in California account for another 5% of the company’s total loans. No other single state accounts for a similarly sized portion of total loans. In fact, neither mortgage lending nor commercial real estate lending in any other state accounts for more than 2% of Wells Fargo’s total loans.


Cross-Selling

Wells Fargo’s focus on cross-selling is well known. The company has a stated goal of doubling the number of products the average consumer and business customer has with Wells Fargo to eight products per customer (from the current four products per customer).

Cross-selling increases customer stickiness. It also helps increase profitability by decreasing expenses relative to revenues. The need for a large physical footprint is reduced – as is the need for a large number of bankers. Instead, the existing infrastructure is able to provide additional revenue from the same customers.

Wells Fargo’s Chairman & CEO, Richard Kovacevich, explains the importance of the company’s cross-selling in the “Vision & Values” section of the corporate website:

Cross-selling — or what we call “needs-based” selling — is our most important strategy. Why? Because it is an “increasing returns” business model. It’s like the “network effect” of e-commerce. It multiplies opportunities geometrically. The more you sell customers the more you know about them. The more you know about them the easier it is to sell them more products. The more products customers have with you the better value they receive and the more loyal they are. The longer they stay with you the more opportunities you have to meet even more of their financial needs. The more you sell them the higher the profit because the added cost of selling another product to an existing customer is often only about ten percent of the cost of selling that same product to a new customer. This gives us—as an aggregator — a significant cost advantage over one product or one channel companies. Cross-selling re-invents how financial services are aggregated and sold to customers — just like other aggregators such as Wal-Mart (general merchandise), Home Depot (home improvement products) and Staples (office supplies).
(Vision and Values)


Mr. Kovacevich’s enthusiasm for the cross-selling model is well justified. It is difficult to quantify the importance of meeting all the varied needs of your customers, because you can not measure the opportunities you missed. However, it is obvious that reducing each customer’s interest in considering a competitor’s services will greatly increase long-term profitability for any company engaged in any line of business – not just for a bank.

Later, in the same website section, Mr. Kovacevich addresses the importance of customer stickiness:

(Cross-selling) is our most important customer-related sales metric. We want to earn 100 percent of our customers’ business. The more products customers have with Wells Fargo the better deal they get, the more loyal they are, and the longer they stay with the company, improving retention. Eighty percent of our revenue growth comes from selling more products to existing customers.
(Vision and Values)


This focus on retention is an important part of a long-term plan to maintain Wells Fargo’s above-average returns on assets and equity. Extraordinary profitability comes from differentiating your product or service from those of your competitors. Increasing customer stickiness and reducing “comparison shopping” is a key part of maintaining extraordinary profitability.

Some businesses are blessed with enviable economics because of their product’s natural prominence in the minds of their customers. Most businesses are obsessed with market share. But, how many really think about “mind share”? Obviously, a product like Coke (KO), Hershey (HSY), or Snickers is going to have a positive association in the minds of consumers.

For many people, these products will also have a prominent place in each customer’s mind (relative to other products and services on which money can be spent). A few other businesses have a healthy mind share without the positive association; GEICO is the most obvious example. The company’s brand conjures up nothing but the words “auto insurance”. Of course, that’s all the GEICO brand has to do.

So, what does all this have to do with Wells Fargo? Mind share isn’t just the result of exposure to advertising. In fact, in most cases, exposure to advertising can not duplicate the kind of results that a direct, differentiated experience creates. Entertainment properties are by far the leaders in mind share. People who saw and loved Star Wars remember the film. In fact, they don’t just remember the film, they actually file it away (or, more precisely, cross reference it) in countless ways within their mind.

The evidence for this particular example is abundant. There are countless references to Star Wars in other media. The name, the music, the opening text and countless other elements are immediately recognizable. Even the films Star Wars fans hated made more money than almost any other movies in the history of cinema – and this was decades after the original came out. So, obviously Star Wars has the kind of lasting mind share any business should aspire to if it hopes to continuously earn extraordinary profits.

Unfortunately, most businesses, however well run, can not attain this kind of mind share. The products and services they provide can never be as differentiated and memorable as a motion picture. Just as importantly, the positive associations will not be present, simply because the product or service is not inherently exciting, entertaining, or pleasant. This is clearly the case in financial services.

So, what can a financial services company do to improve its mind share? The most obvious tactic is simply to “wow” its customers. In fact, Wells Fargo’s CEO discusses this particular option in the “Vision and Values” section of the company’s website:

We have to “wow!” them. We know what that feels like because we’re all customers. We go to the cleaners, the grocery store, a restaurant or whatever, and we find a situation where we’re “wowed!” We walk out and we say, those people really listened to me and helped me get what I need. All of us hear stories about customers, say, who pick a certain line at the supermarket because they know the person who bags the groceries connects with customers — smiles, greets regular customers by name, asks how their families are doing. When a personal banker helps a customer in one of our stores, or when a customer gets help from one of our phone bankers or does transactions on wellsfargo.com we want them to say, “That was great. I can’t wait to tell someone.”
(Vision & Values)


Another option worth pursuing is widening the associations present in the customer’s mind. Financial services is a business where associations tend to be more conscious, categorized, and hierarchical than the associations formed in more heavily branded businesses. Put simply, the (potential) customer usually thinks of a “set” before thinking of an “element” within that set. Like many mental associations, the information can be returned in either direction. For example, the customer may normally think “banks” and then think “Wells Fargo”, but will also be able to return the word “bank” if prompted by the name “Wells Fargo”. This categorization is important, because it provides (limited) permission for Wells Fargo to expand its mind share horizontally (across service categories).

In other words, providing a diverse range of financial services doesn’t just make sense from the provider’s perspective, it also makes sense from the user’s perspective, because the user of financial services has already grouped deposits, borrowing, credit cards, insurance, brokerage services, asset management, etc. together in a very loose way within his mind. As a result of this mental network, one positive experience with Wells Fargo will greatly affect a customer’s desire to pay for an additional service, even if the two services are not really all that similar.

The three key elements here are: a broader definition of what Wells Fargo is (a place that does “money things”, not just a bank), a positive experience, and some sense of trust that the quality of service will be consistent. The last requirement is the easiest to meet, because it’s natural for a customer to assume that the positive experience was not a fluke, much the way a diner assumes the good meal he had at a particular restaurant was not caused by his picking the best offering from the menu. The diner usually assumes the overall quality of the restaurant’s various entrees is superior. Likewise, a good experience with one of Wells Fargo’s products or services will likely rub off on its other offerings.


Valuation

Shares of Wells Fargo currently yield just over 3%. The stock trades at a price-to-book ratio of just under 2.75 and a price-to-earnings ratio of less than 15.


Conclusion

Over the last 5, 10, 15, and 20 years shareholders of Wells Fargo & Company have fared better than the S&P 500. As of the end of last year, WFC’s total return over the last ten years was 17% vs. 9% for the S&P. Over the last 20 years, WFC outpaced the S&P 500 by an even wider margin: 21% vs. 12%.

Wells Fargo has a stellar reputation with investors. The company is the only U.S. bank to earn Moody’s highest credit rating. Wells Fargo also boasts a well-known major shareholder. The largest owner of the company’s common stock is Berkshire Hathaway. Warren Buffett’s holding company has a roughly 5.5% stake in Wells Fargo. Berkshire’s last reported purchase occurred during the first quarter of this year.

Wells Fargo has a stated goal of achieving double-digit growth in earnings and revenue while managing a return on assets over 1.75% and a return on equity over 20%. Those are both very ambitious goals. The company has achieved some of the highest returns on assets and equity of any major U.S. bank. However, Wells Fargo will probably need to increase the percentage of revenue it derives from fee businesses if it is to achieve these goals.

In the years ahead, the company may well become more of a diversified financial services business. In fact, that’s what I expect will happen. The company’s commitment to cross-selling is not some fad. Eventually, this commitment will change the way investors think about Wells Fargo. Soon, it may be considered much more than a bank.

Wells Fargo’s CEO makes the case that his company’s P/E is simply too low. Wells Fargo has a solid history of strong growth and profitability. So, why should it be valued similarly to most other banks? Shouldn’t it be awarded a multiple more in line with a growth company?

There’s actually some merit to this argument. Wells Fargo is unusually well positioned for a bank. Often, those banks that seem certain to earn very high returns on assets and equity for many years to come are poorly positioned for future growth. These banks are often smaller than their competitors and focused on a specific geographic niche. Any acquisitions would dilute the exceptional profitability of the bank’s niche.

Of course, there are also many consolidators in the banking industry. Unfortunately, many of these banks do not have a history of earning the kind of returns on assets and equity that Wells Fargo has achieved. Even more importantly, there is little differentiation between these titans of the banking industry and their national competitors. Therefore, their moats are highly suspect.

Wells Fargo is a different kind of bank. It has a history of extraordinary growth and profitability. There are two obvious opportunities for future growth: geographic expansion and cross-selling. Of these two opportunities, it's clear I’m more enamored with the latter. An eastward push is not necessary, and certainly not via an ill-advised acquisition.

There is a lot of value in the Wells Fargo franchise and there is plenty of room within that franchise for future growth. That’s one of the great advantages of the financial services industry. With the right model, limits to growth are almost non-existent. In other highly-profitable industries, there is often nowhere to reinvest new capital at a similar rate of return.

If Wells Fargo is a growth stock, it is a peculiar sort of growth stock. Maybe that is what attracted Buffett to the company in the first place. Here is a business with a strong franchise that can grow for many years to come. Perhaps most importantly, it is a growth business that frequently trades in the market at value like multiples, simply because it’s a bank.

At the current market price, Wells Fargo is the sort of investment you make once and forget. The valuation is not so cheap as to promise a good return if the business falters. But, the business is not so suspect as to require the margin of safety be provided by a low P/E ratio. Sometimes, near certain growth is the margin of safety.

On a separate topic, I’d like to encourage anyone with an interest in competitive advantages to read the entire "Vision and Values" section of the Wells Fargo site.

Superficially, it looks like any other online presentation to investors. In truth, it is nothing like those hollow, sugary slide shows. It's actually an engaging exploration of competitive advantages within an industry that seems totally unlike the sort of branded, consumer-oriented businesses one normally associates with strong franchises. Even if you aren’t interested in the banking industry in particular, I recommend reading this section for its insights into customer psychology and behavior.

http://www.gannononinvesting.com/

DivX and Vonage

Stocks: (VG)(MSFT)(RNWK)(AAPL)(SUNW)(GE)(SNE)(FTE)(T)

Does the IPO of Vonage tell investors anything about the DivX offering? Certainly since both are in the tech space and are fundamentally software-based enterprises, there are some potential parallels in valuation. Vonage describes its product as "VoIP technology which enables voice communications over the Internet through the conversion and compression of voice signals into data packets". DivX says it has created "a technological platform and galvanized the community necessary to enable a digital media ecosystem". The factor that is very different is that Vonage can claim, at least for the time being, that it is the market leader in VoIP in the U.S. DivX cannot make this claim in its media player markets, especially with the presence of Windows Media and RealPlayer.

Accounting for the drop in stock price since its IPO, Vonage's stock is down 27% from the $17 initial offering . Vonage was priced at roughly ten times 2005 revenue. If DivX was priced on the same basis, it would now be worth about $241 million. The company said it plans to raise up to $135 million. Will they sell 56% of the company in an IPO? Not likely.

The other issue is that the DivX core intellectual property comes from the patent pool MPEG and is licensed through their IP authority MPEGLA. The MPEG patent pool includes intellectual property from companies including Samsung, Sharp, Sony, France Telecom, and GE Technology Development. Some of the IP in this pool is being challenged by AT&T, so it is unclear whether companies like DivX have clear title to it or what will happen if the AT&T claims go to court.

With this kind of IP risk, and DivX holding a market position well behind Microsoft and Real in media player usage, it is extremely hard to see how the company could command even the discounted multiple that Vonage did. In other words, there is little in the way of precedent to justify the company being worth even $200 million.


In the current market environment, deals like this often get shelved, so it would not be shocking if the DivX IPO gets pulled or at least has the terms lowered.

Douglas A. McIntyre

Joe's Quick Takes: SBUX

From The Average Joe Investor


I'm sure everyone has a pretty good idea as to the business behind Starbucks (ticker: SBUX) and most of you have probably enjoyed some of their beverages. If you haven't, you're likely not sufficiently caffeinated and I'd ask that you up your caffeine level before reading any more of this blog. To restate the obvious: Starbucks, through their retail locations, makes and sells beverages including hot and cold coffee and espresso beverages and teas. 'Bucks also sells ground and bean coffee (both at retail locations and through other channels), food (mostly cake in various forms that is not kind to my waistline), coffee making equipment and music.

Currently the breakdown in sales at 'Bucks goes like this (as of end of fiscal year end '05): 85% in-store, 10% licensing and 5% foodservice; 77% beverage, 15% food, 4% whole bean coffee and 4% coffee making equipment and other; 84% US and 16% non-US. The company owns around 6,000 stores and opened over 700 new stores in '05 (simple math says that's roughly two stores per day!). Revenue has grown at around a 25% CAGR from 2001 to 2005 and diluted EPS has grown about 28% per year in the same period. Operating margins have gone up 2% over that span and comparable store sales, though down in '05 versus '04, are up versus 2001 and 2002.

Great.

And with a significant amount of growth expected to come from China and other overseas markets, not to mention continued growth in the US (SBUX's long-term goal is to have 30,000 total stores - 15,000 in the US and 15,000 abroad), the 20%+ annual growth isn't expected to end any time soon. Heck, I like the story here - anecdotally, I have trouble turning the heat on at home during the winter but readily shell out $3 on a daily basis for a double tall latte. And guess what - I'm not the only one in there...

The problem with the stock, though, lies in their risk factor #2 in their 10-K (for those not familiar with the "risk factors" in SEC filings, they're basically a section of the document where the company gives every conceivable risk to their business and stock price, basically so that if something does go wrong they can point to the document and say "see, we told you that could happen!"):

"Market expectations for Starbucks financial performance are high.
Management believes the price of Starbucks stock reflects high market expectations for its future operating results. In particular, any failure to meet the market’s high expectations for Starbucks comparable store sales growth rates, earnings per share and new store openings could cause the market price of Starbucks stock to drop rapidly and sharply."

A nice way for management to say that the stock is perhaps a bit overvalued.

SBUX trades at 46x the current EPS estimates for 2006 - that's a nice 2.3x a 20% five year growth rate. And this is after shedding 12% since the first part of May. I think there's a great company behind the SBUX ticker, but you're not going to get me to pay that kind of a price for it. My take is that people may be a little too worked up about music and movies (which 'Bucks is using to enhance customer experience to sell more coffee not necessarily to be a big new source of growth) and letting the fundamentals fly out the window.

I think SBUX has a good amount of room to fall to become interesting in the least, and a heck of a lot of room to fall before it becomes a buying opportunity.

Bottom Line: HOLD

http://theaveragejoeinvestor.blogspot.com/

Claires Stores Inc.

From ValueDiscipline

I know the stock market is rough. I know consumer confidence is dwindling. But when Mr. Market is having one of his downers, it's time to pull out the calculator and have a look at some decent businesses that may be getting cut unmercifully.

I believe that Claires Stores (CLE) is one of those kinds of businesses. Down about 26% from its peak of April (most of that fall occurred in May,) the company continues to demonstrate significant profitability, predictability, and at this point, decent valuation characteristics.

Enterprise value is about $2.2 billion reflecting zero debt and just under $400 million in cash. CFFO for last year was $243 million with capex of $82.5 million for free cash flow of $160.4 million. Hence, a FCF yield of 7.3%.

Not a random occurrence...free cash flow was generated in each of the last five years totalling $602 million. Dividends of $120.3 million were paid over that period. Share buybacks are non-existent but share issuance has been miniscule amounting to less than $20 million. Dividend growth rate for five years is 52% i.e. they have treated shareholders as partners.

Valuation has just dropped below 9 times EV/EBIT. Less than 7.5 times EV/EBITDA.

ROIC on a TTM basis is 19.8%. Average ROIC in the last five years has been 16.6%.

Long term growth estimates range from 12 to 18%. Let's use 9%. Operating margins have been running near 18% recently. Lowest operating margins in the last five years were 7%, median was 14%. Let's use 14%. I come up with a DCF of over $30 using these very conservative inputs versus its current price of $26.12.

As of January 28, 2006, Claires operated a total of 2,878 stores in all 50 states of the United States, Puerto Rico, Canada, the Virgin Islands, the United Kingdom, Switzerland, Austria, Germany, France, Ireland, Spain, Holland and Belgium. The Company has two store concepts: Claire's Accessories and Icing by Claire's. About 29% of sales are outside the U.S.


Seems to me that even in the worst of economic environments, young girls will still want to be buying low priced accessories. As Ms Schaefer describes it, "we appeal to people 2 to 92 because when it comes to fun items that are well priced and impulse driven, we are the place to go."

Seems to me that even in the ugliest of stock market environments, investors will still want to own low priced stocks.

http://valuediscipline.blogspot.com

Europe Market Report 5/31/2006

Stocks: (BCS)(BAB)(BT)(HBC)(RTRSY)(UN)(UL)(VOD)(AZ)(BAY)(DCX)(SI)(ALA)(AXA)(FTE)(TMS)(V)

European markets were recovering at 5.30 AM New York Time.

The FTSE 100 was up almost .7% to 5,690. Barclays was up 2.8% to 606. British Airways was up 1.4% to 337. BT Group was off nearly .7% to 229. HSBC was up 1% to 923. Reuters was up 1% to 377. Unilever was off .3% to 1,184. Vodafone was up nearly 1.3% to 121.

The Daxx was up almost .2% to 5,632. Allianz was up 1.2% to 120. Bayer was off .6% to 35. DaimlerChrysler was up over .6% to 40.6. SAP was off 1% to 162.7. And, Siemens was off almost .6% at 66.

The CAC 40 was up very slightly to 4,901. Alcatel was up .5% to 10.27. AXA was up .7% to 26.94. France Telecom was up 2.6% to 17.19. L'Oreal was up .7% to 69.25. Thomson was up 1.1% to 14.9. And, Vivendi was flat at 27.97.

Douglas A. McIntyre

Nasdaq Short Interest, May 2006

Stocks: (SIRI)(LVLT)(YHOO)(JDSU)(CHTR)(INTC)(SUNW)(MSFT)(CIEN)(EBAY)(CNXT)(AMTD)(HAWK)(ORCL)

The largest short interest in Nasdaq stocks in May was:

Nasdaq 100 Trust 122.248 million
Sirius 119.144 million
Level 3 100.041 million
Yahoo! 78.282 million
JDS Uniphase 69.511 million
Charter Comm 69.412 million
Intel 55.962 million
Sun 51.681 million
Microsoft 50.844 million
Ciena 46.914 million
eBay 46.301 million


The largest changes up in short interest were:

JDS Uniphase up 17.9 million to 69.5 million
Level 3 up 15.7 million to 100 million
Conexant up 9.7 million to 31.6 million
TD Ameritrade up 6.2 million to 12.2 million
Petrohawk Energy up 5.9 million to 9.7 million
eBay up 5.6 million to 46.3 million

The largest changes down in short interest were:

Nasdaq 100 Trust down 25.3 million to 122.2 million
Sun down 9.3 million to 51.7 million
Intel down 6.3 million to 55.9 million
Microsoft down 6.2 million to 50.8 million
Oracle down 6.2 million to 37.3 million
Charter Comm down 5.1 million to 69.4 million


The largest short interest ratios were:

SCO Group 188 days
Navarre 55 days
Introgen 54 days
Convera 52 days
Mair Holdings 52 days
Integrated Alarm 47 days

Other notable short ratios:

Valence 23 days
Costar 21 days
eCollege 21 days
DTS 20 days
NeoPharm 20 days

Douglas A. McIntyre

Media Digest 5/31/2006

Stocks: (GM)(VOD)(TWX)(CMCSA)(VG)(XMSR)(FRE)(CA)(NRG)(MIR)

Reuters reports that Lenovo Group, the world's third largest PC company, would have profits in 2006 that would not be below 2005.

Reuters also reports that a small cable programming company, The American Channel has sued TimeWarner and Comcast accusing them of "big-rigging" in their purchase of Adelphia. The suit says that this would keep unaffilated networks off the cable system.

Reuters writes that Vonage will pay back the bankers in its IPO if Vonage customer who bought stock do not pay for their shares. The price dropped sharply after the offering and is now down almost 27%.

Reuters also writes that XM Satellite Radio will stop selling two of its radio products "after a U.S. regulator said the devices exceeded limits for wireless signal strength".

The Wall Street Journal reports that Freddie Mac (FRE) reported a 27% drop in net income in 2005 to $2.13 billion.

The WSJ also reports that Vodafone will shift its focus to broadband internet access and away from international acquisitions of cell phone operations. The company is the world's largest cell phone operator.

The Journal also writes that Computer Associates will delay its annual report "because of additional work on sales commissions and income taxes".

The WSJ also reports that NRG Energy has rejected an offer of nearly $7.9 million from Mirant, another power generation company.

In the New York Times, GM has named the head of its Asia division to run its troubled North American operations.

The NYT also reports that Vodafone had an annual loss of $41 billion which "would qualify as the largest in recent European corporate history".

Douglas A. McIntyre

Asia Markets 5/31/2006

Stocks: (CAJ)(FUJIY)(HMC)(NIPNY)(NTT)(DCM)(TM)

Asian markets dropped sharply on concerns about the U.S.economy and interest rates.

The Nikkei dropped almost 2.5% to 15,467. Shares in Bridgestone were off over 4% to 2,290. Canon was down over 4% to 7,760. Daiwa Securites was off 3.4% to 1,378. Fuji Photo was off 3.2% to 3,670. Honda Motors was down 2.5% to 7,320. Japan Airlines was down .7% to 298. Mitsubishi Corp was down 1.7% to 2,365. NEC was off over 4% to 668. NTT was off nearly 2% to 549,000. DoCoMo was down 1.6% to 181,000. Sharp was down 3.2% to 1,860. Softbank feel sharply, 5.4% to 2,720. And, Toyoto fell 3.4% to 5,930.

Markets in Hong Kong and Korea were closed for holidays.

The Straits Times Index was off 2.4% to 2,384. Singapore Airlines was down 1.6% to 12.4. Singapore Telecom was down 1.6% to 2.5.

Douglas A. McIntyre

After-Hours Notes from May 30, 2006

Main Stock Tickers: ALTR, ASYT, CATT, CBST, INSP, MCDT, NPSP, NRG, ONXX, RMBS, SMTC

(ALTR) Altera reaffirmed Q2 sales will be in line with previous guidance for 7%-10% growth, but sees additional SG&A expenses from its announced review of stock option granting practices and related accounting.
(ASYT) Asyst Tech said its CFO has left to join another company.
(BNE) Bowne added $45M to its existing share buyback plan.
(CATT) Catapult Communication lowered guidance.
(CBST) Cubist filed to sell $275M in convertible subordinated notes.
(HWAY) Healthways is acquiring private LifeMasters for $307M cash to add 600,000 lives to its customer base.
(INSP) Infospace added $100M to its existing share buyback plan.
(MCDT) McData $0.04 PES & R$168.3M vs $0.04/$170.25M(e).
(MCRI) Monarch Casino's CFO resigned.
(NPSP) NPS Pharmaceuticals has a 6.8% stake taken by George Soros according to filings.
(NRG) NRG gets a 33% premium buyout offer of $57.16 from Mirant in an $11.5 Billion deal.
(ONXX) Onyx Pharmaceuticals filed to sell $300M mixed securities shelf; NRG has reportedly rejected the offer.
(PWEI) P.W.Eagle confirmed its board has formed a committee to evaluate strategic alternatives.
(RMBS) Rambus said its audit committee is evaluating its stock option grant practices.
(SAFC) Safeco named Ross Kari as CFO as of June 21.
(SMTC) Semtech $0.16 EPS vs $0.14e; adds $50M to its share buyback plan.
(WRE) Washington REIT filed to sell 2.6M shares.

Cramer's "Mad Money" Recap of May 30, 2006

Main Stock Tickers: ENB, NTGR, TMY, BUD, BAC, C, KRY, CMCSA, COP, HAL, URS, SIRI, NKTR, PEP, PAY, EBAY, STKL, VG, XMSR

Cramer evaluated today's +180-point self-off in the DJIA and said we are in a leaderless market where it is very hard for the market to advance. The market is cycling between commodity and recession (food and drug) stocks, and said that these groups do not go up at the same time. When trying to identify the next leader he said he didn't know which stock and group would lead nor when it will emerge as the leader. That being said, investors need to be positioned between the recession stocks and the growth & commodity plays for diversification to wait for market developments.

Cramer first evaluated Enbridge (ENB), that may be the next Kinder Morgan (KMI), as it transports and distributes crude oil and gas but is Canadian with solid production. Cramer said with KMI about to be taken private, ENB is a cheap stock likely to go to $40.00 that is a Buy.

Cramer also evaluated NetGear (NTGR) as a best-of-breed stock taking market share, has a VoIP phone for Internet-based phone calls without having to be near a computer, and is also rolling-out next generation routers. Cramer says NTGR is a Buy.

Cramer lastly evaluated Transmeridian (TMY) and spoke with its CEO. Cramer called it a speculative oil stock appropriate for the most speculative accounts only, not for those seeking a blue-chip investment.

In the "Lightning Round", Cramer was POSITIVE on Anheuser-Busch (BUD), Bank of America (BAC), Citigroup (C), Crystallex (KRY), Comcast (CMCSA), ConocoPhilips (COP), Halliburton (HAL), URS (URS), Sirius (SIRI) (buy on a pull back to $4), Nektar (NKTR), Pepsi (PEP), and Verifone (PAY); and NEGATIVE on eBay (EBAY), SunOpta (STKL), Vonage (VG), XM Satellite (XMSR).

Jon C. Ogg
May 30, 2006

Rex’s Earnings Vanish; Assets Remain

(RX)(PGN)

By Geoff Gannon

Shares of Rex Stores (RSC) are down nearly 8% in today’s trading. This decline extends Friday’s fall-off following Rex’s disappointing earnings release.

Net income for the quarter came in at $1.5 million or $0.13 per diluted share vs. $6.1 million or $0.48 per diluted share during the year ago period. Net sales dropped to $86.1 million from $87.9 million during the year-ago period, despite a 0.5% increase in same-store sales.

The decline in net sales was primarily the result of store closings. Rex has continually closed stores over the past few years. The decline in net income was primarily the result of a drop in Rex’s synthetic fuel investment income. Income from limited partnership investments was $2.1 million in the first quarter vs. $6 million in the year ago period.

The sharp sell-off is likely the result of news from Progressive Energy (PGN), Rex’s partner in its Colona synthetic fuel investment, that production at the fuel facilities has ceased in anticipation of the reduction or phase-out of Section 29/45K tax credits. Synthetic fuel credits are phased out if oil prices reach certain levels.

Rex had always been aware of the possible phase-out, but hadn’t previously stated that it did not expect to receive any additional income from the sale of its synthetic fuel interests. Last week, Rex’s Chairman and CEO, Stuart Rose, acknowledged that Rex no longer expected additional income from the synfuel investments.

The market’s violent reaction to Rex’s first-quarter results and the synfuel announcement is entirely overdone. Such a reaction would have been appropriate if the market had been valuing Rex on an earnings power basis with the expectation that income from the sale of the synfuel partnership interests would have continued at the same level as a year ago.

But, that was never the expectation. In the first quarter of 2006, shares of Rex stores were trading at less than seven times last year’s earnings. Obviously, the stock was not being valued on the basis of last year’s earnings.

Even a year ago, the majority of the value in Rex Stores was not derived from the income received from the sale of the company’s LP interests. For several years now, Rex Stores has been an asset play. The company has substantial real estate holdings (largely unmortgaged) spread across many different states.

In addition to its many real properties, the company still has both state NOL tax credits - and much more importantly, federal AMT credits. The credits are largely the result of the synfuel investments. While the value of the company’s real estate is difficult to value, the fact that Rex has managed to halve its total liabilities in less than five years has created an interesting opportunity in the company’s common stock.

Shares of Rex Stores currently trade at about 75% of book. The book value of the company’s assets is less inflated than the book value of the assets of most public corporations. Even if the retail chain merely managed to break even, shares of Rex Stores would not be overvalued at current levels. So, why all the selling?

Part of the problem may be speculators. Recently, Rex has been making investments in ethanol. Earlier this year, shares of Rex Stores had risen suddenly when the company’s interest in ethanol became more widely known.

For long-term shareholders, the transition from synfuel investments to ethanol investments was not unexpected. However, Rex Stores was not particularly well known outside of investors who hunt for such book value bargains. The public’s interest in ethanol and its new found knowledge of this small, rather obscure electronics retailer may be the reason for the recent wild ride – both on the way up and on the way down Of course, it remains to be seen if steadier hands (particularly value-oriented funds) are taking part in the selling, or are staying on the sidelines.

Geoff Gannon's site is www.gannononinvesting.com

Previewing the American Society of Clinical Oncology Annual Meeting (ASCO)

Main Stock Tickers: ABBI, ADH, AMGN, ARIA, BSM, CELG, CEGE, EXEL, DNA, GHDX, GNTA, GSK, HNAB, INGN, MLNM, MYGN, OSIP, PFE, PCYC, SUPG

This Friday will be the launch of the largest cancer and oncology event of the year. The American Society of Clinical Oncology (known as "ASCO" and referred to as ASCO hereafter) annual meeting in Atlanta, Georgia begins on Friday, June 2, 2006 and will go through Tuesday, June 6, 2006.

This is a compiled list of public companies that trade on US exchanges only, as we are geared toward the investment community perspective to this event. It is broken down by a full list exhibitors, a list of which of the companies are in each subset to identify stock candidates ahead of media teases, it also shows recent developments in Congress, and it even has a brief explanation of which companies have either confirmed they are presenting data or that have shown up in media or research reports as presenting data.

This is a few days ahead of the event so the list will only grow with many more companies confirming they intend to present embargoed data at the conference. There are some companies that have been noted recently as already having presented data, but this is discussed in each case.

For several years ASCO has been THE launch platform of choice for many biotech and drug companies to issue embargoed trial and test data to the oncology and investment community. The focus this year seems to be more on combination treatments than on new novel treatments, but in all honesty that can change literally in a matter of three seconds after new potential ground breaking data is presented.

You can peruse the ASCO website (link) to determine additional data. Because of the volume of the data ahead this is a partial document and should be considered work in progress due to the fact that it is certain to expand every few hours.

FULL LIST OF ASCO EXHIBITORS:
Under the full list of exhibitors please note that any longer written explanation than the company being a subsidiary means that the company paid extra to be listed as a Featured Exhibitor on the ASCO Annual Meeting site. The featured exhibitors are listed first and each letter of the alphabet has a space in between letters. This is only a list of the public companies, and there are likely other public company subsidiaries that were either overlooked or that were omitted intentionally. Some of the tickers may also have changed or no longer appear because of the ongoing list of mergers that are present in the medical, drug, and biotech fields.

ABAXIS...division of Abraxis Bioscience, Inc. (ABBI-NASDAQ): Developing innovative, next generation cancer therapies. Through research, innovative science, and creative thinking, we are working to redefine the treatment of cancer as we know it. As it became clear to us that nanotechnology (the science of molecular particles, measured in nanometers—billionths of a meter) would intersect with cellular biology, molecular biology, and medicine, we made the bold commitment to make this convergence happen. We have transformed the highly promising concept of protein-bound particle chemotherapeutics into an exciting new patient reality.
ANTIGENICS INC. (AGEN-NASDAQ): developing Oncophage, an autologous cancer vaccine in late-stage development for metastatic melanoma and RCC. The company's oncology portfolio also includes Aroplatin and AG-858.
ABBOTT (ABT-NYSE)
ADHEREX TECHNOLOGIES INC. (ADH-AMEX)
AETERNA ZENTARIS (AEZS-NASDAQ)
ALLOS THERAPEUTICS, INC. (ALTH-NASDAQ)
AMGEN (AMGN-NASDAQ)
ARIAD PHARMACEUTICALS INC. (ARIA-NASDAQ)
ASTRAZENECA (AZN-NYSE/ADR)
AXCAN PHARMA (AXCA-NASDAQ)

BAYER PHARMACEUTICALS CORPORATION (BAY-NYSE/ADR): discover and manufacture innovative products that will improve human and animal health worldwide by diagnosing, preventing and treating disease.
BAXTER DEUTSCHLAND GMBH, part of Baxter Labs (BAX-NYSE)
BERLEX, part of Schering AG (SHR-NYSE/ADR)
BIO-IMAGING TECHNOLOGIES, INC. (BITI-NASDAQ)
BIOGEN IDEC (BIIB-NASDAQ)
BRISTOL-MYERS SQUIBB (BMY-NYSE)
BSD MEDICAL (BSM-AMEX)

CELGENE CORPORATION (CELG-NASDAQ): innovative therapies enable providers to offer the highest-quality care for better health care outcomes, creating less demand on health care resources.
CELL GENESYS, INC. (CEGE-NASDAQ)
CEPHALON ONCOLOGY (CEPH-NASDAQ)
CEPHEID (CPHD-NASDAQ)
CHARLES RIVER LABORATORIES (CRL-NYSE)
CHIRON, now under Novartis (NVS-NYSE/ADR)
CIPHERGEN (CIPH-NASDAQ)
CLARIENT (CLRT-NASDAQ)
COVANCE (CVD-NYSE)
CYTOGEN CORPORATION (CYTO-NASDAQ)
CYTOKINETICS (CYTK-NASDAQ)

DAKO (majority shareholder is Novo Nordisk (NVO-NYSE/ADR)...pre-IPO intends to list as public stock company: Dako’s primary business area, cell-based cancer diagnostics, is divided into Pathology and Flow Cytometry, which account for 73% and 17% of sales respectively. Added to this is 10% from other products. Dako has a global market share of 35-40% in specific tissue-based cancer tests. Dako has a market share of less than 5% in the world market for flow cytometry.

ELI LILLY & COMPANY (LLY-NYSE): In addition to delivering meaningful support programs, Lilly Oncology has a long-term commitment to advance the treatment of cancer by delivering solutions through innovative technology.
EXELIXIS INCORPORATED (EXEL-NASDAQ): Committed to making a meaningful impact on the lives of cancer patients through the development of first-in or best-in class therapies.
ENZON PHARMACEUTICALS (ENZN-NASDAQ)

FRESENIUS BIOTECH GMBH (FMS-NYSE/ADR)

GE HEALTHCARE, part of General Electric (GE-NYSE): provides transformational medical technologies to help shape a new age of patient care, enabling healthcare providers to better diagnose, treat and manage disease.
GENOMIC HEALTH, INC. (GHDX-NASDAQ): Genomic Health develops clinically validated molecular diagnostics to provide individualized information on the likelihood of disease recurrence and response to therapy for cancer patients.
GENZYME (GENZ-NASDAQ): Leading biotechs dedicated to making a major positive impact on the lives of people with serious diseases.
GENENTECH BIOONCOLOGY, Genentech (DNA-NYSE)
GENITOPE CORPORATION (GTOP-NASDAQ)
GENTA INCORPORATED (GNTA-NASDAQ)
GLAXOSMITHKLINE (GSK-NYSE/ADR)
GTX INC. (GTXI-NASDAQ)

HANA BIOSCIENCES, INC. (HNAB-NASDAQ)

IMCLONE SYSTEMS INC. (IMCL-NASDAQ): dedicated to developing breakthrough medicines in the area of oncology.
IMMUNOMEDICS, INC. (IMMU-NASDAQ): Humanized antibodies tested alone or combined with the radioisotope Yttrium-90; Anti-CD22 Epratuzumab, Anti-CD20 treat NHL and SLE; hPAM4 targets MUC1 expressing pancreatic tumors.
IMS HEALTH (RX-NYSE)
INTROGEN THERAPEUTICS (INGN-NASDAQ)

KENDLE INTERNATIONAL (KNDL-NASDAQ)
KERYX BIOPHARMACEUTICALS, INC. (KERX-NASDAQ)
KYPHON INC. (KYPH-NASDAQ)

MDS PHARMA SERVICES, part of MDS (MDZ-NYSE): manages oncology trials by utilizing renowned experts, advanced technologies, global infrastructure, exceptional drug development strategies and complete clinical capabilities.
MEDIMMUNE ONCOLOGY, INC. (MEDI-NASDAQ) focused infectious diseases, cancer, and inflammatory diseases. The company has four marketed products, including Ethyol® (amifostine).
MGI PHARMA, INC. (MOGN-NASDAQ) markets Aloxi® (palonosetron hydrochloride) Injection and Gliadel® (polifeprosan 20 with carmustine implant) Wafer in the U.S.
MERCK ONCOLOGY (MRK-NYSE)
MILLENNIUM BIOTECHNOLOGIES (MBTG-NASDAQ/OTC)
MILLENNIUM PHARMACEUTICALS INC. (MLNM-NASDAQ)
MYRIAD GENETICS (MYGN-NASDAQ)

NEOPHARM INC. (NEOL-NASDAQ)
NEORX CORPORATION (NERX-NASDAQ)
NOVACEA, INC. (NOVC-NASDAQ) (very recent IPO 5/10/06)
NOVARTIS ONCOLOGY, part of Novartis (NVS-NASDAQ/ADR)

ORTHO BIOTECH PRODUCTS LP, a unit of Johnson & Johnson (JNJ-NYSE): markets PROCRIT(R) (Epoetin alfa) used to treat anemia associated with serious medical conditions.
ONYX PHARMACEUTICALS (ONXX-NASDAQ)
OSI PHARMACEUTICALS (OSIP-NASDAQ)
OXIGENE, INC. (OXGN-NASDAQ)

PHARMANET, a merged company of SFBC (SFCC-NASDAQ)
PRA INTERNATIONAL (PRAI-NASDAQ): a clinical research organization in oncology and special expertise in CNS, respiratory and cardiovascular diseases.
PAREXEL INTERNATIONAL (PRXL-NASDAQ)
PDL BIOPHARMA, INC. (PDLI-NASDAQ)
PFIZER ONCOLOGY, part of Pfizer (PFE-NYSE)
PHARMACYCLICS (PCYC-NASDAQ)
PHARMION CORPORATION (PHRM-NASDAQ)
POINT THERAPEUTICS (POTP-NASDAQ)
PPD (PPDI-NASDAQ)

QUEST DIAGNOSTICS (DGX-NYSE)

ROCHE (RHHBY-NASDAQ/ADR/OTC): Diagnostics and drug development and commercialization in oncology and multiple other disease treatments.

SUPERGEN (SUPG-NASDAQ) dedicated to acquiring, developing, and commercializing therapies for hematologists and oncologists. We market Nipent® (pentostatin for injection), Mitomycin, and SurfaceSafe®.
SANOFI-AVENTIS (SNY-NYSE/ADR)
SAVIENT PHARMACEUTICALS, INC. (SVNT-NASDAQ)
SCHERING-PLOUGH (SGP-NYSE)
SCICLONE PHARMACEUTICALS (SCLN-NASDAQ)
SGX PHARMACEUTICALS, INC. (SGXP-NASDAQ)
SIRTEX MEDICAL, INC. (SXMDF-NASDAQ/ADR/OTC)

TELIK, INC. (TELK-NASDAQ)
THRESHOLD PHARMACEUTICALS (THLD-NASDAQ)
TRANSGENOMIC, INC. (TBIO-NASDAQ)

US ONCOLOGY (former USON-NASDAQ)

VARIAN MEDICAL SYSTEMS (VAR-NYSE): supplier of advanced medical technology and oncology information systems for the treatment of cancer and/or neurological conditions.
VALLEYLAB/TYCO HEALTHCARE, part of Tyco (TYC-NYSE)
VENTANA MEDICAL SYSTEMS (VMSI-NASDAQ)

WATSON PHARMA, INC. (WPI-NYSE)
WYETH (WYE-NYSE)

YM BIOSCIENCES, INC. (YMI-AMEX)


LISTED CATEGORIES OF EACH COMPANY PRESENTATION AT ASCO

This list is from the ASCO website and it seems very incomplete, so these should just be considered incomplete.

Antibodies:
Dako, PDL

Biomarkers:
Genomic Health, Ciphergen , Quest, Transgenomic

Biotechnology (broad-based):
Antigenics, Celgene, Exelixis, Imclone, Medimmune, MGI Pharma, PRA Int'l, Adherex, AEterna Zentaris, ARIAD, Biogen-Idec, Cell Genesys, Genta, Hana Bio, Introgen, Keryx Bio, NeoRX, Novacea, OSI Pharma, Threshold Pharma

Breast Cancer:
Dako, Genomic Health, Roche, BSD Medical, Clarient, GTX, Myriad, Pfizer, Sanofi Aventis, Schering Plough

Cancer Prevention:
GTX Inc.

Cancer Survivorship:
Ciphergen

Clinical Lab Services:
Genomic Health, Genzyme, Biomedical Systems, Clarient, Transgenomic

Clinical Research:
MDS Pharma, PRA Int'l, Charles River, PPD, Threshold

Consulting:
Bio-Imaging

Contract Research:
Charles River, Covance

Cytotoxic Chemotherapy:
AEterna Zentaris, NeoRx, Sanofi Aventis

Diagnostic Imaging and Imaging Services:
GE, Bio-Imaging, Clarient

Gastrointestinal Cancer:
Dako, Immunomedics, Roche, Myriad, Pfizer, Sanofi Aventis, Sirtex, Threshold

Genitourinary Cancer:
Cell Genesys, GTX, Novacea, Onyx Pharma

Gynecological Cancer:
AEterna Zentaris, Ciphergen, Schering Plough

Head & Neck Cancer:
Medimmune, Introgen

Health Services Research:
IMS Health

Hematologic Cancer:
Celegene, Biogen Idec, Cephalon, Enzon, Novartis, Pharmion

Human Genetics:
Myriad

Immunotherapy:
Antigenics, Biogen Idec, Cell Genesys, Schering Plough

Lab Services:
Genzyme, MDS Pharma, Covance, Quest, Transgenomic

Leukemia/Lymphoma:
Celgene, Immunomedics, SuperGen, Allos, Cephalon, Enzon, Genta, PDL, Pharmacyclics, Point Therapeutics

Lung Cancer:
Axcan, NeoRx, PDL, Pharmacyclics, Point Therapeutics

Medical Devices:
Abaxis, BSD Medical, Kyphon, Valleylab/Tyco

Medical Equipment:
GE, Varian, Abaxis

Melanoma:
Antigenics, Genta, Point Therapeutics

Metastatic Disease or Brain Metastases:
Allos, Phamrcyclics, Sirtex

Microarray:
Quest

Molecular Therapeutics:
Exelixis, Onyx Pharma, OSI Pharma

Nuclear Medicine:
Immunomedics, Sirtex

Nutritional Support:
Millennium Biotechnologies-MBTG, Savient

Pediatric Oncology:
Genzyme, Enzon

Pharmaceutical (broad-based):
Bayer, Eli Lilly, Exelixis, MGI Pharma, Ortho-JNJ, Supergen, Allos, Axcan, Bristol-Myers Squibb, GlaxoSmithkline, Keryx, Millennium Pharmaceuticals-MLNM, Novacea, Novartis, OSI Pharma, Pfizer, Pharmion, Sciclone, Solvay, Wyeth

Research Technology:
SuperGen

Supportive Care:
MGI Pharma, Roche, Cephalon, Hana Bio, Savient

Trial Management:
MDS Pharma, PRA Int'l, Varian, Charles River, Covance, PPD

COMPANIES WITH NEWS OR PRESENTATIONS EXPECTED OR ANNOUNCED AT ASCO AHEAD OF TIME:

ABAXIS, a division of Abraxis Bioscience, Inc. (ABBI-NASDAQ): expected to post nanotech convergence for cancer treatments in the future.

Adherex Technologies (ADH-AMEX): Announced that the Company has concluded the Phase Ib component of its Phase Ib/II ADH-1 trial in Europe and has begun the expanded accrual restricted to lung and ovarian cancers. The study, which is examining a weekly dosing schedule of ADH-1, will now enroll patients at the maximum studied dose of 2400 mg/m2 with N-cadherin positive non-small cell lung cancer and ovarian cancer. The Company expects to enroll approximately 20 further patients in this trial. The number of patients enrolled could be increased, depending on the level of anti-tumor activity noted. The Phase Ib data will be reported at a poster discussion presentation at the 2006 American Society of Clinical Oncology Annual meeting on Saturday, June 3, 2006 from 8 a.m.-1 p.m.

Amgen (AMGN-NASDAQ): Set to report on Denosumab, an experimental osteoporosis treatment formerly known as AMG-162, could receive accelerated approval should pending Phase II data prove positive. Phase II trials to be presented at ASCO; not confirmed since this is indicated as osteoporosis treatment but it is indicated for metastatic bone diseases.

ARIAD (ARIA-NASDAQ): Comprehensive Clinical Data on ARIAD's Novel mTOR Inhibitor, AP23573, to Be Presented at the ASCO Annual Meeting. ARIAD to Host Investor Conference Call on June 5, 2006 at 6:30 p.m. EST.

BSD Medical (BSM-AMEX): may Re-report progress in the application of hyperthermia therapy to the treatment of soft tissue sarcomas, breast cancer, ovarian cancer, cervical cancer, prostate cancer, bladder cancer, esophagus cancer, gastric cancer, pancreatic cancer, intra-peritoneal cancer and colorectal cancer. This data has been presented just last week.

Celgene (CELG-NASDAQ): expected to update Phase II data for Rivlimid in the treatment of chronic lymphocytic leukemia and updates on the Revlimid phase 2 trails in multiple myeloma at ASCO.

Cell Genesys (CEGE-NASDAQ): may re-release reports of Interim Results of CG0070 Phase 1 Trial in Bladder Cancer after 3 of 9 showed a complete response and no one had side effects and the company plans to expand trial enrollment.

Exelixis (EXEL-NASDAQ): was notified by participating clinical investigators that abstracts containing data from the company's Phase I clinical trials of XL647, XL880 and XL999 have been accepted for ASCO. Data from the Phase I trials of XL647 and XL880 will be presented and discussed in the Developmental Therapeutics: Molecular Therapeutics session at 12:00 p.m. ET on Saturday, June 3rd and data from the weekly dosing arm of the Phase I XL999 trial will be published in abstract form.

Genetech (DNA-NYSE): Phase II for OSIP's Tarceva plus DNA's Avastin data will be presented. Genentech-DNA has recently received an indication for Avastin in metastatic breast cancer according to reports.

Genomic Health (GHDX-NASDAQ): reportedly will be presenting beneficial data of its Oncotype DX that will be used in a large scale study that was just initiated by the National Cancer Institute in approximately 10,000 patients and 900 centers.

Genta Inc. (GNTA-NASDAQ): announced that several abstracts related to Genasense® (oblimersen sodium) Injection, the Company's lead anticancer compound, will be featured at ASCO. Abstracts include the following: Pooled Safety Analysis of Oblimersen Alone or with Fludarabine and Cyclophosphamide in Patients with Advanced Chronic Lymphocytic Leukemia. Saturday, June 3, 2006, 8:00 am-12:00 pm; Impact of Prognostic Markers on Outcomes in Patients with Advanced Chronic Lymphocytic Leukemia Treated with the Regimen of Fludarabine/Rituximab plus Oblimersen (Bcl-2 Antisense). Saturday, June 3, 2006, 8:00 am-12:00 pm.

GlaxoSmithkline (GSK-NYSE/ADR): will present data on Lapatinib as a first line defense for breast cancer, which has shown to be 35% effective in past reports. Presentation Saturday, June 3, 2006 at 9:30 AM - 10:15 AM.

Hana Biosciences (HNAB-NASDAQ): announced that Phase I trials in solid tumors and non small cell lung cancer with Talotrexin (PT-523) will be presented at ASCO. Details on the presentations are as follows: "A Phase I Study of Talotrexin (PT-523) in Patients with Relapsed or Refractory Non-Small Cell Lung Cancer." on Sunday, June 4th from 8:00am-12:00pm; "Pharmacokinetics of PT-523, A Novel Aminopterin Analogue, in Patients with Solid Tumors." Sunday, June 4th from 2:00-6:00pm.

Introgen (INGN-NASDAQ): will announce important new clinical data for ADVEXIN Cancer Therapy. During presentations at the ASGT on 5/31/06 and at an ASCO-sanctioned symposium, Introgen and its clinical collaborators will discuss clinical trial results and findings related to a set of prognostic indicators associated with high response rates and increased survival of ADVEXIN patients with recurrent squamous cell carcinoma of the head and neck. Also to be presented are the results of a Phase 1 trial, conducted in Japan, of ADVEXIN in patients with advanced non-small cell cancer. In addition to ADVEXIN data, results from studies involving INGN 241 (mda-7/IL24 therapy) and INGN 007 viral cancer therapy programs will be presented.

Millennium Pharmaceuticals, Inc. (MLNM-NASDAQ): announced that additional data from studies of VELCADE will be featured in multiple sessions for multiple indications at ASCO for multiple myeloma, tandem transplants, non-Hodgkins lymphoma, autologous stem cell transplant.

Myriad Genetic (MYGN-NASDAQ): presents "BRCA1/2" mutation prevalence data will be presented on a preliminary basis that has not been verified. FRI JUN 2: 300-515P.

OSI Pharma (OSIP-NASDAQ): Phase 2 for OSIP's Tarceva plus DNA's Avastin data will be presented at ASCO, June 2-6. OSIP will be speaking at the Bear Stearns Biotech conference on 5/31.

Pfizer (PFE-NYSE): expected to release data for experimental cancer drug Sutent at ASCO. Onyx Pharma (ONXX-NASDAQ) has had Sutent act as an overhang on it that it has recently launched with Bayer (BAY-NYSE/ADR) in recent trading.

Pharmacyclics (PCYC-NASDAQ): has said it will have multiple presentations and published abstracts regarding Xcytrin® Injection, including an oral presentation of Phase 3 SMART (Study of Neurologic Progression with Motexafin Gadolinium And Radiation Therapy) trial data. The presentations and publications are part of the proceedings at the 2006 American Society of Clinical Oncology Annual Meeting (ASCO). It will hold an investor reception featuring executive management and SMART trial investigators on Saturday, June 3rd, following the lung cancer session, where additional data and new analyses from the Phase 3 SMART trial will be presented. The company also will host a conference call on Monday, June 5th at 9:00 a.m. EDT to discuss the ASCO presentation.

SuperGen (SUPG-NASDAQ) and MGI Pharma (MOGN-NASDAQ): may announce additional data on the first commercial shipment of Dacogen(TM) (decitabine) injection but it was already announced last week that SuperGen has achieved the $20 million commercialization milestone. Additionally, SuperGen will earn a royalty on worldwide net sales starting at 20% and escalating to a maximum of 30%.

RECENT LEGISLATIVE DEVELOPMENTS IN CANCER
Comprehensive Cancer Care Improvement Act of 2006: Last Wednesday, Reps. Lois Capps (D-CA) and Tom Davis (R-VA) introduced HR 5465, the "Comprehensive Cancer Care Improvement Act of 2006," to reform the Medicare system so it more appropriately pays for all of the services needed to provide patients with comprehensive cancer care.

Medicare Early Detection of Cancer Promotion Act of 2006: HR 5437, the "Medicare Early Detection of Cancer Promotion Act of 2006," introduced May 19 by Rep. Clay Shaw (R-FL), would eliminate coinsurance payments for mammograms and colorectal screenings in Medicare. Currently, Medicare provides coverage for breast, cervical, colon and prostate cancer screening tests, for which beneficiaries must provide a 20 percent co-payment.

-Jon C. Ogg
May 30, 2006

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Microsoft Whistling Past The Graveyard MSFT, YHOO, GOOG

Microsoft's management has yet to come out and admit how serious problems at the company have become. In June 2001, the stock was above $36. It dropped below $23 in 2002, and the current $23.50 is as low as it has been since. Odd, in a way.

Revenue for the quarter ending March 31 was up nicely from $9.6 billion a year ago to $10.9 billion. Operating income was up to $3.89 billion from $3.33 billion. How many companies can boast about that kind of margin. And, the company has about $35 billion of cash and short-term investments.

Operating income in the Client, Server and Tools, and Information Worker segments is large and growing. Together, these older-line businesses brought in operating income of $5.6 billion in Q1. Which means the other three businesses operated by the company, MSN, Mobile and Embedded Devices, and Home and Entertainment, were a big drag.

Piracy, open source solutions, and IP and antitrust problems have all taken a piece out of Microsoft's vaunted reputation. But, the core fear about Microsoft is that software will no longer be sold the way it has been in the past. This means that companies delivering applications over IP will overtake the Microsoft model in the next few years.

In the arena of search technology, it is unlikely that Microsoft can cut into the lead that Google and Yahoo! have established. The fact that Google will be bundling some of its critical software with Dell PCs is hardly good news for Microsoft.

In a recent downgrade of Microsoft's stock, Caris & Co. made a prescient observation:
"Microsoft's forced shift from a software company to a digital services company is an admission that its traditional business model is challenged," said Analyst Tim Boyd. The company's stock price is an indication that this view is now widely held.

So, what can Microsoft do? Based on Microsoft's inability to change the minds of the doubting legions of investors, the stock has dropped 17% from its 52-week high of $28.38 and trades barely above $23.

But, the company still has two critical assets. One is its huge cash reserves and positive cash flow and the other is its market capitalization of over $238 billion. Perhaps the best course for Microsoft is based on the old adage "if you can't beat them, join them".

What does Microsoft need? A better position in search is the sine qua non of delivering services and software over IP to the PC and many other devices. And,it needs traffic.... Access to the tens of million of regular internet users.

The company that has both is Yahoo!. Yahoo!'s stock is now trading near a 52-week low and its market cap is small compared to Microsoft's at $45 billion. Yahoo!'s stock has not been above $40 for any sustained period in the last 5 years! Would shareholders take $40? It is a large premium given current valuations, but Microsoft's situation absolutely requires something that will transform the company in a moment's time.

Douglas A. McIntyre

Tribune Company Eats Its Own Cooking TRB

Tribune Company today announced that it would buy back 25% of its shares for $2 billion. Shares can be tendered for not less than $28.00 and not more than $32.50. The offer begins immediately.

Tribune has been trading near its lows, with a 52-week nadir of $29.07 against a high of $39.56. The stock rose 7.6% to $30 on the news.

The tick up is not nearly enough under the circumstances.

Tribune's revenue has been fairly flat over the last three years. In 2003, revenue was $5.595 billion, then $5.26 billion in 2004, and $5.596 billion in 2005. Operating income dropped from $1.36 billion in 2003 to $1.147 in 2005.

But the company's interactive properties have been doing unusually well. In April, Netratings says that company's 50 sites drew 14.8 million average unique users per month. This is up 32% from the same period a year ago.

In the first quarter of the year ending March 31, revenue dropped 1% to $1.299 billion. Operating profit dropped 12% to $222.9 million. The company insists that due to staff and other cost cuts that overall expenses are trending down. Tribune says it is committed to reducing costs another $200 million over the next two years.

Because the company has several very large newspapers, it has the opportunity to drive traffic to its online properties in a way that public newspaper companies in smaller markets do not. Tribune owns the LA Times, the Chicago Tribune and Newsday. Tribune's websites also tend to be large and in profitable internet niches. These include careerbuilder.com, cars.com and apartments.com. All fit well with the newspaper classified business which is migrating online.

Given the share drop in the number of Tribune shares, the online progress the company is making and expense reductions, the company should trade much closer to its 52-week high.

Douglas A. McIntyre

GM Takes A Downgrade GM

Lat week, 24/7 Wall St. published two stories saying that the rise in GM's stock was unwarranted by the fundamentals and the risks facing the company. In particular, it is unclear whether the UAW and other unions will strike Delphi, which would shut down GM's North American operations in a matter of days. In addition, there is strong evidence that GM's sales are continuing to drop, especially in their profitable SUV and pick-up lines.

This morning, Deutsche Bank dropped its rating on the stock from a "hold" to a "sell", indicating that "At this point we believe increased caution is once again warranted, as underlying business fundamentals continue to deteriorate, and appear likely to overwhelm GM's cost cutting efforts."

The trend in GM's stock is likely to be down from here, unless the Delphi strike issue is resolved favorably or GM reverses its negative sales trends.

Douglas A. McIntyre

How to Keep Customers After a Shoddy IPO

Vonage (VG-NYSE) has reportedly cancelled its plans to appear on CNBC after reports of allowing certain customers to "D-K" their IPO allocations. Last week up to 15% of the IPO was said to be allocated for its customers directly, but now it appears that those who haven't paid may not have to. Apparently the thought of losing customers over an IPO on top of a crummy IPO reaction from the street just wasn't worth the additional risk to the company.

How many millions of dollars will this SNAFU cost the company? Probably a lot. Needless to say, customers were less than eager to pay up for shares directly to the company when IPO shares did nothing but fall like rock.

This company is off to a very sketchy start and (despite the fact many had worried about the after-market trading after the IPO) has traded far worse than most public opinions just a week ago. It also has the title of the worst performing IPO of the year.

-Jon C. Ogg
May 30, 2006

Pre-Market Notes

Main Stock Tickers: ADEX, BIIB, CEMI, CGPI, EC, GM, KMI, LVLT, SUNW, TRB, VICL, WMT,

S&P FAIR VALUE -$0.34.

(ABI) Applied Biosystems is acquiring Agencourt Personal Genomics for $120M.
(ADEX) Adex's buyout offer from KLA-Tencor has been raised to $32.50 in cash.
(BIIB) Biogen Idec is reportedly looking to acquire drugs or entire companies according to overseas reports.
(CD) Cendant is noted as a barometer for corporate spin-offs according to the WSJ.
(CEMI) ChemBio Diagnostics received FDA approval for its rapid HIV tests.
(CGPI) Collagenex Pharmaceuticals gets FDA approval for Oracea for the treatment of inflammatory lesions of rosacea in adults.
(CIPH) Ciphergen interim CFO resigned.
(CMCO) Columbus McKinnon $0.52 EPS vs $0.46e.
(EC) Englehard entered into a $39 buyout agreement with BASF.
(FOE) Ferro Corp has reported a potential sale of its specialty plastics unit.
(GLNG) Golar $0.43 EPS vs $0.30e.
(INTN) Intac Int'l filed to sell 1.6M shares of common stock.
(INVX) Innovex lowered its revenue guidance;
(KLAC) KLA-Tencor gets informal SEC inquiry over options.
(KMI) Kinder Morgan gets a $100 buyout offer to go private from an investor group led by its CEO Richard Kinder; close Friday was $84.41.
(LVLT) Level 3 plans to offer $150M in convertible senior notes and 125M shares of common stock to pay down debt maturing in 2008 and for other debt and general corporate purposes.
(MATV) Matav Cable named David Kaminitz as its new CEO.
(MCK) McKesson MCK divested its automated prescription systems unit to Parata Systems.
(MICC) Millicom said it has been in talks with a buyer but no formal deal has been reached as of yesterday.
(MOBE) Mobility Electronics made a $2.5M stock acquisition.
(PLUG) Plug Power's CEO David Neumann has resigned.
(PTEC) Phoenix Tech CEO has resigned.
(SNN) Smith & Nephew gets FDA approval for Versajet for burn indication and other wounds.
(SPSX) Superior Essex filed to sell 2.7M shares of common stock.
(SWSI) Superior Well Services filed to sell 4.8M shares of common stock.
(TRB) Tribune trading up $1 pre-market after announcing a 75M share buyback plan.
(VICL) Vical to collaborate with AnGesMG on Allovectin-7 and can receive up to $100M in milestones and payments; stock up 12% pre-market.
(VOD) Vodafone said it is remaining a shareholder in Verizon Wireless.
(WMT) Wal-Mart sees May s-s-s +2.3%; stock indicated lower.

ANALYST CALLS:
AMAT raised to Outperform at RBC.
APH raised to Outperform at RBC.
CERN raised to Outperform at at FBR.
CPRT raised to Outperform at Thomas Weisel.
CVG cut to Underperform at Goldman Sachs.
DELL cut to Neutral at First Albany.
DIOD raised to Buy at AGEdwards.
E raised to Buy at UBS.
ECLP raised to Mkt Perform at FBR.
EQ started as Buy at B of A.
FCX raised to Outperform at RBC.
GAIA started as Outperform at Thomas Weisel.
GM cut to Sell at Deutsche Bank.
HBG started as Outperform at Wachovia.
HERO started as Buy at Jefferies.
IP cut to Sector Perform at CIBC.
ITY cut to Hold at Citigroup.
JBLU raised to Neutral at Merrill Lynch.
KMB raised to Buy at AGEdwards.
KO reitr Buy at UBS.
MFLX raised to Strong Buy at First Albany.
NAV cut to Underperform at Bear Stearns.
NCTY raised to Buy at Deutsche Bank.
NDAQ started as Overweight at MSDW.
OEH raised to Buy at Citigroup.
OPWV reitr Outperform at Thomas Weisel; started as Neutral at Cowen.
PAYX cut to In-Line at Goldman Sachs.
RFMD reitr Buy at Oppenheimer.
RIMM reitr Buy at UBS.
SIRF raised to Outperform at Piper Jaffray.
SIRI raised to Overweight at Lehman with $6.50 target.
SUNW raised to Buy at UBS; stock up 3% pre-market.
VIV cut to Sell at Merrill Lynch.
WYE cut to Neutral at Merrill Lynch.

Sealy Loses Its Spring ZZ

Shares of Sealy Corporation, the largest bedding manufacturer in the world, have fallen in almost a straight line since the company’s IPO in April. The company has traded as high as $18.20 and as low as $12.95. The stock trades at $13.10 at this point, which is quite a drop in a very short time.

The company’s debt was recently upgraded by S&P and Moody’s and Banc of America Securities initiated coverage with a buy. That’s a lot of support for a company sitting at its lows.

What happened? Sealy recently announced earnings for the quarter ending February 26, 2006. Revenue rose to $395.7 million from $359 million, or 10.2%. Operating income was $56.7 million from $53.2 million, up 6.6%.

Since the end of the November 27, 2005 quarter, accoureceivableable have risen to $204 million from $174.5 million. Payables have dropped to $110.4 million from $119.6 million.

The company IPO raised $299.5 million and a good deal of these proceeds went to redeem Senior Subordinated PIK Notes and some of the company's 8.25% Senior Subordinated Notes. So, the company's balance sheet improved.

The company has marquee brands: Sealy, Sealy Posturepedic, and Stearns & Foster.

Sealy has very few major negatives. The cost of some of the foam used in its bedding is impacted by oil prices, but the company has been able to raise prices to consumers to offset this. The company is not a huge growth engine, but it does market premium brands.

With the stock down 28% from the April IPO, these shares are a bargain.

Douglas A. McIntyre

Europe Market Report 5/30/2006 BAA, BCS, BP, BT, GSK, PSO, RTRSY, UN, UL, VOD, BAY, DB, DT, SAP, SI, ALA, AXA, FTE, V

European stock are off sharply at 5.30 AM New York Time.

The FTSE 100 is down almost 1.5% at 5,706. BAA was up over 6% on takeover talk to 875. Barclays was off 1.9% to 600. BP was off 1.8% to 631. British Airways was down 1.5% to 339. BT Group was up 1.9% to 233. Cable and Wireless was down 1.2% to 100. GlaxoSmithKline was down 1.9% to 1,477. Pearson was off 1.8% to 721. Reuters was off 1.7% to 375. Unilever was off 1.3% to 1,205. And, Vodafone was up 1.5% to 121 on good divident news.

The Daxx was down 1.4% to 5,675. Bayer was off 1.5% to 35. BMW was off 1.4% to 40.4. Deutsche Bank was off 1.1% to 90. Deutsche Telekom was off .7% to 12.4. SAP was off 1.1% to 166. And, Siemens was down 1.6% to 67.

The CAC 40 was down 1.1% to 4,960. Alcatel was down .8% to 10.49. AXA was down 1.6% to 27.24. France Telecom was down .9% to 16.84. Michelin was down 2.3% to 49.8. ST Micro was down 1% to 12.81. And Vivendi was off .9% to 28.12.

Douglas A. McIntyre

The High And The Mighty: Redback Networks RBAK, CN, CHA, BLS, T, VZ, ALA, NT, FTE, CSCO, JNPR, TWX

There is no denying that Redback Networks has run like a scalded dog, from a 52-week low of $5.46 to a high of $24.99. Even with the Nasdaq sell-off, the stock trades at $23.81. Redback, which describes itself as a provider of next-generation networking systems recently announced deals with China Netcom and the largest subsidiary of China Telecom. Redback is obviously running with a fast crowd.

Redback is also planning to buy back 3.5 million of its own shares, but, if past is prologue, that is not always a good sign. Look at TimeWarner.

A research analyst from RBC Capital Markets was recently quotes by Forbes saying that investing in Redback was not for the faint-of-heart, because so much of the company’s backlog is with BellSouth. As a matter of fact, Redback relies heavily on its business from BellSouth, AT&T, Verizon, Alcatel, Nortel, R-Core, and France Telecom. If one of more of these clients begins to more away from Redback, the impact on financial results could be considerable.

Redback’s results have certainly earned it a strong stock performance. In Q1 06, ending March 31, revenue jumped to $57.9 million from $34.3 million in the same period in 2005. Gross profit rose from $17.9 million to $32.5 million. But, expenses rose too much for the company to show a profit, and the loss from operations was $2.4 million, better than the loss of $7.1 million in the same period a year ago.

The other important issue is that larger competitors like Juniper Networks are lurking in the woods. At $57 million a quarter, Redback is not yet a giant.

Redback now has a 7.8 price to sales ratio according to Yahoo!Finance. Juniper’s is less than 4.0 and Cisco’s is 4.7.

That’s too heady a valuation for a company with competition of this size and scope. It will take a lot more proof of the business model to keep it at these levels.

Douglas A. McIntyre

Priceline and Expedia: The Road Less Traveled EXPE, PCLN

Oddly enough, Priceline hit a 52-week high this last week and Expedia hit a 52-week low. On the face of it, this seems to make no sense. The businesses of the two companies are not radically different, and Expedia is larger, with more market share and resource.

Priceline has a trading range from $18.20 to $32.16 and is now at $31.40. Expedia has a range of $13.36 to $27.55 and now trades at $13.99.

In the quarter ending March 31, Expedia’s revenue rose to $493.9 million from $485 a year earlier. Not thrilling by any means. Operating income dropped to $26.2 million from $66.3 million as G&A and marketing costs ran up. Expedia said it intends to continue spending to expand it brands, particularly overseas. The company does expect improvement in its G&A costs now that its IPO is behind it. According to Morgan Stanley analyst Christopher Gutek, Expedia could “get interesting” if it trades in the mid-teens because although the first quarter results were disappointing, cash -flow has stayed strong “which may allow performance to recover some in a few quarters”. Well, a price of $13.99 should qualify.

Priceline, on the other hand, did not have a spectacular first quarter either, although its booking rose sharply, which should help in future periods. Revenue was $241.9 million up 3.7% over the year earlier, but the 2006 results including revenue from a company Priceline had acquired, Bookings B.V. The company also said that revenue in Q2 should increase 8% to 12% from a year earlier. But, Priceline had an operating loss of $1.2 million compared to an operating profit in Q1 05 of $5.2 million. And, online marketing costs more than doubled to $21.9 million.

Priceline was more optimistic about its upcoming quarters that Expedia was, but that is not always a perfect indication of what will happen to revenue or earnings.

Priceline may have the better metrics now, but Expedia has substantially more resources, and is unlikely to give up the ghost easily. The online travel market is know for its vicious competition, so neither company is immune to problems arising from other travel sites, including those owned by the airlines, hotels and car rental firms.

But, the disparity in the trading of the two stocks is too extreme. The valuation of one of them is off, perhaps considerably.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Media Digest 5/30/2006 GE, GM, MSFT, KMI, GS, VOD, IBM

Reuters reports that the CEO and management of pipeline company Kinder Morgan and Goldman Sachs have of $13.4 billion in a move to take the company private.

Reuters also writes that Vodafone will boost its dividend. The company is planning to return an additional $5.6 billion to shareholders, after announcing strong earnings. The company already announced that it would return over $11 billion after the sale of its Japanese unit.

Reuters writes that BAA has rejected an $18 billion offer from Groupo Ferrovial. BAA operates airports.

Reuters also reports that IBM will be able to sell its 15% in Chinese computer company Lenovo in November 2007, six months earlier than originally agreed.

The Wall Street Journal reports that U.S. catalyst maker Engelhard will accept a $5 billion buy-out offer from BASF of Germany.

As GE pushes to get more of its growth from developing markets, the company's CEO is expected to forecast revenue in that country of $8 billion by 2010. This is eight times what the company did in India last year. GE expects sales of its heavy equipment would make up a great deal of the increase.

According to the New York Times, GM's investment in Daewoo Motor has been a success. Its sales of cars in China are rising and GMDaewoo sold 1.16 million cars, double the year before and sales are up 53% in the first four months of this year. The company is now Korea's second largest car manufacturer.

The NYT also reports that China is beginning to seriously attack software piracy in that company, a move that could eventually help Microsoft and other U.S. software companies.

Douglas A. McIntyre

Asian Markets Off Slightly 5/30/2006 TM, HIT, HMC, NIPNY, NTT, DCM, TM, SNE, CHU, CN, HBC, PCW,

At 4.30 AM New York Time, Asian markets were down modestly.

The Nikkei was off .35% to 15,859. Daiwa Securities was up 1% to 1,426. Fuji Heavy Industies was up 1% to 680. Hitachi was down 1% to 773. Honda was up .8% to 7,510. Japan Airlines was down .3% to 300. Mitsubishi Corp was up 1% to 2,405. NEC was up 1.2% to 696. NTT was down 1.7% to 560,000. NTT Docomo was down .5% to 184,000. Sharp was down 1% to 1,922. Sony was off .8% to 5,190. And Toyota was flat at 6,140.

The Hang Seng was off .2% to 15,947. Telecoms were off sharply. China Unicom was down 2.1% to 7. China Netcom was down 2.4% to 12.3. Shares of banking group HSBC were up .2% to 135.9. Computer company Lenovo Group recovered from poor earning last week, up 4.2% 2.425. PCCW was down .5% to 4.85.

The Kopsi was off .8% to 1,318.

The Straits Times was flat at 2,428. Singapore Airlines was off .8% to 12.6.

The Shanghai Composite was up over .5% to 1,567.

Douglas A. McIntyre

Media Digest 5/29/2006 WMT, GS, GE, AMD, NIPNY, MC, MT, SNE

Retuers reports that General Electric expects its sales in China to double to $10 billion by 2010. The sale of clean energy technology products should represent a substantial part of that increase.

Reuters also says that Advanced Micro Devices will spend $2.5 billion to upgrade its two factories in Germany.

Also according to Reuters, NEC and Matsushita Electric are in talks about cooperating in the cellphone businesses. NEC's operation has been losing money.

Reuters also reports that Arcelor will have to convince investors why it made $16.59 billion deal with Russia's steel maker Severstal instead of combining to suitor Mittal Steel, accoridng to some of Arcelor's shareholders.

The New York Times reports that Sony has gone into so many businesses around that world that it is losing its core reputation as an engineering company that builds premium products. One of the largest hurdles facing Sony in its turnaround is that its product once commanded premium prices. They are now often priced at the same level as comparable products from competitors. Electronics and entertainment are no longer the most profitable businesses at the company. Financial services has taken that lead.

Also in the NYT, Goldman Sachs is trying to get Arcelor shareholders to block the steel company's plans to sell off a major stake to Severstal.

The Times also reports that Wal-Mart same store sales were up a small 2.3% in May as consumer buying power dropped due to high energy prices.

Douglas A. McIntyre

Europe Market Report 5/29/2006 BAY, DCM, DB, DT, SAP, SI, AXA, FTE, V

London is closed.

The Daxx is is off .6% at 8 AM New York Time. Bayer is off .7% to 35.88. DailerChrysler is flat at 41.49. DeutscheBank is off .6% at 91. Deutsche Telekom is off .9% at 12.46. SAP is off .25% at 168.59. Siemens is off .4% at 68.18.

The CAC 40 is off .5% to 5,019. AXA is off .5% to 27.77. France Telecom is off .5% to 17. Michelin is off .9% to 50.75. ST Micro is up .2% to 12.92. And, Vivendi is off .8% to 28.25.

Douglas A. McIntyre

Asia Markets 5/29/2006 PCW, HBC, CN, HMC, NTT, SNE, TM, DMC

The Nieei was down 55 point to 15,915, a drop of .34%. Honda was up .1% to 7,450. Japan Airlines was down 1% to 301. Mitsubishi Corop. was up over 2% to 2,380. NTT was off 1% to 571,000. Sony was up .4% to 5,230. Toyota was up .5% to 6,140. DoCoMo was up 1% to 185,000.

The Hang Send is up .4% to 15,964. China Netcom is off 1.5% to 12.6. HSBC is up .5% to 135.6. PCCW is off 1% to 4.875.

The ASX All Ordinaries is up 1% to 5,070. The KOPSI is up .5%% to 1,329. And, the Shanghai is up 2.1% to 1,649.

Douglas A. McIntyre

Barron's Digest 5/29/2006 Issue FRNS, XOHO, VG, IDT,LINTB, LRSC, MU, STEI, SCI, SI, GE, PHG, FSL, STM, IFX, INTC

Barron's has an upbeat story on Philips Electronics which points out that revenue and earnings have been lackluster for 10 years and the stock price has moved very little since 2001. But the company has promising prospects. The company's staff has been cut about 25%. In the first quarter, sales rose 14% and net profit was up 37%. Philips PE is not low, about 7 for 2007.

Philips plans to sell or IPO its semiconductor business, with potential buyers including Freescale, STMicroelectronics, Infineon, and Intel. Philips has four divisions, but Barron's believes that the medical operations division has the most promise. It had sales of $7.8 billion in 2005, 21% of Philips' total. This part of the company competes with GE and Siemens.

Philips is also pushing into emerging markets such as India and China. Barron's says that Philips has done well adapting to the local marketing and sales practices in these countries.

Barron's also reports that Service Corp. International is facing a poor business environment for its major product, funeral sevices, because people are living to be older. The same problem faces its competitors Alderwoods and Stewart Enterprises.

According to Barron's, after seven years, the run in small stocks may be facing problems. Although the access to capital for small firms is good and M&A activity is strong, some small caps are facing headwinds. Lam Research is one example of the issues facing companies with market caps this size. The company's earnings have been strong, but other companies are adding capacity. Output of NAND flash-memory chips could rise 200%. Companies vying for this market include Samsung, Toshiba, SanDisk, Intel and Micron Technology. Barron's says "the looming glut of NAND chips will batter shares of Lam and SanDisk".

Barron's says IDT may be about to deliver good returns for shareholders. The company sold its animated-movie division to Liberty Media. The sales could balloon IDT's cash position to over $1 billion, and some of this money may be used to buy back shares. IDT Telecom is the leader in pre-paid calling cards. IDT also owns wireless spectrum that may have future value. IDT also owns Net2Phone, which competes with Vonage. If IDT's parts are worth $1 billion and the company has $1 billion in cash after the Liberty transaction, the per share value is about $25. But, the company trades for under $13.

Barron's Tech Week looks at First Avenue Networks, which is in the "wireless backhaul" business. The stock may be expensive now. The company is small compared to rivals IDT and XO Holdings are larger and have much stronger balance sheets.

Barron's interviewed James Turk of Goldmoney.com. He says gold prices could go to $2,000 near-term and eventually $8,000. The physical demand for gold is rising. Also, gold tends to rise with the price of crude oil, and oil has gone up much more than gold recently.

Douglas A. McIntyre

Was the Mastercard IPO Underpriced? GS, C, MA

By Chad Brand of
http://peridotcapital.blogspot.com/


Lead underwriters Goldman Sachs (GS) and Citigroup (C) priced the Mastercard (MA) IPO Wednesday night at $39, below the expected range of $40 to $43 per share. On Thursday shares opened at $40.30 and then soared another $6 to close at $46 each. That trading action is quite baffling if you ask me.

Usually where the IPO is priced tells you how strong demand is, and subsequently, how well the stock will do upon opening for trading. The $39 pricing indicated to me that the smart money wasn't very enthusiastic about the deal. Then less than 24 hours later the stock is fetching $46. If demand was that strong, they easily could have priced it within the proposed range.

The conclusion I draw from this is that the smart institutional money wasn't sold on the price, but retail interest after the stock opened was strong. Following the retail crowd is rarely a good strategy, so I will put more weight into the $39 pricing than the $46 first day closing price. The stock's valuation also supports the cautious view. Mastercard earned about $2 per share in 2005, so the P/E is north of 20x, very high for a financial services company.

Broad Appeal for Broadcom BRCM

By Chad Brand of
http://peridotcapital.blogspot.com/

It's tough to find good, cheap technology stocks these days. I've been underweight the sector for many months due to a lack of good ideas. However, the recent market decline has given the Nasdaq a 9% haircut over the last few weeks.

Earlier this week I saw Broadcom (BRCM) cross my screen at $33 per share. That quote surprised me a bit. Broadcom is a very good chip company but its stock usually reflects that. Growth investors have traditionally been perfectly willing to fork over 30 times earnings for the stock. That's fine, but rarely will I pay up that much for something. In fact, I don't think I've ever owned Broadcom.

My instincts told me that BRCM hadn't traded at $33 for a while, which is why the price alone got my attention even though the stock is not really on my radar screen, so I took a closer look. It last closed there during the first week of the year, so it's been more than 5 months.

Looking at current estimates ($1.47 in EPS for 2006 and $1.66 for 2007) along with the company's pristine balance sheet ($4 per share in cash and no debt), Broadcom trades at an enterprise value to earnings ratio of only 20x for 2006. That seems very reasonable for a 15% long term grower that serves some of the best markets within technology.

I still think the market as a whole goes lower, and tech will get whacked more as well. That said, Broadcom at $33 looks like an opportunity that I'll strongly consider despite a market that has not yet gotten the 10% correction that I'm looking for.

And just in case readers might think I purposely failed to mention the options backdating issue (Broadcom's name has been mentioned as being "at risk"), that is not so. I plan on talking about the issue more broadly (no pun intended), so look for that sometime next week.

Media Digest 5/27/2006 Wall Street Journal NWS, PSO, HD, NWIR, UNH, CBST, HUMC, DITC, SCHW

According to the WSJ, News Corporation will launch a U.S. edition of The Times, one of Britain's oldest newspapers. Pearson already publisher their UK paper, The Financial Times, in the U.S.

The Journal also reported that investors brought out the long knives at the Home Depot annual meeting criticizing the CEO's very rich pay package.

The Journal also wrote that NWH rose 32% to $17.80 as the e-commerce provider agreed to be acquired by UnitedHealth Group. Cubist Pharmaceuticals rose 20% to $25.55 as it received supplemental approval of its antibiotic for blood stream infections. Hummingbird was up 21% to $27.90 as it agreed to be bought by Symphony Technology Group, a software holding company, for $465 million. Ditech Networks fell 9% to $9.29 as its earnings dropped. Charles Schwab rose 2.4% to $16.85 after it was upgraded by Banc of America Securities.

Douglas A. McIntyre

Media Digest 5/272006 New York Times HIT, DIS, MCS, TWX, CMCSA, PA, LVS

From The New York Times, Disney is considering layoffs at its studio due to declines in DVD sales and increased costs for making major pictures. In 2005, Disney was only No.5 in box office receipts

The NYT also reports that McDonals Japan intends to create a new food business by October. It may form a partership with a local company to improve the results for its lower-producing stores.

The NYT wrote that Adelphia, the struggling cable company, has asked a judeg to approve the sales of its asset to TimeWarner and Comcast without a creditor vote to meet and August 31 deadline.

Also, the NYT reports that Intelstat has won Justice Department approval for the purchase of PanAmSat. The FCC still needs to clear the deal.

The Las Vegas Sands has won the right to build a casino in Singapore. MGM Mirage and Harrah's both competed for the business.

Douglas A. McIntyre

The Sorry Tale of XMRS and SIRI

from http://theaveragejoeinvestor.blogspot.com/

Why oh why everyone is so fascinated with XM Satellite Radio Holdings (ticker: XMSR) and Sirius Satellite Radio (ticker: SIRI) is beyond me. After being propped up by hopeful souls for a long time, it's nice to see that at the very least the two are starting to come down a bit in price (for the last twelve months XMSR is down 55% and SIRI is down 27%), but I think they still have a long way to go. Here are two companies delivering a product that people want - as evidenced by Sirius' 300%+ compound annual growth from '03 to '05 - but just can't seem to get their operating model to where they can bring home a profit for their shareholders.

So what's holding these two back? Getting and keeping customers. Though revenue has been growing at a breakneck pace, so has customer acquisition costs: in the first quarter of 2006 Sirius spent an impressive 94% of their revenue on customer acquisitions! XM doesn't break it out quite as nicely as Sirius, but their "subsidies & distribution" (basically offering free services and marking down merchandise) has been growing around 70% per year. Are these guys just competing with each other too hard or are people really not all that interested in satellite radio unless someone gives them an unbelievable (and unprofitable for the company) deal?

As far as I can tell, it looks like a lot of institutional support has moved away from these two, but there is still obviously support out there as they are trading at very high multiples of price to sales and price to book value. And this support is in the face of some solid pressure from short sellers - according to Yahoo!Finance XMSR has nearly 16% of outstanding shares shorted, while SIRI has about 9%. Even worse for shareholders, as these guys continue to blow through cash they are hammering their shareholders by issuing lots of debt and issuing shares. Right now, both companies have over $1B of debt on their books and SIRI has sold an additional $650m worth of stock over the past three years.

These guys need to do something and do it fast. I don't know whether it's to completely restructure or to pursue a combination for the two companies (heck, at least they wouldn't have to compete with each other), but, at least according to current analyst estimates, the way things stand right now positive profits are still no where in sight.

For readers that own these stocks, please feel free to email me, give me a reason why you think there's hope for these stocks. Give me something! But also consider this: psychological research has shown that investors have a distinct tendency to hold onto losing investments hoping for a comeback while being more comfortable selling off investments that have made them money. The key in investing is to really keep a cap on your losses so that your winners can have an effect on your bottom line. So think hard about SIRI and XMSR and where they are right now (regardless of where you bought them), if you really think that there's good reason that the stock price should come back then great, hold on to them. If not, dump the dogs and find something that has some real meat to it.

Just remember, in the stock market what goes down does not always come back up.

-AvgJoe

Loudeye In Reverse LOUDD, SVVS

A reverse split won't save Loudeye. The company did a 10-1 reverse on May 23 in the hope of maintaining its listing on Nasdaq. The company had 132.6 million shares before the action.

In the nine months before the reverse split occurred, the company's stock dropped from $1.14 to $.35. Eighteen months ago, it traded for over $2.50. On an adjusted basis, the company now trades at $2.91, or about $.29 pre-reverse.

Recently, Loudeye sold it's music download business to Muze, Inc. for $11 million in cash. The company needs the money. According to the Loudeye 8-K on the event, the businesses it has sold were about 22% of revenue in 2005.

Loudeye continues to be a basket case. In the March 31 quarter, the company lost $4.6 million on $8.4 million in revenue. Gross profit was only $2 million, or 24%.

Loudeye and a former division are being sued by Savvis (SVVS) for early termination of a contract. The amount of that suit is $1.6 million.

In February, the company did a private placement of 16.5 million shares and 12.375 warrants at $.68 (all before the reverse split). Given the price of the stock today, the warrants will probably not be exercised any time soon.

Based on historical data, Loudeye's quarterly expenses are about $6.8 million. With a gross margin of less than 25%, the company would have to reach revenue of over $27 million a quarter to breakeven. Not likely.

Providing software and services for digital media stores is highly competitive. Part of the reason is that all the companies in this business are up against iTunes. The other is that the price charged to end customers continues to drop.

It does not look like Loudeye will make it out of this room alive.

Douglas A. McIntyre

Blue Chips In Pain? INTC, AMD, PFE, ORCL, AIG, SWY, JNJ, HD, C

By Asif Suria

I happened to come across an excellent article today on Business Week called Blue Chip Blues that describes how the stocks of some of the biggest and most profitable companies in America have performed terribly over the last five years. The most intriguing part of the article was a section titled "Boiling Down To Zilch" which talks about how "the S&P 100-stock index - the bluest of the blue chips - has returned just 2.03% annually to investors during that span, chiefly from dividends". Without dividends the annual returns from the S&P 100 index drops down to just 0.19%. They say a picture is worth a thousand words and this chart from the article that shows the disparity between earnings growth and stock price growth made my jaw drop.

I did find it very interesting that Intel (INTC), the company (as featured in the chart above) that had the maximum earnings growth of 173.1% also saw its stock drop 29.9% since 2001. I had considered featuring Intel in the March 2006 edition of SINLetter, but then decided against it. You can read the reasons in my blog entry Stocks That Almost Made the Cut: March 2006. I am glad I decided to hold off featuring Intel as a SINLetter pick since the stock is down another 7% since March.


One important thing this article failed to mention was that stock prices are often driven by expectations of future earnings growth and many of the companies listed in the chart face daunting problems. Intel faces stiff competition from AMD (AMD) and the new "Cell Processor" developed for the Playstation 3, Pfizer (PFE) and Eli Lily face looming patent expirations and loss of market share to biotechs, Oracle (ORCL) has to assimilate all its recent acquisitions and build its "fusion" product, AIG (AIG) faces regulatory problems and both Citigroup (C) and Home Depot (HD) face the challenge of a real estate bust. Given the poor performance of blue chips over the last five years, can a contrarian case be made for going against the grain and investing in them now? As a value investor, I am inclined to believe that the upside potential is greater than downside risk for some of these blue chips. This is reflected by the fact that I chose to feature Johnson & Johnson (JNJ), Pfizer (PFE) and Safeway (SWY) in recent editions of SINLetter. www.sinletter.com

Borland, Not So Fast BORL

Borland Software announced results for its Q1 06 ending March 31. The company had delayed its filing for the quarter and announced a realignment of its business to cut annual costs by $60 million.

Borland optimizes application software products for companies. The company describes its advantage this way: "An end-to-end managed software delivery process that mirrors the success enterprises have had with other key business functions, including manufacturing, human resources, customer relationship management, procurement, finance, and IT operations". Not an easy business to understand.

Borland, which just finished the acquisition of Segue Software in April, saw its revenue drop in Q1 to $69.6 million from $71.3 million in the same period a year ago. Operating loss jumped to $8.9 million from $1.5 million. Costs were driven up $4.4 million by stock-based compensation and M&A costs. Revenue outside the U.S. and Germany dropped 6% compared to the period a year ago.

Borland payed about three times sales ($105 million) for Segue, which had revenue of $36.4 million in 2005 up 10% from 2004. Segue had net income of $2.9 million in 2005. Not exactly a barnburner of a business.

Borland is a company in transition. It is selling off some lines of business while it integrates Segue. The company admits that it is relatively new to marketing and selling comprehensive solutions for the application development lifecycle. Whether the company can actually make $60 million in cost cuts is open to question. And, the company's revenue has been running down since it hit $309.5 million in 2004.

The market's reaction to the quarter was good, but it leaves open the question as to what real positives there are in the company's news. The stock is at $5.40, up about 7% on the news, on a 52-week high/low of $7.14/$4.72. This was a stock that traded at $12 in late 2004.

There is more downside to Borland now because of the risks of its business transformation. The stock is likely to reflect that over time.

Douglas A. McIntyre

Credence Exits Stage Left CMOS

Credence Systems (CMOS), which provides test solutions from design-to-production for the worldwide semiconductor industry, announced for its fiscal Q2, ending April 30. The numbers were good, but the news was bad.

Revenue rose to $124.8 million from $101.9 a year ago. The company's operating loss improved to $12.8 million from $18.2 million. But, the company had $11.8 million in inventory write-off, and that was the rub. The company is dropping its next-generation memory product due to lack of demand and will fall back on mixed-signal and wireless products. Credence had been pushing the next-generation Kalos 2 system hard.

The company papered the announcement this way: "We are redirecting our resources on opportunities identified in our higher return consumer market segment," said John Batty, chief financial officer of Credence Systems Corporation. "We believe these actions will allow us to concentrate on those market segments that will improve the Company's financial performance and stability long-term. By placing more resources on our digital and mixed-signal business the Company can accelerate development programs more effectively to compete in the emerging consumer-mobile market."

In other words, the Credence will need to substantially transform its business as it changes direction.

The company's shares are down 17% in the pre-market at $5.31, which would be a new 52-week low. The high is $11.27.

But, with the challenge ahead, Credence could go lower still.

Douglas A. McIntyre

Tetra Tech Gets Cheap TTEK

Tetra Tech, which provides consulting, technical and engineering services, posted a strong quarter for the period ending April 30. The company does work like its recent contract to help rebuild police facilities for the Irac Recontruction Work, and its Base Realignment and Closure work for the U.S. military. These contracts to build and reconstruct facilities are often worth tens of millions of dollars.

Revenue rose to $318.9 million from $297.5 million. Net income was $9 million. A year ago the net loss was $123.8 million due to "a non-cash impairment charge in the second quarter of fiscal 2005 of $105.6 million for goodwill and other identifiable
intangible assets". The company's backlog at the end of Q2 was $941 million up from $869 million at the end of the immediately previous quarter.

Tetra Tek guided that revenue in the next quarter, net of subcontractor costs, would be between $230 and $240 compared to $237.7 in the current quarter.

After the news, First Analyst Securites upgraded the stock to "overweight".

After a solid year in the fiscal that ended in September 2004 when the company did $1.376 billion, up 26% from the previous year, the fiscal ending September 2005 slowed, with revenue at only $1.286 billion. But, revenue in the last four quarters has picked up, and the company has shown an operating profit in each one.

The company has a $1 billion market cap, so it trades at about one time sales.

Tetra Tek's business in environmental restoration has legs as concerns about this issue continue to climb in the U.S. and the developing countries.

The stock is up to $17.68 from its 52-week low of $11.84. But, the stock traded at nearly $28 in early 2004.

It could go there again.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Oil Prices And Detroit F, GM, DCX

At the Reuters Global Energy Summit, Deutsche Bank's chief oil economist said "oil could spike above $100 a barrel if a new shortfall were to hit already tight crude supplies." This, of course, could spell trouble for the automobile industry, and particularly Ford and GM.

Both stock have risen in the last two days. GM, which traded under $25 two days ago, rose over $28 in intraday trading yesterday. However, all is not well. S&P said it may downgrade Ford's debt due to its drop in market share.

Rising oil and gas prices would have the greatest impact on the Ford and GM SUV and pick-up lines, which are essential to their overall vehicle margins.

The next month of sales for both companies should give some indication of whether gas prices are hurting the sales of these important segments of the product mix. But, if oil spikes sharply for some period, the idea of underwriting gas costs for customers may expand beyond the limited program GM introduced. And, that could be very, very expensive.

Douglas A. McIntyre

Europe Market Report 5/26/2006 BCS, GSK, PSO, UN, WPPGY, BAY, DT, SAP, SI, AXA, FTE, V,

Europe is modestly higher at 7 AM New York time.

The FTSE is up .8% to to 5,724. BAA is up 8% to 810. Barclays is up 8% to 608. BT Group is up 1% to 229. GlaxoSmithKline is up .2% at 1482. Pearson is up 1.5% to 730. Unilever is up 3% to 1,210. WPP Group is up 3% to 666.

The Daxx is up .6% to 5,741. Bayer is up 2% to 35.7. Deutsche Lufhansa is down 2% to 13.5. Deutsche Telekom is up 1.4% to 12.5. SAP is up 1.2% to 169.1. Siemens is flat at 68.

The CAC 40 is up .7% to 4,985. AXA is up 1.6% to 27.6. Cap Gemini is up 3% to 43.3. France Telecom is up 1.9% to 16.9. Michelin is up 1.9% to 50.9. ST Microelectronics is up .7% to 12.9. Vivendi is up 1.6% to 28.2.

Douglas A. McIntyre

Media Digest 5/26/2006 YHOO, EBAY, DELL, GOOG, MT, MA, HD, F

Reuter reports that both Ken Lay and Jeffrey Skilling were convicted of most charges in the Enron trial and face many years in prison when sentenced September 11. Most of the charges involved fraud and conspiracy that lead to the collapse of the company.

Reuters also reported that Yahoo! and EBay are forming an alliance which will compete with certain parts of Google's business. Yahoo! will provide online advertising banners and some search functions for EBay and promote PayPal, Ebay's online payment system. EBays stock rose over 12% to $33.88. Yahoo!'s stock rose 3.6% to $32.92.

Reuters said that steel company Arcelor plans to merge with Russian steel manufacturer Severstal instead of accept a takeover bid from Mittal Steel.

Reuters also reported that Samsung claims that its semiconductor business hit its bottom in early May and that earnings should improve in the third quarter.

The Wall Street Journal reports that MasterCard's IPO went well rising $5.70 to $46.

According to the Journal, Home Depot Inc. shareholders rejected seven out of eight proxy proposals at the retailer's annual meeting This including giving investors an vote on executive compensation.

Also, the WSJ reported that Google and Dell have entered into an agreement to load certains Google software on millions of Dell computers before they are shipped.

According to the New York Times, over 26 hedge fund managers made in excess of $120 million each in 2005. T. Boone Pickens made $1.4 billion, due mostly to his energy funds.

The NYT says that S&P may cut Ford's debt rating again. It currently stands at BB-.

Douglas A. McIntyre

Asia Markets Sharply Higher May 26, 2006 FUJIY, HIT, HMC, NIPNY, NTT, SNE, TM, CN, HBC, PCW

Following the run-up in U.S. markets, all major Asian indices are up over 1%

The Nikkei is up 1.8% to 15,971. Shares in Casio are up 2% to 2,055. Daiwa Securities is up 3% to 1,417. Fuji Photo Film is up 4% to 3,810. Hitachi is up over 2% to 776. Honda Motor is up 1.5% to 7,440. Komatsu is up over 4% to 2,305. Konica Minolta is up 2.7% to 1,388. Mitsubishi Electric is up 3.7% to 928. NEC is up 2% to 677. Nikon is up 4% to 2,300. NTT is up 2.3% to 577,000. Ricoh is up over 3% to 2,290. Sharp is up over 3% to 1,999. Sony is up 2.$% to 1,510. Toshiba is up 2.8% to 733 Toyota is up 1.7% to 6,110.

Th Hang Seng is up 1.3%. China Netcom is up 3.4% to 12.75. HSBC is up over 1.1% to 135.1. Lenovo is off 6% to 2.3. PCCW is flat at 4.9.

The Kopsi Index is up over 2% to 1,322. The Shanghai Composite is up over 1.4% to 1,614.

The Straits Times is up almost 1.7% to 2,444. Singaport Airlines is up 1.6% to 12.6. Singapore Telecom is up 2% to 256.

Douglas A. McIntyre

Stocks For A Risky Market: High Yield, Low Beta SLE, BMY, T, CMA, VZ, UL, PFE, BCS, WM, AB, ED, AEP,

The market has been an unsafe place for many investors to be lately, a bit like the ocean in "Jaws". So, taking a look at large market cap stocks with betas under 1, and yields above 4% might offer some relatively safe havens for those weary of the risk.

Some examples:

Washington Mutual (WM), beta:.58, mark cap:$43.3B, yield:4.5%
AllianceBerstein (AB), beta:.6, mark cap:$5.4B, yield:4.9%
Con Edison (ED), beta:.54, mark cap:$10.6B, yield:5.5%
American Elec Pow (AEP), beta:.53, mark cap:$13B, yield:4.5%
Barclays PLC (BCS), beta:.62, mark cap:$73.3B, yield:4.1%
Pfizer (PFE), beta:.66, mark cap:$173.8B, yield:4%
Unilever (UL) beta:.68, mark cap:$64.3B, yield:4.7%
Verizon (VZ) beta:.73, mark cap:$89.8B, yield:5.2%
Comerica (CMA) beta:.8 mark cap:$9B, yield:4.3%
AT&T (T) beta:.8, mark cap:$98.1, yield:5.3%
Bristol Myers (BMY) beta:.84, mark cap:$46.9B, yield:4.6%
Sara Lee (SLE) beta:.87, mark cap:$13.2B, yield:4.5%

Douglas A. McIntyre

Will Opsware Even Make Money? OPSW

When Opsware (OPSW), the provider of information technology automation software, announced Q1 earnings for the period ending April 30, there was great fanfare about beating forecasts and raising guidance. But, where's the profit?

Revenue rose to $21 million from $12.6 million a year ago. But, expenses rose to $28.7 million from $18.4 million last year. The operating loss for the quarter was $6.7 million up from $5.7 million. When revenue rises, shouldn't the loss go the other way? At least the company is becoming less reliant on revenue from EDS.

In Q2 of the fiscal, ending July 31, the company expects revenue to inch up to $23 million or a bit more. Perhaps Opsware can increase the loss as well. But, the company says it will breakeven. Skeptics abound. The stock dropped 6% to $7.60 on the news. The 52-week high/low is $9.25/$4.17.

Opsware's revenue tripled from the period ending January 31, 2004 to January 31, 2006, but the operating loss got worse going from $14.2 million to $17.7 million on this significant increase in top-line.

Opsware's claims about its software are fairly extraordinary: "Opsware provides the only enterprise automation software on the market to bring together management of business services, UNIX automation, Linux automation, and Windows automation servers, software, applications, network devices, and asset tracking". But, if this is the case, investors have to wonder why the company only does $21 million a quarter.

The stock now trades at an eye-popping 13 times sales.

Opsware rarely traded much above $5 from June to November 2005, and with shareholders selling into the earnings news, it may just go back there again.

Douglas A. McIntyre

Mid-Morning Review

Stock Tickers: LOW, HD, OIH, LNG, NGAS, PEIX, MA, VG, MEDX, EBAY, YHOO, GOOG, MWY, SIRI, CBS, XMSR, JOYG, BCSI, GM, TIVO, C, DB, UBS, BSC, PJC, TWPG

DJIA 11,158.62 (+41.30, 0.37%); NASDAQ 2,178.62 (+9.45, 0.44%), S&P500 1,264.50 (+5.93, 0.47%), 10-Yr Bond 5.036%. Crude Oil was up $0.44 to $70.30. Natural Gas is down $0.02 to $6.15. Gold is up $4.50 to $642.00.

Revised Q1 GDP came in short of expectations, which kept the inflation hawks and overheating economic concerns at bay. The Q1 GDP was revised up from a prior 4.8% reading to 5.3%, but under the 5.8% revised estimate after economists got to see most of the corporate earnings. The inflation hawks had to concentrate on the core PCE reading (ex-food and ex-energy), which thankfully was unchanged at +2.0%.

April's existing home sales showed the highest inventory levels since 1998. Shares of Lowe's were up 2% to $61.89 after the company declared a 2 for 1 stock split. Home Depot (HD) had been up 0.4% but was back to flat at $38.00.

Weekly natural gas inventories posted a gain of 83 Billion cubic feet, largely in-line with the +90 billion estimate. The Oil Services HOLDRs (OIH) remained up 1.7% on the day at $146.32 and the leveraged natural gas go-to names in natural gas were mixed with Cheniere Energy (LNG) up $0.50 at $38.10 and NGAS Resources (NGAS) up $0.17 at $7.50. The leveraged Bill Gates-backed ethanol play Pacific Ethanol (PEIX) was up $0.96 to $31.19.

MasterCard (MA-NYSE) ran straight up out of the chute after Wall Street underpriced this deal after the Vonage (VG) IPO SANFU yesterday (VG is down another $1.48 to $13.37 so far). The "MA" stock was last seen at $43.65, up from the $39.00 pricing and up from the $40.20 opening print.

Medarex (MEDX) was down 3% to $10.37 after disclosing an informal SEC options inquiry yesterday after the close. The advance-decline line was nearly 3-1 at the NYSE and almost 2-1 on NASDAQ.

eBay's (EBAY) announced partnership and alliance with Yahoo! (YHOO) boosted its shares 7% to $32.36 and Yahoo! (YHOO) shares up 2.9% to $32.73. Acting against the strength, Google (GOOG) reacted negatively by falling 1.1% to $376.90. Congratulations to Morgan Stanley's Internet call yesterday showing the values of Internet shares and implying that EBAY had the most upside out of the group with an implied $50.00 target.

Midway games (MWY) fell another 7.4% to $8.28 after yesterday's $75M convertible note offering.

Sirius (SIRI) recovered 4% to $3.83 after CBS (CBS) settled its legal claims against shock-jock Howard Stern yesterday after the close, and after Sirius maintained its subscriber targets after competitor XM Satellite (XMSR) lowered subscriber targets yesterday. Despite a slew of negative calls on XM and the sector, Oppenheimer's analyst maintained a Buy rating on Sirius after believing yesterday's sell-off was overdone.

Joy Global (JOYG) shares were punished almost 14% down to $46.78 on light revenues, despite the company meeting the $0.66 EPS estimate.

Blue Coat Systems (BCSI) was down 21% at $15.42 after the company posted a loss for its earnings yesterday after the close.

General Motors (GM) was up another 5.5% to $27.98 after reports that some 20,000 workers have accepted buyouts and after yesterday's share upgrade to a "buy" from Merrill Lynch.

TiVo (TIVO) shares were down 9.3% to $6.47 after the internal numbers and forecasts remain weak (see Doug's prior story HERE).

After looking at the ugly reaction on Vonage (VG) and after reviewing prior stories, it really looks like the IPO underwriting group may want or need to brace for more than just complaints. The joint book-runners were Citigroup (C) , Deutsche Bank (DB) , and UBS (UBS); Co-Managers were Bear Stearns (BSC), Piper Jaffray (PJC), and Thomas Weisel (TWPG).

Jon C. Ogg

Network Appliances Big Quarter NTAP

Network Appliances (NTAP) announced a good quarter and its stock dropped, proving there is no justice on Wall Street. The developer of advanced network storage systems saw revenue up 32% to $589 million. Revenue for the fiscal year rose 29% to nearly $2.1 billion. This is a trend, mind you. In fiscal 2004, revenue rose 31% and in fiscal 2005, it was up by 36%.

The company guided for the upcoming year to be good again. "Network Appliance estimates that growth in revenue for the first quarter of fiscal year 2007 will be in the range of 2% to 4%, which translates to 36% to 39% growth year-over-year". So, the company thinks it can keep its growth pace for a fourth year.

Income from operations for the quarter rose from $70 million a year ago to $87 million. But, the company had a non-recurring tax charge of $22.5 million. Based on the company's reported non-GAAP measures, income from operation rose from $70 million to $96 million, or 37%.

At $32.25, the stock is at the higher end of its 52-week range of $38.50 and $22.50.

But, there are those who think the stock is expensive. An S&P analyst quoted at Forbes.com thinks the shares have had their run. "We think Network Appliance remains well positioned to take advantage of growth opportunities within the data storage market wrote analyst Richard Stice. But he added that these advantages are already factored into company shares, which are trading at a "notable premium' to the S&P 500".

With a performance like the one just turned in, the wisdom here may well be wrong. The number of large tech companies growing at a rate of around 35% is relatively small. Network Appliances has a ways to run.

Douglas A. McIntyre

TiVo's Bad Numbers TIVO, DISH

TiVo (TIVO) reported earnings, and while revenue grew at a solid pace, the numbers behind the numbers were poor. For the quarter ending April 30, revenue rose 20% to $56.5 million. Operating loss rose to $11.7 million from $1.5 million a year earlier. The company did have significant litigation costs for it IP fight with Echostar (DISH), a case which TiVo has won and is on appeal. Cash and short-term investments dropped $11.8 million to $92.4 million. At that burn rate, the company has less than eight quarters of cash.

TiVo's subscriber base grew to $4.4 million, a 33% increase over the course of the year. However, TiVo-owned gross subscriptions for the quarter were only 91,000 compared to 104,000 in the quarter last year.

Guidance was not hopeful. Fiscal Q2 revenue should be $50 to $53 million with a net loss of $12 to $15 million.

Buried, as bad numbers often are, in the TiVo announcement, were the subscriber acquisition costs. On a per subscriber basis, these rose to $232 in the quarter from $150 in the quarter a year ago, an increase of 55%. For the twelve months ending April 30, the cost per subscriber rose 18% to $218.

With the cost to get new customers rising this sharply, TiVo does not have a catalyst to jump-start its business. And, this has to be troubling to investors.

TiVo trades at about $7.00 on a 52-week high/low of $9.49/$4.56. With revenue projected to be flat, and rising costs to acquire new customers, the stock is likely to trade down toward the low end of that range.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

MasterCard's IPO Priced, But Under the Range

MasterCard (MA-NYSE) did price its 61.5 million share IPO, but the $39.00 price was surprisingly under the $40.00 to $43.00 indicated range. This will raise about $2.4 Billion for the company. As has been discussed, MasterCard is the number two credit card consortium that serves over 25,000 financial institutions and has millions of card holders. This looks to be the market's largest IPO since Genworth Financial's (GNW) $2.8 Billion raised two-years ago.

The underwriting group is massive and it should generate considerable analyst coverage in the coming weeks. The lead manager was Goldman Sachs; Joint book-runners are Citigroup, HSBC, and J.P. Morgan; and the co-managers are Bear Stearns, Cowen, Deutsche Bank, Harriss Nesbitt, KeyBanc, and Santander. This represents a 46% stake in the company, and most of the proceeds will be used toredeem class B share. This should leave it with $650M in new cash that will be used to defend legal and regulatory challenges and for expansion capital. This will give it an implied market cap of almost $5.3 Billion. Its revenues in 2005 were $2.9+ Billion and its net income attributed to shareholders was $267M.

Despite the weak pricing, this deal was strongly awaited by Wall Street and Main Street alike. The weak pricing is possibly more reflective of a combined weak stock market and yesterday's IPO SNAFU from Vonage (VG) more than a reflection of MasterCard itself. Recently the WSJ reported that the company was attractive but risky, and Barron's noted that it was priced at a slight peer-discount. Morningstar also gave it a positive report ahead of the IPO just last week and reportedly assigned a $10.8B enterprise value, although there may be discrepancies on the calculations there.

Stock Notes for may 25, 2006

Main Stock Tickers: ABN, MEDX, ACS, BCSI, CBS, ESRX, ELN, INTC, MA, MSFT, NCTY, OSIS, RYL, SAFM, SCLN, SGY, SEPR, TASR, TIVO, YHOO, EBAY

S&P FAIR VALUE PRE-MARKET -$0.03.

(ABN) ABN AMRO is reportedly selling its futures operation to UBS for $300M.
(ACS) Affiliated Computer Services received a grand jury subpoena regarding anti-trust activities in a subsidiary over a DOJ inquiry; company can express no opinion at this time.
(AINV) Apollo Investment $0.35 EPS vs $0.36e; ended with a quarterly N.A.V. of $15.15.
(ASO) AmSouth merging with Regions Financial (RF) for 0.7974 RF shares.
(AVCI) Avici Systems announced its CFO has resigned.
(AVGN) Avigen presented positive study data on AV513 for hemophilia and related bleeding disorders.
(BCSI) Blue Coat Systems $0.07/R$35.9M vs $0.09/$35.15M(e); lowered EPS guidance next quarter.
(BLI) Big Lots $0.13 EPS vs $0.05e.
(BWS) Brown Shoe $0.35 EPS vs $0.33e.
(CBS) CBS's lawsuit against shock-jock Howard Stern has reportedly been settled.
(CWTR) Coldwater Creek $0.12 EPS vs $0.12e.
(DCI) Donaldson $0.43 EPS vs $0.41e.
(ELN) Elan said it is still seeking the June 28 clarification date with the FDA on Tysabri and hinted at room for price hikes.
(ENCY) Encysive Pharma submits complete response to FDA for Thelin new drug application.
(ESRX) Express Scripts added 10M shares to its buyback plan.
(EXPO) Exponent declared a 2 for 1 stock split.
(FLO) Flowers Foods $0.36 EPS sv $0.33e.
(HBAN) Huntington Bancshares announced a new 6M share buyback plan.
(HRL) Hormel $0.48 EPS vs $0.45e.
(INTC) Intel will not have an IPO for its memory chip business.
(JOYG) Joy Global $0.65 EPS vs $0.53e.
(JLG) JLG Industries $0.43 EPS vs $0.33e.
(MA) Mastercard priced its awaited IPO at$39 per share, under the $40 to $43 range.
(MEDX) Medarex gets informal SEC inquiry on stock options.
(MICC) Millicom nearer to being acquired by China Mobile according to WSJ, although this is the same as yesterday's news.
(MIK) Michael's Stores $0.38/R$832.4M vs $0.38/$845+M(e).
(MSFT) Microsoft is looking to acquire a wireless ad company for cell phones according to the WSJ.
(NCTY) The9 Ltd. $0.30/R$26.5M vs $0.27/$28M(e); unsure if comparable;
(NDAQ) NASDAQ signed a memorandum of understanding with 2 Chinese provinces for companies from Zhejiang and Jiangsu to gain exposure in the United States.
(NRGP) Inergy filed to sell 3.3+M shares.
(NTAP) Network Appliances $0.23/R$598M vs $0.23/$586M(e).
(NVEC) NVE Corp announced a Department of Defense pact for anti-tampering sensors for approximately $730,000.00.
(OPSW) Opsware -$0.01/R$22M vs -$0.01/$19.4M(e); raised revenue guidance $23-23.5M vs $21.75M(e).
(OSIS) OSI Systems wins $125M verdict against L-3 (LLL), $33M was compensatory and $92M was punitive because of fraud.
(PDC) Pioneer Drilling $0.36 EPS vs $0.32e.
(PDCO) Patterson Co. $0.41 EPS vs $0.41e; R$659M vs $689M(e); guides next quarter EPS $0.31-0.33 vs $0.35e, but put 2007 above plan.
(PETC) Petco $0.19/R$521M vs $0.18/$521M(e); guides 2006 EPS in-line.
(PLMD) Polymedica $0.33 EPS vs $0.35e,
(PSSI) PSS World $0.19 EPS vs $0.19e.
(RYL) Ryland issued slightly lower guidance for Q2 and 2006.
(SAFM) Sanderson Farms -$0.83/R$225.1M vs -$0.49/$226.75M(e); unsure if EPS is comparable.
(SCLN) Sciclone Pharma’s Zadaxin did not demonstrate statistically significant improvent in its second phase III Hepatitis C studies.
(SEPR) Sepracor traded up 1.5% after-hours after presenting positive data on its possible chronic obstructive pulmonary disease (COPD) treatment.
(SGY) Stone Energy gets $52 cash buyout offer from Energy Partners (EPL).
(SMHG) Sanders Morris Harris filed to sell 5M shares of common stock.
(TASR) Taser safety under scrutiny again in articles over Wisconsin scientist claims.
(TIVO) TiVo -$0.13/R$55.1M vs -$0.19/R$50.6M(e); guided R$50-53M vs $52.25M(e).
(UNFI) United Natural Foods $0.29 EPS vs $0.28e.
(WMS) WMS Industries pays approximately $30M to acquire a Dutch manufacturer of casino-based gaming machines.
(YHOO/EBAY) Yahoo! and eBay have formed a strategic partnership to expand their US businesses.

May 25, 2006 Recap of Jim Cramer's MAD MONEY Last Night

Jim Cramer’s MAD MONEY: Cramer said "Expensive oil is here to stay and is not going away any time soon," and then gave an education of the whole oilprocess. He recommended National Oilwell (NOV), Nabors Industries (NBR), Rowan (RDC), and GlobalSantaFe (GSF), Smith International (SII), Grant Prideco (GRP), Hydril (HYDL), Amcol (ACO), Weatherford (WFT), Superior Energy Services (SPN), FMC Technology (FTI) and Tetra Technologies (TTI). These were his choice companies for each step and process in the oil patch sector. In the "Lightning Round," Cramer was POSITIVE on Abercrombie & Fitch (ANF), Eastman Chemical (EMN), Microsoft (MSFT), Pantry (PTRY), Valero Energy (VLO), Nordstrom (JWN), Qwest (Q), Southwestern Energy (SWN); and NEGATIVE on Delek (DK), Carpenter Tech (CRS), Eastman Kodak (EK), Level 3 Communications (LVLT), NYSE Group (NYX), XM Satellite (XMSR).

Select Analyst Calls for May 25, 2006

Main Stock Tickers: AZN, BOOM, CECO, DNA, DRI, EBAY, IDXX, NETC, NFI, NT, ROST, SKYW, WMT, XMSR.

AKR raised to Hold at Citigroup.
ALB raised to Neutral at JPMorgan.
ARW raised to Buy at Merrill Lynch.
AVM reitr Buy at Jefferies.
AZN raised to Outperform at CSFB.
BCSI cut to Mkt Perform at JMP.
BOOM started as Buy at Jefferies.
CECO raised to Outperform at Bear Stearns.
CNB raised to Overweight at Lehman.
DNA reitr Buy at Citigroup.
DRI raised to Buy at UBS.
EBAY raised to Overweight at Prudential.
ERTS raised to Peer Perform at Bear Stearns.
GLG raised to Overweight at JPMorgan.
IDXX reitr Sell at Merrill Lynch.
ITG raised to Outperform at Piper Jaffray.
KLAC raised to Neutral at B of A.
LM reitr Buy at B of A.
MOT reitr Buy at Oppenheimer.
MOVE reitr Outperform at Piper Jaffray.
MXIM reitr Outperform at Piper Jaffray.
NETC raised to Buy at UBS.
NFI started as Buy at Deutsche Bank.
NT started as Negative at Susquehanna.
ONNN started as Outperform at Cowen.
ONXX raised to Outperform at Wachovia.
PSS raised to in-Line at Goldman Sachs.
ROST cut to Underperform at Goldman Sachs.
RYL cut to Mkt Perform at Wachovia.
SKYW raised to Overweight at JPMorgan.
TALX started as Outperform at William Blair.
TMA started as Hold at Deutsche bank.
TMO reitr Buy at Thomas Weisel; reitr Buy at UBS.
UTSI maintained Sell at Oppenheimer.
WMT raised to Buy at B of A.
XMSR tgt cut to $24 from $30 at Deutsche Bank; cut tgt to $18 at Piper Jaffray; cut to Underperform at Bear Stearns.

Prudential raised Internet portal and commerce sector to a more favorable bias.

Europe Flat 5/25/2006 BCS, BAB, ICI, RTRSY, VOD, DCX, BAY, DT, SI, AXA, FTE

Markets were generally higher in Europe at 6:30 AM New York time.

The FTSE 100 was up .3% to 5,604. Shares in BAA were off almost 6% to 786. Shares in Barclays were up .5% to 598. BP shares were off .5% to 617. Shares in British Airways were up .75% to 338. Cable and Wireless was off 3.75% to 96. Imperial Chemical was up .72% at 352. Reuters was down .73% to 374. Standard Chartered was flat at 1,289. Vodafone was up 1.1% to 115.

The Daxx Indes was up .5% at 5,618. BASF was up .67% to 63. Bayer was up 1.35% to 34. DaimlerChrysler was up .3% to 40.6. Deutsche Telekom was off .4% to 12.3. SAP was up .9% to 166. Siemens was flat at 66.9. And Volkswagen was down slightly at 54.8.

The CAC 40 was flat at 4,873. AXA was flat at 26.7. France Telecom was down .5% to 16.4.

Douglas A. McIntyre

Press Summary 5/25/2006 INTC, RF, ASO, MSFT, TASR, XMSR, SIRI, CBS, TIVO, CNET, ADI, POWI, MEDX

According to Reuters, Intel will not have an IPO for its memory chip business. Bertelsmann has agreed to buy-out minority holder GBL to avoid a public offering, according to the news service. Reuters also reported that the PC firm, Lenovo Group, has poor earnings losing $116 million in the fourth quarter. Profits was also down sharply for the year. Reuters also said the the MasterCard IPO will be priced below the expected level at $39, not the $40 to $43 expected.

According to the Wall Street Journal, Regions Financial will merge with AmSouth, creating the 10th largest bank in the U.S. Microsoft is in talks to buy Third Screen Media, which provides advertising to cellphone, according to the paper. The WSJ also said that XM Radio was cutting its year-end subscriber targets from 9 million to 8.5 million and its full-year revenue forecast from $860 million to $835 million. WSJ aslso says that CBS has settled it lawsuit with Howard Stern who now works for Sirius. Also, Tivo widened its loss in the last quarter because of lower prices on its digital video recorders.

The New York Times reports that the safety of Tasers is being questioned by a Wisconsin scientist. The paper said that the sotck options inquiry by the SEC and federal prosecutors had hit four more companies, Analog Devices, CNet, Power Integrations, and Medarex.

Asia Takes A Pounding 5/25/2006 HIT, HMC, TM, NTT, CHL, HBC, PCW

Stocks were sharply lower throughout much of Asia. Declines in oil and commodities prices took shares down with them. According to Reuters, hedge funds may be taking money out of Japanese markets due to poor earnings.

The Nikkei was down over 1.3% to 15,694. Shares in Casio were down almost 3% to 2,015. Daiwa Securities was off almost 4% to 1,377. Hitachi was off 1.4% to 759. Honda dropped 1.4% to 7,330. Japan Airlines was off slightly to 303. Mitsubishi Corp. was down 4% to 2,310. NTT rose 1% to 564,000. Sony was off 1.3% to 5,090 Toshiba dropped 2.7% to 712. And, Toyota 2.1% to 6,010.

The Hang Seng was off half a percent to 15,750. China Mobile was up slightly at 40. HSBC was off slightly to 134. Lenovo reported poor earnings and dropped 5% to 2.4 PCCW was up half a percent to 4.9.

The KOPSI dropped 2.8% to 1,296.

The Straits Times Index dropped 2% to 2,338.

Douglas A. McIntyre

Medtronic's Long Ball MDT, BSX

Medtronic upped guidance for revenue and diluted earnings per share. For fiscal 2007, the company confirmed revenue estimates of $12.5 to $13 billion. For fiscal 2008 estimates are now for $14 to $15 billion on the top line. The company's fiscal years end in April. At $13 billion, Medtronic's revenue would be about 15% better than the year just closed. Revenue for fiscal 2006 was $11.3 billion up 12% over the previous year. Earnings before taxes rose 25% to $3.2 billion.

The company's vascular, neurological, and spinal implant businesses did particularly well. The concern among investors that sales of implantable cardioverter defibrillators would slow down turned out not to be well-founded. Commenting on Medtronic's numbers to Reuters, one analyst summed it up, "The ICD number was at least in line with what everyone was expecting. Pacing was very strong. That's where Guidant was particularly weak after the recalls," said Jeff Jonas, portfolio manager with Gamco Medical Opportunities Fund. Guidant was recently purchased by Boston Scientific (BSX).

With all this information, the only missing piece is why Medtronic trades at just above $50 even after running up on strong earnings. The company has a 52-week high of $59.87 against a low of $47.80.

With numbers and forecasts like these, the stock should be higher.

Douglas A. McIntyre

After-Hours Stocks in the News

DJIA 11,117.32 (+18.97; 0.17%)
NASDAQ 2,169.17 (+10.41; 0.48%)
S&P500 1,258.56 (+1.99; 0.16%)
10-Yr Bond 5.034%

(AINV) Apollo Investment $0.35 EPS vs $0.36e; ended with a quarterly N.A.V. of $15.15.

(AVGN) Avigen presented positive study data on AV513 for hemophilia and related bleeding disorders.

(BCSI) Blue Coat Systems $0.07/R$35.9M vs $0.09/$35.15M(e); lowered EPS guidance next quarter.

(CBS) CBS's lawsuit against shock-jock Howard Stern has reportedly been settled.

(EXPO) Exponent declared a 2 for 1 stock split.

(JLG) JLG Industries $0.43 EPS vs $0.33e.

(MIK) Michael's Stores $0.38/R$832.4M vs $0.38/$845+M(e).

(NCTY) The9 Ltd. $0.30/R$26.5M vs $0.27/$28M(e); unsure if comparable;

(NDAQ) NASDAQ signed a memorandum of understanding with 2 Chinese provinces for companies from Zhejiang and Jiangsu to gain exposure in the United States.

(NTAP) Network Appliances $0.23/R$598M vs $0.23/$586M(e).

(NVEC) NVE Corp announced a Department of Defense pact for anti-tampering sensors for approximately $730,000.00.

(OPSW) Opsware -$0.01/R$22M vs -$0.01/$19.4M(e); raised revenue guidance $23-23.5M vs $21.75M(e).

(PETC) Petco $0.19/R$521M vs $0.18/$521M(e); guides 2006 EPS in-line.

(PSSI) PSS World $0.19 EPS vs $0.19e.

(SEPR) Sepracor traded up 1.5% after-hours after presenting postive data on its possible chronic obstructive pulmonary disease (COPD) treatment.

(TIVO) TiVo -$0.13/R$55.1M vs -$0.19/R$50.6M(e); guided R$50-53M vs $52.25M(e).

(WMS) WMS Industries pays approximately $30M to acquire a Dutch manufacturer of casino-based gaming machines.

Market Wrap for May 24, 2006

PHM, DHI, HD, LOW, GE, XMSR, SIRI, VG, BCRX, GNBT, NVAX, PPHM, AVII, XOM, COP, SLB, SLE, GOOG, YHOO, EBAY, AMZN, GM, BAC, C, UNH, MDT, MA


DJIA 11,117.32 (+18.97; 0.17%)
NASDAQ 2,169.17 (+10.41; 0.48%)
S&P500 1,258.56 (+1.99; 0.16%)
10-Yr Bond 5.034%

After conflicting data from Durables Goods posting a larger drop than expected and New Home Sales managing to post slightly better than expected numbers, the markets managed to close in positive territory despite having gone negative early in the afternoon. Today looked to be either the first or second most active day for the year with well over 2 Billion shares trading at the NYSE and on the NASDAQ.

Homebuilders Pulte Homes (PHM) closed up $0.35 at $33.29 and DR Horton (DHI) closed up $0.08 at $27.08. Home Depot (HD) closed up $0.17 at $38.01 and Lowe's (LOW) closed up $1.25 at $60.66.

General Electric's (GE) closed up $0.25 at $34.26 after Jeff Immelt at a Florida investor conference noted that he sees 2006 EPS at $1.94-$2.02, and that compares to $1.99 estimates. The company also noted that any portfolio moves (i.e. M&A, divestitures, spin-offs, and the like) would be to expand EPS, so it doesn't look like the company is planning to go pay up for any acquisitions that would be highly dilutive to earnings. Immelt also said this year's return on capital of 18% should expand to 20% over the next two-years.

XM Satellite Radio (XMSR) issued slightly lower subscriber estimates for the end of the 2006 to end with 8.5M subscribers instead of its prior 9M estimate. Its shares fell $1.76 to $13.75, and it pulled Sirius Satellite (SIRI) shares down $0.22 to close at $3.68.

Vonage (VG) got no homage as the IPO priced like an Internet dot.com in 1999 at incredibly high multiples. It priced 31.25M shares at $17.00, traded as high as $17.25, and ended the day down $2.15 from its pricing to close at $14.85.

Shares of bird flu exposure companies traded mostly higher after the fears in Indonesia: Biocryst Pharmaceutical (BCRX up $1.15 at $12.95), Generex Biotechnology (GNBT up $0.19 at $2.03), Novavax (NVAX up $0.30 at $4.98), Peregrine Pharmaceuticals (PPHM up $0.10 at $1.51) and AVI Biopharma (AVII up $0.02 at $4.64). These were mostly the second-tier go-to names that are flocked to by day traders.

Weekly oil inventories were mixed (numbers rounded): showed a drop in crude oil inventories (-3M vs -1M estimate), but we saw builds in both gasoline (+2.1M vs +1.3M estimate) and distillates (+2.48M vs +600K estimate). Oil itself fell $1.90 on NYMEX for July Light Sweet Crude at $69.86 per barrel. Oil behemoths Exxon Mobil (XOM-NYSE) traded down $0.29 to close at $60.10; CocnocoPhillips (COP) closed down $1.55 at $61.15; Schlumberger (SLB) closed down $0.66 at $63.21.

Sara Lee Corp (SLE) closed up only $0.01 at $17.08 after announcing plans to spin-off its Hanesbrands unit to shareholders.

The Internet search wars went unnoticed with Google (GOOG) closing up $5.67 at $381.25 and Yahoo! (YHOO) closing up $1.03 at $31.79. eBay (EBAY) closed up $0.15 at $30.20 and Amazon.com closed up $1.43 at $35.19. All had been given a positive research note today from Morgan Stanley.

We even saw General Motors (GM) close up $2.03 at $26.51 after cost cutting efforts seem to be paying off and Merrill Lynch raised its shares to a "Buy" rating.

Financials were somewhat tame with Bank of America (BAC) closing up $0.25 at $48.48 and Citigroup (C) closing up $0.13 at $48.66.

In healthcare Unitedhealth Group (UNH) continued its slide down another $0.73 to close at $42.09. Medtronic (MDT) did manage to close up $2.22 at $50.17 after its earnings yesterday.

Tomorrow we have Weekly Jobless Claims and Weekly Natural Gas Inventories, both of which can have a minimal impact on the markets alone. We should also get a revised number for Q1 GDP and at 10:00 AM EST we will see April's Existing Home Sales. Also at 10:00 is the Help Wanted Index for the month of April, but this number has been proven to be as worthless as gold to a dead man.

We should also get the long-awaited Mastercard (MA) IPO tomorrow, and it has been held in a much more positive light than Vonage's ugly IPO.

Keep in mind that this coming weekend is a holiday for Memorial Day, so as we get closer to mid-day Friday the volume should taper off (barring any unknown scenario) and the B-team should be manning the trading desks Friday.

Important stock tickers reporting earnings Thursday: EGHT, AGIL, BLI, BWS, CHS, CMOS, FLO, HRL, JOYG, PDCO, PTA, PLMD, SAFM, TGAL, UNFI.

The Home Depot And The Housing Market HD, LOW

The Commerce Department today announced that single family home sales rose 4.9% in April, more than almost anyone expected. Home Depot's stock has been beaten like a red-headed mule for the last two months, falling from over $43 to under $38, in large part because of concerns about the health of the real estate markets.

Wall Street viewed sales and earnings for the fiscal quarter, ending April 30, as being less than up to par. But revenue did rise 13% to $21.4 billion. Even more impressive was that operating income rose 21% to $2.4 billion. But, weighted average weekly sales per operating store dropped 3%, and investors headed for the exits. The situation was not helped by the fact that, according to Reuter's, Home Depot's CEO said he was "disappointed with sales". The company also decided to no longer disclose "same store" sales and this was greeted with a chorus of criticism.

All of the would seem to be a great deal of bad news, but behind much of the drop in The Home Depot stock is the supposition that housing sales and starts are slowing down as mortgage rates rise. Lowe's (LOW) stock has suffered from the same malaise. Today's news from the government eases some of that concern. Not a trend yet, but at least a start.

The Home Depot's stock is now within hailing distance of its 52-week low. With sales and operating income continuing to show a strong pulse and the housing market not yet dead and buried, perhaps investors need to take another look.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Ansoft's Dizzying Run-Up ANST

Ansoft, which makes design automation software, ran up sharply today after announcing earnings. The shares were up almost 80% already from their 52-week high, which was $10.66. The stock is currently changing hands at $21.

The quarter was good. For the fiscal fourth quarter, ending April 30, revenue hit $24.7 million, up 14% from $21.7 million in the same period a year ago. Operating income was up 39% from $6.3 million to $8.8 million. For the full fiscal year, revenue rose 14% from from $67.7 to $72.2. Operating income for the twelve months did even better up 77% from $11.4 to $20.2 million.

Ansoft guided that next fiscal year's revenues would rise 10% to 15%, which seems terribly soft in light of the fiscal Q4 results. It did not seem to matter to anyone, as the stock moved up 13% at mid-day.

It is hard to see what all the excitement is about. From fiscal 2003 to 2004, revenue grew 15%. From 2004 to 2005, revenue rose 24%. For the fiscal just ending, revenue is up 14%, and the company is guiding for no better.

Is Ansoft doing well? Yes. Does it deserve to have doubled to $21 and have a price to sales ratio of almost six? Almost certainly not.

Ansoft will have to move its topline up a good deal more than another 14% to keep the stock at this premium price.

Douglas A. McIntyre

Mid-Day Report

GE, VG, PHM, DHI, XOM, BCRX, GNBT, NVAX, PPHM, AVII

Mid-day the US markets have held their gains, but we are off the highs from earlier this morning. A large corporate seller has been gradually unloading shares, but has refrained from dumping en-masse. We now have a negative advance-decline line, so keep an eye on these market levels.

DJIA 11,116.84; Up 18.49 (0.17%)
NASDAQ 2,164.50; Up 5.74 (0.27%)
S&P500 1,256.88; Up 0.31 (0.02%)

The stock market did dodge a bullet by not immediately falling further following yesterday's sell-off after a Bin Laden tape and bird flu fears took hold in the last half-hour of trading.

The 10-Yr Bond yield is 5.024%, down 4 basis-points from yesterday after weaker durable goods orders overshadowed new home sales that were slightly above expectations.

General Electric's (GE-NYSE) Jeff Immelt at a Florida investor conference noted that he sees 2006 EPS at $1.94-$2.02, and that compares to $1.99 estimates. The company also noted that any portfolio moves (i.e. M&A, divestitures, spin-offs, and the like) would be to expand EPS, so it doesn't look like the company is planning to go pay up for any acquisitions that would be highly dilutive to earnings. Immelt also said this year's return on capital of 18% should expand to 20% over the next two-years.

The IPO from Vonage (VG-NYSE) has been a disaster and is currently down $2.00 from its $17.00 pricing. If you were the underwriters, you may want to prepare to be getting some angry calls for pricing an IPO like it was 1999.

Bird flu related stocks are still trading higher, despite all the media qualifications regarding the 7 of 8 family memebers that died in Indonesia from this. The stock prices are all higher on these names: Biocryst Pharmaceutical (BCRX up $1.40 to $13.20), Generex Biotechnology (GNBT up $0.26 to $2.10), Novavax (NVAX up $0.41 to $5.09), Peregrine Pharmaceuticals (PPHM up $0.12 to $1.53) and AVI Biopharma (AVII up $0.13 to $4.75).

Oil inventories (numbers rounded) showed a drop in crude oil inventories (-3M vs -1M estimate), but we saw builds in both gasoline (+2.1M vs +1.3M estimate) and distillates (+2.48M vs +600K estimate). Oil behemoths haven't had any sizeable moves from this with blue chip Exxon Mobil (XOM-NYSE) trading down $0.04 at $60.35.

New Home sales have helped homebuilder stocks, even though there is now a 5.8 month supply of new homes. Behemoths Pulte Homes (PHM-NYSE) and DR Horton (DHI-NYSE) were +$0.28 at $33.22 and +$0.08 at $27.08 respectively. Both stocks are close to 40% off of yearly-highs, and some homebuilders have come off more than 50% from their yearly-highs.

by Jon C. Ogg

No Homage To Vonage

Vonage (VG-NYSE) IPO has been an eye-sore and huge disappointment to investors this morning. All indications were that it would open with a small premium to the pricing and then list a little lower, but this price action is just ugly. There was a high print at $17.25, but the high was only $0.25 above the $17.00 IPO price. This $2.07 drop down to $14.93 is far worse than the talk on the street had indicated. I commented that this 10-times revenues seemed steep, but there was still no indications of it falling 10% right out of the chute. Vonage does have what appear to be competitive disadvantages to other companies offering VoIP, but they did at least just take in a $500M cash arsenal in this sale. We'll have to see how this acts now that it is a public company, but either way there are going to be some pretty upset IPO holders that took shares at the pricing and held. Is 9-times trailing revenues a better deal than 10-times? Yeah, but......

Vonage may be changing their commercials from "Woo-ooooh! ooooh-ooooh-ooooh!" to a bunch of "Uh-Oh!"'s.

by Jon C. Ogg
May 24, 2006

Sara Lee Splits Its Food & Garment Operations

By Jon C. Ogg
May 24, 2006

Sara Lee Corp (SLE-NYSE) this morning has made its move to unlock shareholder value with a spin-off of Hanesbrands. This was part of an ongoing plan to focus on core operations, so this is not entirely new data that was a huge surprise. Last year it was a coin toss over whether they would spin it out in a new company to shareholders or if they would punt it via a sale to a private equity group or to another conglomerate. Now we know the answer.

In the spin-off, Sara Lee will distribute all of the outstanding shares of Hanesbrands common stock to SLE holders. Following the spin-off, Hanesbrands will be a separate publicly traded company from Sara Lee, and Sara Lee will not retain any ownership interest. What this has to make you ask is this: “What was the price that outside firms would have paid, or did anyone even want it?”

Sara Lee expects to complete the spin-off of Hanesbrands between June and September, 2006. The distribution ratio to be determined shortly before the spin-off occurs. In fiscal 2005, this business generated $4.7 billion in net sales.

The business to be spun off as Hanesbrands Inc. is a consumer goods company with a portfolio of leading apparel brands, including Hanes, Champion, Playtex, Bali, Just My Size, Barely There and Wonderbra. The group designs, manufactures, sources and sells a broad range of apparel essentials products such as T-shirts, bras, panties, men's underwear, kids' underwear, socks, hosiery, casualwear and activewear that claims to hold either the No. 1 or No. 2 U.S. market position by sales in most categories in which it competes. Sara Lee says it will drive growth via brands as Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Senseo and its namesake, Sara Lee.

You will have to decide on your own if you think this is good, but on the surface this break-up of the two businesses makes perfect sense. Executives that have to simultaneously focus on sausage and underwear as well as cookies and bras just might not be able to focus after a while. Shares of Sara Lee are up 0.58%, or +$0.09, at $17.16 this morning.

The stock hasn't held up that well here with the recent market weakness, and these current stock prices look like the stock is at a critical juncture. Here is a 1-year chart (from Bigcharts.com) on SLE for you to peruse to determine if this is adequately priced into the stock:

A Coin-Toss IPO Pricing for Vonage

Vonage (VG-NYSE) raised over $500 Million after setting its 31.25 million share IPO at $17.00, right in the middle of the proposed $16.00 to $18.00 range. There is a large list of underwriters: Joint book-runners were Citigroup, Deutsche Bank, and UBS; Co-Managers were Bear Stearns, Piper Jaffray, and Thomas Weisel.

Vonage was founded in 2000 and is of course the largest independent VoIP telephony provider with some 1.7 million residential and small business subscribers located mostly in the US. The company will have an implied market cap of approximately $2.75 Billion. Its revenues for 2005 were $269M and its loss attributable to shareholders was about $261M. This gives it roughly a 10-times trailing revenue multiple, and the company is projected to lose money for the foreseeable future.

An independent brokerage firm Soleil issued a cautious note Monday saying they could not recommend shares at the pricing levels and this morning issued a "HOLD" rating with a $16.00 target (under the $17.00 pricing).

The deal was initially said to be oversubscribed but in reality it has been very hard to find many bulls that expect great things about Vonage. On the flip side, its mid-point pricing would normally be indicative of a fairly priced IPO that isn't expected to immediately run up or come crashing down. The indications we have seen and heard were that if you could get shares at the allocation pricing it was worth taking, but holding them wasn't worth the risk. There have been many articles commenting that this IPO is similar to the ".com days" because of its valuation and multiples.

We noted this yesterday as well, but it would also seem like the company should have looked at the tape and determined that technology stocks haven't been doing that well over the last two-weeks with the NASDAQ closing on 6-month lows yesterday. This deal feels expensive at 10-times trailing revenues and they seem to have a competitive disadvantage to established telcos or cable companies, but you'll have to make your own decision on hitting the BUY or SELL button.

by Jon C.Ogg
May 24, 2006

Management On The Gallows: The Options Pricing Scandal SCMR, AMT, UMH, QSFT, ACS, KLAC, CMVT, SFNT

As the options back-dating scandal grows to encompass nearly two dozen companies, one
question becomes how many audit and compensation committees at public companies are doing internal work to find out if their companies have a problem. It would not be surprising to see the issue touch a hundred companies or more.

The gaming of options is simple, but one would think that the odds of getting caught are so high that managements would avoid it. Normally, compensation committees of public boards grant stock options to executives at a specific price, or they are priced as of the close of trading on a specified day. Managers at companies like Vitesse, Safenet, UnitedHealth, and Affiliated Computer may have changed the dates of these grants so that they would fall on days when the share price was lower. If the stock later rises, they can buy these shares at cheaper prices than was intended and make more money on the spread as they sell their shares. The executives can make a much larger profit than would have occurred if the grant was followed to the letter.

Since each share sold represents dilution to current shareholders and options often represent 5% to 10% of outstanding shares, current stockholders can take a beating on the swindle without being aware of what has happened.

The by-product of these problems can be even worse for investors. At a typical company that would reset options dates, one could assume that the CEO, CFO and general counsel would know about it unless one or all was in a coma. Since these three executive positions are often among the top five or ten managers at any company, all the firms that get caught in the net of the investigation will probably lose the core of their senior management teams.

Imagine the ripple effect of having a hundred companies changing their senior managements in a relatively short period of time. Stocks in executive search firms may be worth a look!

It is hard to remember a situation facing corporate America that could remove so many top executives from their jobs. The vacuum this may create should make shareholders especially worried if a company they own is caught in the maelstrom.

The options issue also raises the question about whether boards and compensations committees have any responsibility to see that their mandates on grants are carried out. Checking to see whether option prices or grant dates are right is not a great deal of work. So, the board liability issue that has been at the heart of many earlier scandals like Enron now comes back center stage.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Pre-Market Notes (May 24, 2006)

by Jon C. Ogg

Stock Tickers: GILD, NVAX, AVII, QDEL, BCRX, BOOM, CHINA, GM, IBSE, MDT, MICC, PPHM, VG

Closing Levels:
DJIA 11,098.35 (-26.98; -0.24%)
NASDAQ 2,158.76 (-14.09; -0.65%)
S&P500 1,256.57 (-5.50; -0.44%)
10-Yr Bond 5.066%

S&P FAIR VALUE PRE-MARKET +$7.03.

Bird Flu stocks GILD, NVAX, AVII, QDEL and BCRX traded and indicated higher after the close on reports of possible human to human transmission in Indonesia after 7 of 8 members of one family died.

(ADI) Analog Devices gets subpoena over stock options.
(AFCE) AFC Enterprises $0.19 EPS vs $0.25e.
(AINV) Apollo Investment will raise $1.5B cash in Amsterdam.
(ARM) Arvin Motors is seling $300M in convertible senior notes.
(AVCT) Avocent announced it would repurchase another 3M shares.
(AZO) AutoZone $1.92 EPS vs $1.95e.
(BGP) Borders Group -$0.29 EPS vs -$0.24e.
(BOOM) Dynamic Materials gets an $11M contract award.
(CHINA) CDC Corp announced pact with Microsoft to develop, market and deliver CRM enterprise applications in China; stock up 4%.
(COP) ConocoPhillips and state-owned Saudi Arabian Oil Company signed a $6B deal to build a 400,000 BPD export refinery.
(CSC) Computer Science $1.16 EPS vs $1.13e; sees FY07 EPS $3.61-3.71 vs $3.62e.
(CYMI) Cymer benefitting from chip cycle according to IBD.
(DELL) Dell is opening two pilot stores according to the WSJ, although an analyst report indicated this yesterday.
(DHB) DHB Industries gets delisting notice from AMEX.
(DSGX) Descartes $0.03 EPS vs $0.02e.
(DY) Dycom $0.21 EPS vs $0.16e.
(ELGX) Endologix gets FDA approval for Visiflex delivery system.
(FRED) Fred's $0.18 EPS vs $0.17e.
(FWRD) Forward Air CFO resigned.
(GM) GM has announced a new gas guarantee purchase price program of $1.99 per gallon for a year after a new purchase; stock up 4% on Merrill Lynch upgrade.
(HOT) Starwood Hotels announced it would allocate another $600M for share buybacks.
(IBSE) iBasis gets international voice services pact from YHOO.
(IMA) Inverness Medical filed to sell 4.77M shares for shareholders.
(KMX) CarMax names new president & CEO inside the company for its retiring President/CEO.
(LNUX) VA Linux $0.02 EPS vs $0.00e, CFO stepped down.
(MDT) Medtronic $0.62 EPS vs $0.62e; stock up 3%.
(MICC) Millicom is supposedly being acquired by China Mobile according to The Standard after a multi-month bidding process; stock up 3%.
(MNI) McClatchy divests its Philadelphia Newspapers for some $562M.
(MSFT) Microsoft maintained that Windows Vista is on track for a January launch; also is reportedly sharing patents and server technology with NEC.
(NYX) NYSE may have to hike its price in a bidding war over Euronext according to multiple reports.
(PGNX) Progenics & WYE report positive results from Phase III Trials of Methylnaltrexone.
(POSS) Possis Medical $0.03 EPS vs $0.09e.
(PPHM) Peregrine Pharma says Bavituximab shows potential activity against Bird Flu; stock up 10%.
(PVH) Phillips Van Heusen $0.74 EPS vs $0.73e.
(SIAL) Sigma Aldrich signed a pact with Rosetta Inpharmatics for siRNA R&D.
(SLAB) Silicon Labs said Samsung has adopted its FM radio tuner.
(SNDA) Shanda announced a development pact with Disney.
(VG) Vonage 31.25M share IPO priced at $17.00.
(WSM) William Sonoma beat earnings w/ $0.26 EPS vs $0.17e, but guided lower.
(WYE) Wyeth will announce a diet drug settlement according to the WSJ.
(ZL) Zarlink $0.02 EPS vs $0.01e.

ANALYST CALLS:
ACXM started as Neutral at Lehman.
AZR started as Underweight at Lehman.
BLT started as Sector Perform at RBC.
BWP started as Overweight at MSDW.
CAE started as Sector Perform at RBC.
CSTR started as Outperform at RBC.
DNB started as Equal Weight at Lehman.
DWA raised to Buy at Soleil.
EFX started as Equal Weight at Lehman.
FAF raised to Outperform at KBW.
FLOW started as Outperform at RBC.
FOXH started as Equal Weight at MSDW.
GOOG reitr Outperform at RBC.
GLW reitr Buy at Needham.
GM raised to Buy at Merrill Lynch.
JNPR tgt cut from $24 to $18 at Prudential.
LLTC raised to Buy at First Albany.
MCO started as Neutral at Lehman.
MDT reitr Outperform at RBC; reitr Outperform at Thomas Weisel; reitr Buy at Deutsche Bank; reitr Buy at UBS; reitr Outperform at Cowen; reitr Buy at Soleil.
NOK reitr Buy at Oppenheimer.
PALM Reitr Buy at ThinkEquity.
REP raised to Overweight at MSDW.
SNIC raised to Buy at Soleil.
SONO started as Sector Perform at RBC.
STM raised to Mkt Perform at Piper Jaffray.
TBL reitr Sell at Citigroup.
TLM raised to Buy at UBS.
TUNE started as Outperform at CIBC.
VCI started as Underweight at Lehman.
VG started as Hold at Soleil.
XRTX started as Outperform at Baird.

Reuters also reports that the Bank of China raised $9.7 billion in its IPO.

Cramer's MAD MONEY: Cramer opened his show discussing 5 top buyback stocks. The fifth was Nokia (NOK), CBS (CBS) and News Corp (NWS), Bank of America (BAC) and Citigroup (C), Chevron (CVX), Sears (SHLD). Cramer declared bird flu dead and said it's time to buy chicken by recommending Sanderson Farms (SAFM). Marketwatch's Herb Greenberg challenged Cramer's love affair with Sears. Both Greenberg and Cramer agreed on avoiding United Online (UNTD). Cramer then discussed CACI International (CAI) as a takeover target for BAE Systems and has solid financials. In the "Lightning Round," Cramer was POSITIVE on Baidu.com (BIDU), Yahoo! (YHOO), Con Edison (ED), VeriFone (PAY), Immucor (BLUD), Freeport-McMoRan (FCX), Kinder Morgan (KMI), BE Aerospace (BEAV), Brocade (BRCD), Finisar (FNSR), JDSU (JDSU) and Crystallex (KRY), and was NEGATIVE on Alliant Energy (LNT), Dynamic Materials (BOOM), Suntech Power (STP), Sirius (SIRI), MDU Resources (MDU), Elan (ELN) and Allegheny Tech (ATI).

8:30 AM April Durables Goods (expected -0.5% with a wide range), and then we'll see April New Home Sales (estimate 1.13 Million annualized).
10:30 AM weekly petroleum inventories.

GM Is Not A "Buy" GM, F, DCX

Merrill Lynch upgraded General Motors to a "buy" today. The broker set a $37 price target on the shares based on the assumption that a large number of UAW members would take the auto company's buyout offer. GM's shares rose sharply in pre-market trading.

With the Delphi strike issue still open, the possibility that GM and Ford may have to offer incentives on their models as Chrysler has done with its dealers to decrease inventory, and GM's falling market share, a target of almost 50% on the stock is extreme. It would put the company back near its 52-week high.

Rising gas prices are bound to continue to put pressure on the sales of GM's highly profitable SUV and pick up truck lines.

Until these matters are more clearly predictable, GM's shares are unlike to stay above $25.

Douglas A. McIntyre

Europe Market Report 5/24/2006 BP, GSK, BCS, DCX, DT

Concerns about bird flu and commodities prices were the primary drivers of trading in Europe. Oil and commodities prices were down.

At 7:45 in New York, the FTSE 100 wsa off 1.7% to 5,583. BEA Systems was down 3% to 362. Barclays was down 2%to 598. BP was down 2.5% to 619. GlaxoSmithKline was down 1.5% to 1,462. And, Reuters was off 3.5% to 370.

The Daxx was down 1.5% to 5,592. Allianz was down 2.5% to 120. Bayer was down 2% to 34. DaimlerChrysler was off 1% to 40. Deutsche Telekom dropped 1% to 12.4. Siemens was off 2.6% to below 67.

The CAC 40 was down 1.8% to 4,845. And, the SMI Index was of 1.6% to 7,452.

Douglas A. McIntyre

Media Digest 5/24/2006 MSFT, NIPNY, NSANY, DELL, HD, TOL

According to Reuters, the chief of the IMF believes that rate hikes are healthy and that governments and banks must keep an eye on inflation.

Reuters also reports that the Bank of China raised $9.7 billion in its IPO. The news agency reported that Microsoft and NEC will share patents and server technology.

In addition, Reuters reported that Nissan global production dropped 21% in April.

The Wall Street Journal reports that Euronext is moving ahead with its deal to be acquired by the New York Stock Exchange.

WSJ also reports that Vonage will begin trading today at $17, raising $500 million in its IPO.

WSJ also reported that Toll Brother, the home builder, had a 2.8% increase in its fiscal Q2 earnings but sharply cut is forecast for the balance of fiscal 2006 due to a slowing home market.

The Wall Street Journal also reports the Eircom, the Irish phone company, accepted a bid of $3.11 billion from Babcock & Brown

WSJ also reports that Dell will open pilot retail stores.

WSJ notes that Apollo Group, the private equity firm, will raise $1.5 billion on teh Amsterdam exchange following in the footsteps of Kohlberg Kravis.

According to the New York Times, the CEO of Home Depot, who has long standing relationships with some of his board members has been paid $245 million over the last five years while the stock declined 12%.

NYT said reports that Microsoft's new software, Vista, is on schedule for release in January.

Douglas A. McIntyre

Asia Markets 5/24/2006 SNE, CAJ, PCW, HMC, TM, NTT

Markets in Tokyo rallied sharply. According to a report by Reuters, traders now view stocks as "oversold". The Nikkei gained 2%, or 303 points, to close at 15,907. The Topix Index was up 1.7% to 1,606.

Shares in Bridgestone were up almost 4% to 2,505. Canon rose over 2% to 8,130. Daiwa Securities was up over 4% to 1,434. Fujitsu was off a fraction of a point to 835. Honda was up over 2% to 7,450. Izusu was up over 3% to 403. Mitsubish Corp. was up almost 4% to 2,405. NTT fell almost 1% to 558,000. Sony rose 2% to 5,160. Toyota was up over 3% to 6,140.

The Hang Seng Index was down slightly to 15,823. Cathay Pacific rose .4% to 12. China Mobile fell slightly to 41. HSBC was up a fraction to 135. Lenovo was off almost 2% to 2.55. PCCW was off over 1% to below 5.

The Kopsi Index was up slightly to 1,333.

The Straits Times Index was flat at 2,430.

The Shanghai Composite fell almost 1% to 1,591.

According to MarketWatch a rebound in metal prices helped commodity-related shares throughout the region.

Douglas A. McIntyre

CLOSING COMMENTS FROM MAY 23, 2006

Dow 11,098.35 (-26.98; -0.24%)
NASDAQ 2,158.76 (-14.09; -0.65%)
S&P500 1,256.57 (-5.50; -0.44%)
10-Yr Bond 5.066%

The bullish hopes that prevailed most of the day were squashed in the last thirty minutes of trading today. U.S. stocks closed lower despite strong intraday gains in many stocks and sectors as nervous tendencies prevailed. The drop pushed the NASDAQ Composite to its weakest finish, not just of 2006 but since early November. The 10-year bond yield also stayed well above the 5.00% mark penetrated yesterday at about 5.066%.

With the weakness seen at the end of the day, this may very well push many of the speculative markets back under selling pressure. Many of these emerging markets have seen double-digit percentage selling, so watch the lows of each yesterday for any guidance and bearing on how US stocks will fair Wednesday.

We'll see if any distribution of a Bin Laden tape saying Zacarias Moussaoui was not involved in the September 11 attacks or if any fears about bird flu in Indonesia caries over into Wednesday trading, but all eyes should really be on overseas emerging markets. These have been moving in step with many of the commodity markets, and those sectors were the old new-leaders in the US before our recent sell-off.

We should get to see the Vonage (VG-NYSE) IPO Wednesday, although someone may want to tell the underwriters that technology stocks have been performing like pigs in recent trading.

At 8:30 AM Wednesday we'll see the highly volatile April Durables Goods (expected -0.5% with a wide range), and then we'll see April New Home Sales (estimate 1.13 Million annualized). Also at 10:30 AM we get the myriad of weekly petroleum inventories, so watch how the energy sector reacts....As if every time the Iranians open their mouth wasn't enough.

Jon C. Ogg

The Charge Of The Light Brigade And Sun Micro SUNW, HPQ, DELL

Long time investors in Sun Microsystems must feel like the 17th Lancers and the other British who in 1854 rode into the "Valley of Death" as Tennyson called it. Of 673 men, 245 were killed or wounded. Upon hearing about the battle, French Marshall Pierre Bosquet said, "It is magnificent, but it is not war."

Sun Microsystems has gone a long way to prove to investors that it is a company, but it is not a business. After a recent run to $5.40, a 52-week high, when Sun named its new CEO, the stock has fallen back to $4.32. Five years ago, the stock traded near $20. With a market cap a little over $15 billion, the stock trades at barely one times sales.

Sun's business is probably irrevocably broken. Even though Sun has introduced servers with more competitive pricing and has done a great deal of work with the open source community and building compatibility with non-Sun operating software, the moves are almost certainly too late. Virtually every significant hardware company in the world has server products that could compete with Sun, starting with Hewlett-Packard (HPQ) and Dell (DELL).

After revenue ran from $7.1 billion in 1996 to $18.3 billion in 2001, it fell to $12.5 billion in 2002, and was $11.1 billion for fiscal 2005. So, the company has lost nearly 40% of its revenue.

Sun has also had negative operating income every year since 2001, accumulating a $5.5 billion operating loss from fiscal 2002 through 2005.

New management has done nothing to signal that the company's focus or business strategies will change in any important way. The anticipated cutting of another 5,000 jobs may drop expenses, but the devil for Sun has been the top line, and that remains the issue. Even though in the quarter ending March 26, revenue was up 21% to $3.2 billion, a great deal of this was due to the acquisitions of StorageTek and SeeBeyond. According to the 10-Q, if Sun had owned StorageTek during the quarter a year ago, revenue would be essentially flat. So, neither company's core businesses grew at all. And Sun's operating loss grew to $212 million from $142 million a year earlier.

To use Tennyson's language Sun is now "Shatter'd and sunder'd". It is time for the company's board to look at alternatives beyond running the company as an independent "business".

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

The Ghost Of Jack Welch GE

Recently Marketwatch.com ran an article that suggested that General Electric (GE) was the Rodney Dangerfield of large cap companies. The stock will not move from a narrow range, even when almost all six divisions of the company are doing well (with the possible exception of entertainment). Nearly two dozen analysts rank the company a "buy" or the equivalent.

At first blush, the theory has some merit. Over the last 52 weeks the trading range for GE has been $37.34 to $32.21. The stock now trades at $34, well down from over $50 in mid-2001.

GE's first quarter saw revenue grow 10% to $37.8 billion. All divisions grew smartly except energy which was off 3%. Cash flow from operations rose to $6.7 billion. Earnings from operations rose 14% to $4.95 billion. It would seem that the company is as close to perfect as a huge enterprise could be.

But, it isn't. From 1996 to 2000, Jack Welch's last full year at the helm, revenue grew 64% from $79.2 billion to $129.9 billion, according to Morningstar.. From 2001 to 2005, revenue grew from $125.9 billion to $149.7 billion, an increase of 19%.

The difference in the change in operating income for the two five year periods is also dramatic. From 1996 to 2000, operating income grew from $18.7 billion to $30.2 billion, up 62%. From 2001 to 2005 operating income grew from $30.8 billion to $37.8 billion, growth of 23%.

If analysts and investors want to ponder the reason for the mediocre performance of the stock and its 33% drop from its 2001 high, it is in the numbers.

Jack Welch's last five years at GE were almost unprecedented in terms of growth on top of an already huge revenue base. New management has not nearly matched it.

Does GE do better than the vast majority of companies? Absolutely.

But, by against the yardstick of its own past, GE's success has faded a bit.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Highlights From Q1 2006 Results for Royal Philips PHG

by Asig Suria

Royal Philips Electronics (PHG) reported "exceptionally strong" first quarter 2006 results led by revenue gains in the lighting division and consumer electronics. During the conference call an analyst Didier Scemama from the global banking group ABN AMRO remarked "I think in the last six or seven years covering Philips, I’ve never seen a year over year growth rate of that strength across the business." The company remains focused on organic growth while not ruling out further acquisitions to fuel additional growth.

Positives:


A 37% jump in earnings to 160 million euros when compared to 117 million euros in the year-ago period.
Overall growth for this quarter was 10%, which supports their average annual target of 5-6% growth.
The EBIT (Earnings before Income and Taxes) margin improved from 3.2% to 4.5%. Philips hopes to improve its operating profit margin to 7-10% by 2007.
The growth rate in Consumer Electronics was very high at 16%, driven primarily by sales of flat screen TVs.
Growth was evenly spread across various geographical locations with strong growth in Latin America, solid growth in Europe and Asia doing well.
A 1.5 billion euro share buyback program that Philips initiated in August 2005 is now complete and in the next two months these shares will be cancelled. They represent 6% of the total outstanding shares.


Negatives:


While growth in the overall lighting division was 8%, revenue growth at the Lumileds lighting division was 25%. While such a high growth rate would be considered excellent and is inline with the forecast Philips issued when it acquired the remaining stake in Lumileds, I was expecting a higher growth rate as mentioned in the March 2006 edition of SINLetter.
Growth in the Medical Systems division was only 8%.
Inventory increased marginally from 12% to 12.3%.
Even with better than expected revenue growth of 10% in the first quarter, the company stuck with its full year growth forecast of 5-6% and did not increase guidance. This could either imply that the growth in the next three quarters would be more measured or that the company would like to try and deliver better than expected results in future quarters.


"Asif Suria is the editor of a free investment newsletter called
SINLetter (Suria Investment Newsletter). You can subscriber to receive
his free investment newsletter every month by email at info@sinletter.com.

Network Engines: Revving up or Out of Gas? NENG

A subscriber recently asked me if I was familiar with a company called Network Engines (NENG). I had not heard of this company before and so I looked it up. Network Engines is a technology company that was founded in 1997 at the height of the internet bubble and raised $117 million through its initial public offering in 2000. It's primary line of business allows software application providers to deliver their applications as network appliances. A recent prominent product is a hardware security appliance tailored specifically to Microsoft exchange servers. With the increased deployment of exchange servers across corporations as evidenced by the numerous BlackBerrys in use these days, Network Engines could see some rapid growth.

The latest quarterly results confirm this fact as Network Engines narrowed its losses in the last quarter and increased revenue. However this good news appears to be already factored into the stock price as the stock has doubled in less than 3 months. Since stock price is often driven by future earnings expectations and since they clearly mentioned in their earnings release that they will post a loss next quarter, I do not see additional price appreciation in the near future. The company has been unprofitable during the last three years losing over $15 million in 2005. Given that this is a micro-cap stock with a market cap of just $113.9 million and a stock price of $3, it is entirely possible that momentum investors could take the stock higher in the short-term. Instead of starting a position, I plan to keep Network Engines on my watch list to see if the company can turn itself around and become profitable or at least start heading down that road.

"Asif Suria is the editor of a free investment newsletter called
SINLetter (Suria Investment Newsletter). You can subscriber to receive
his free investment newsletter every month by email.

Pre-Market Notes (May 22, 2006)

by Jon C. Ogg
Date Created: 5/22/2006 8:16:00 AM EST

Main Stock Tickers: CEGE, CYTO, DLLR, GLW, GTE, KLAC, KOMG, NYX, OPWV, VPHM, YHOO

S&P FAIR VALUE -$0.52. US Stock futures indicated down 0.6% after additional selling in EU & Asia.

(AGIX) AtheroGenics announced class action suit dismissal.
(BA) Boeing gets a $360M pact from United Kingdom Air Force.
(CEGE) Cell Genesys said interim results in bladder cancer trial were positive and tolerable.
(CYTO) Cytogen Corp reports positive indications from new prostate study.
(DDS) Dillard’s DDS EPS of $0.77 vs $0.57e; unsure if comparable.
(DHT) Double Hull Tanker $0.39 EPS vs $0.36e.
(DLLR) Dollar Financial filed to sell 7M shares of common stock.
(DYAX) DYAX enters into license agreement with ICOS where it granted a non-exclusive license to its proprietary libraries to ICOS for the discovery and development of therapeutic antibodies
(DYN) Dynegy will sell 35M shares of common to redeem convertible preferred stock.
(EC) Englehard offer from BASF (BF) raised to $39 from $38 per share and company raised guidance.
(FTD) FTD Group put guidance of $0.81 for FY06 vs $0.77e and $0.76 prior guidance.
(GGXY) Golf Galaxy sees EPS $0.19-0.22 vs $0.20e.
(GLW) Corning reitr guidance at $0.24-0.26 EPS vs $0.25eand R$1.29-1.33B vs $1.32B(e); later guidance looks light.
(GTE) GlobeTel was noted as a sham stock according to NYPost.
(HNAB) Hana Biosciences gets an FDA orphan drug designation for Talotrexin for leukemia.
(KLAC) KLA-Tencor under SEC options probe as well.
(KOMG) Komag is reaffirming its partnership with Seagate Tech.
(LOW) Lowe’s $1.06 EPS vs $0.94e.
(MANT) Mantech won a $10M Army Corp of Engineers.
(MERC) Mercer registered 9M shares for sale.
(NYX) New York Stock Exchange proposed a merger with Euronext NV.
(OPWV) Openwave gets SEC inquiry on options.
(PACT) Pacificnetcom $0.08 EPS vs $0.08e.
(TIVO) TiVo is partnering with magazines according to NYPost.
(VPHM) ViroPharma announced positive hepatitis studies.
(VRTX) Vertex announced positive hepatitis trial results.
(WMT) Wal-Mart is selling is S. Korean retail business for $80+M.
(YHOO) Yahoo! up1.5% after positive feature as Barron’s story.

ANALYST CALLS:
AAPL reitr Outperform at Piper Jaffray.
AIZ reitr Outperform at KBW.
AMAT reitr outperform at Thomas Weisel.
AMGN raised to Outperform at Wachovia.
AMX raised to buy at Citigroup.
ANN cut to Equal Weight at Lehman.
ARRS raised to Buy at Raymond James.
ATVI raised to Hold at Citigroup.
AZPN reitr Buy at Jefferies; maintained Peer Perform at Bear Stearns.
ALTH raised to Outperform at Cowen.
BBY raised est/tgt at Lehman.
BEAV reitr Buy at UBS.
CDWC reitr Neutral at B of A.
COF reitr Overweight at Lehman.
CY raised to Buy at UBS.
EBAY tgt cut to $30 from $35 at Deutsche Bank.
ERTS raised to Outperform at Piper Jaffray.
FDRY reitr Outperform at RBC.
GLG raised to Buy at Merrill Lynch.
GOOG reitr Outperform at Bear Stearns.
HIBB added to JPMorgan Focus List.
IFSIA reitr Buy at Robinson Humphreys.
JNPR raised to Peer Perform at Bear Stearns.
KYPH started as In-Line at Goldman Sachs.
LU raised to Buy at UBS.
LUM started as Outperform at KBW.
MCHP raised to Buy at UBS.
MFLX reitr Overweight at MSDW.
NSM cut to Mkt Perform at Piper Jaffray.
NTAP raised to Peer Perform at Thomas Weisel.
OCR reitr Overweight at MSDW.
ODSY reitr Neutral at Cowen.
ORCT cut to Sector Perform at RBC.
PLCE raised to Sector Perform at CIBC.
RL tgt raised to $65 at Prudential.
RSAS cut Accumulate at ThinkEquity
STJ cut to Hold at Deutsche Bank.
TNP reitr Buy at Jefferies.
TRGT started as Buy at Deutsche Bank.
TUES cut to Underperform at JMP Securities.
TS raised to Buy at UBS.
VNDA started as Overweight at JPMorgan.
VSTA maintained underperform at Cowen.

Bank of America’s chief strategist raised equity allocations from 55% to 60%.
Soleil already panned the Vonage (VG) IPO at the current pricing range saying they can’t recommend it at the pricing range.

Jim Cramer’s Mad Money: Cramer discussed the drop in the markets at length and suggested five diversified stocks that really got killed. He said to look at Freeport-McMoRan (FCX), Halliburton (HAL), JPMorgan (JPM), Tellabs (TLAB), and Boeing (BA). Cramer also recommended a natural gas play, Georgia Gulf (GGC). In the "Lightning Round," Cramer was POSITIVE on Peabody Energy (BTU), Gymboree (GYMB), Centerpoint Energy (CNP), H&E Equipment Services (HEES), Cerner (CERN), Essex Corp (KEYW), Smith & Wesson (SWB), Hain Celestial (HAIN), Whole Foods (WFMI), Disney (DIS), Lowe's (LOW), and Starbucks (SBUX), and was NEGATIVE on Burger King (BKC) and Chipotle (CMG), United Natural Foods (UNFI), Home Depot (HD), Playboy (PLA), and Sony (SNE).

Two Major IPO's for Next Week: MasterCard and Vonage (May 19, 2006)

by Jon C. Ogg
Date Created: 5/19/2006 7:18:00 PM EST

Main Tickers: MA, VG

Next week we have two major IPO's coming to market. One is MasterCard and one is Vonage. There is strong demand so far for both companies as both are said to be oversubscribed, and our recommendation for the other four of five companies on the IPO docket next week is this: "Come public on a different day than both MasterCard and Vonage if you want any free publicity that day."


MasterCard (MA-NYSE) has scheduled a 61.5+ million share IPO with a range of $40.00 to $43.00, with a pricing set for Wednesday night and trading Thursday. MasterCard is of course one of the leading providers of credit and debit card services for thousands of financial institutions and name guarantor of the credit cards under the same name. According to all discussions it looks the only thing that may prevent this coming in at the high-end of the range (or above) or with a higher number of shares is a serious market slide between now and the IPO date. The underwriting group is massive: Goldman Sachs is the Lead Manager; Joint Book-Runners are Citigroup, HSBC, J.P.Morgan; and the co-managers are Bear Stearns, Cowen & Co., Deutsche Bank, Harris Nesbitt, KeyBanc Capital, and Santander Investment. The IPO will raise over $2.4 Billion and the implied market cap will be right at $5.6 Billion. With this almost a week away and our crystal ball in the repair shop, we can't automatically give you a Cramer "buy, buy, buy!". But, in a static world without seeing what the markets will do in the three trading sessions before the pricing we would say that if you can get any shares allocated at the IPO price it would be worth taking a shot at. Chances are that the institutions will get the lion share as normal, and there will be too many financial-related funds and firms that will need to own the name.

The cost of reading about the IPO online at a dozen websites: $0.00;
The time-cost required to call your broker and hearing "Yeah right, I bet you want shares!": $3.50;
The cost of sending your broker's manager game tickets in hopes of getting shares: $200.00;
Actually getting an allocation at the IPO-price: Priceless.........


We should get a pricing of Vonage (VG-NYSE) on Tuesday night for Wednesday trading, and they are slated to price 31.25 Million shares at an indicated range of $16.00 to $18.00 per share. Vonage is the leading voice-over-IP (VoIP) telephony company in the US. It also has a significant underwriting group: the book-runners are Citigroup, Deutsche Bank, and UBS; and the co-managers are Bear Stearns, Piper Jaffray, and Thomas Weisel. The pre-demand is also said to be there for the IPO at the deal's pricing level, but the aftermarket trading is the stumper here. No one knows yet if this will open close to the pricing and run higher or if it will gap up too high with a guillotine delivery to those with "market buy on open" orders. It is said to be oversubscribed, but let's see how the tech sector holds up before making any brave calls. At the indicated range it is slated to sell over $500 Million in stock and will have an implied market cap of approximately $2.8 Billion. The financial ratios will be clearer when we see actual indicative price estimates on Monday and Tuesday, so stay tuned for more.

We will offer valuation comparisons as these IPO's get closer and have had a chance to compare them to their public and private peers. Have a great weekend.

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DISCLAIMER: All data provided here is meant for informational purposes only and shall not be considered a recommendation to buy or sell securities. Information has been taken from sources deemed reliable, but no assurances can be offered as to the validity of any claims or figures. Neither News Contrast, Inc. nor its officers offer investment advice to the public and neither is a registered broker/dealer. Please consult with your own investment advisor prior to investing money in any company.

IPO Pricing: Burker King

by Jon C. Ogg
Date Created: 5/18/2006 9:29:00 AM EST

Main Tickers: BKC, GS

Burger King (BKC-NYSE) did price its 25M share IPO at $17.00, which was at the high-end of the $15.00 to $17.00 range. J.P. Morgan was the Lead Manager and co-managers were Citigroup, Goldman Sachs, Morgan Stanley, Wachovia Securities, Bear Stearns, Credit Suisse, Lehman Brothers, and Loop Capital Markets. The details of this have already been covered, but the company has the following metrics: almost 90% of the 11,000 restaurants are franchises, although that number varies from source to source; the company's Fiscal Year June 2005 revenues were $1.94 Billion with net income of $47 Million.

The company was purchased by private equity firms Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners (unit of GS-NYSE) bought Burger King in 2002 for $1.5 billion after a period of slumping sales. At the $17.00 pricing it looks like the implied market cap of approximately $2.3 Billion, and an enterprise value with the debt of approximately $3.5 Billion. At the offering this represents about 19% of the shares being in the free float (see implications below).

There had been some last minute hopes that the pricing would be a tad above the $17.00 mark or that there would be a slightly higher number of shares. The demand on the deal was moderate from the usual suspects in IPO's just last week, but the demand as an aggregate still came in enough to be at the high-end because of the IPO-related funds and food-related funds that really have almost no choice but to own Burger King. Two concerns on the deal were the fairly recent resignation of the CEO and an increase in financing charges after a refinancing, but the growth prospects were the main concern voiced last week as the company is already the number two or number three fast food chain depending on which reports you read.

There are some things to consider that this really has going for it. The 5% market correction we have seen in recent days may have also kept a lid on the pricing. There are many funds that will have no choice but to own the deal. With a $2.3 Billion market cap and only 19% of the shares being in the float, there just may not be enough shares to go around. After we get a secondary in couple or few months from the 81% owner group there may actually be enough float for the company to become a candidate to be in the S&P Mid-Cap 400 Index or a candidate for the S&P 500, but that is purely based on history influencing thoughts and personal opinion.

Pre-Market Notes (May 18, 2006)

by Jon C. Ogg
Date Created: 5/18/2006 8:30:00 AM EST

Main Tickers: BEAS, BKC, CTRP, FWLT, GOOG, INTU, SNDA, UNH, ZUMZ

DJIA 11,205.61 (-214.28, -1.88%)
NASDAQ 2,195.80 (-33.33, -1.50%)
S&P500 1,270.31 (-21.77, -1.68%)
S&P FAIR VALUE PRE-MARKET +$0.90.

(AAP) Advanced Auto Parts $0.68 EPS vs $0.70e.
(ACXM) Acxiom $0.26/R$344.3M vs $0.25/$347M(e).
(BEAS) BEA Systems $0.12/R$323.2M vs $0.10/$322.2M(e); stock up 5% pre-market.
(BKC) Burger King IPO priced 25M shares at the top of the range at $17.00.
(BKE) Buckle $0.47 EPS vs $0.44e.
(BPUR) BioPure -$0.18 EPS vs -$0.18e.
(BTRX) Barrier Therapeutics filed to sell up to $75M in common stock.
(BUCY) Bucyrus appoints Kreuger as COO.
(CDWC) CDW hiked its annual dividend.
(CLE) Claire's Stores $0.30 EPS vs $0.30e.
(CRM) Salesforce.com $0.04/R$104.7M vs $0.04/$101.75M(e); sees Q2 $0.03-0.04 vs $0.05e and R$112-114M vs $112.9M(e); sees 2007 EPS $0.17-0.19 vs $0.22e and R$478-483M vs $476.3M(e); stock down 3% pre-market.
(CTRP) Ctrip.com $0.23 EPS vs $0.20e.
(DEBS) Deb Shops $0.19 EPS vs $0.24e.
(FL) Foot Locker $0.38 EPS vs $0.37e.
(FWLT) Foster Wheeler CEO Bernard Cherry is resigning.
(GM) GM noted cautiously in Barron's online.
(GOOG) Google is reportedly in talks with China Mobile over mobile search pact.
(GXP) Great Plains 6.3M share secondary priced at $27.50.
(GYMB) Gymboree $0.49 EPS vs $0.46e.
(HD) Home Depot announced an accelerated repurchase plan and adds $2B to total buyback plan.
(HOTT) Hot Topic -$0.03/$154M vs -$0.03/$155.6M(e).
(INTU) Intuit $1.79 EPS vs $1.76e; sees Q4 -$0.09 to -$0.07 vs -$0.07e; also approved $500M share buyback and 2 for 1 stock split; stock up 1%.
(KONG) KongZhong $0.22 EPS vs $0.19e.
(LDG) Long's Drug Stores $0.41 EPS vs $0.35e.
(LTXX) LTX Corp upanother 3% after a big run yesterday.
(MNT) Mentor raised $463M by selling its urology operations.
(MRK) Merck has a note in the WSJ that Vioxx problems started appearing earlier.
(MSSR) McCormick & Schmick's filed to sell 2.35M shares of common stock.
(MW) Men's Wearhouse $0.55 EPS vs $0.48e.
(NAPS) Napster -0.17/R$26.23M vs -$0.35/$25.32M(e).
(NBR) Nabors filed to sell $2.5B in convertible notes.
(NRF) Notrthstar Realty 10.1M share secondary priced at $10.60.
(NTRI) Nurtisystems trading up 2.4% pre-market.
(NWY) New York & Co. $0.10 EPS vs $0.11e.
(OICO) OI Corp received a $3.2M order for air monitor equipment from the Army.
(OPNT) OPNET $0.05/R$21.3M vs $0.02+/$20.3M(e); guides next quarter $0.00-0.05 vs $0.05 on R$20.7-22.1M vs $20.8M(e).
(PETM) Petsmart $0.30 EPS vs $0.30e.
(PLCE) Childrens Place $0.52 EPS vs $0.50e.
(QRCP) Quest Resources filed to sell $100M in mixed securities shelf.
(RVI) Retail Ventures filed to sell $125M in securities.
(SCVL) Shoe Carnival $0.54 EPS vs $0.53e.
(SFCC) SFBC up 12% pre-market after it plans to phase out Florida operations.
(SHLD) Sears Holdings $1.14 EPS vs $0.65e; unsure if comparable; s-s-s -4.8%; stock up $8.00 on last look pre-market.
(SMRT) Stein Mart $0.17 EPS vs $0.15e.
(SO) Southern Cos. filed to raise $500M for subsidiary.
(SNDA) Shanda Interactive R$42.6M and net income $1.5M; stock down 4% pre-market.
(SNPS) Synopsys $0.17/$274.8M vs $0.14/$266.5M(e); sees Q3 $0.17-0.20 vs $0.16+(e); stock rose 4% after-hours.
(STP) SunTech Power $0.12 EPS vs $0.09e.
(STSI) Star Scientific registered 4M for selling holders.
(TWMC) Transworld Entertainment -$0.26 EPS vs -$0.31e.
(TWPG) Thomas Weisel 5.35M share secondary priced at $22.00.
(UNH) UnitedHealth negative article in WSJ about NY US Atty General subpoena.
(UPL) Ultra Petroleum announced it will repurchase up to $1B in common stock.
(ZUMZ) Zumiez $0.04/R$47.8M vs $0.02/$46.9M(e); guided 2006 $0.65-0.66 EPS vs $0.62e; stock up 1.2%.

Additional Notes for Thursday:
8:30 AM Weekly Jobless Claims
10:00 AM Leading Indicators (Apr)
12:00 PM Philadelphia Fed Index (May)
10:30 AM Weekly Natural Gas Inventories
Thursday earnings: BKE, BKS, DELL, GPS, HIBB, JWN, PLCE, RAVN, SHLD, SHOE, SSI.

Following Up on Neurocrine's Implosion (May 17, 2006)

by Jon C. Ogg
Date Created: 5/17/2006 9:25:00 AM EST

After the overwhelming traffic generated from the “Evaluating the Implosion in Neurocrine” article, it is worth providing some additional data that still offer patience as the best guide rather than trying to be brave and fighting the tape. Neurocrine Biosciences (NBIX-NASDAQ) is trading down another 4.8% pre-market and has cracked under the $20 mark.

As noted in yesterday’s article, it is almost always better to patient on biotech implosions than it is to be brave and that is still the case. There should be some value left in the company after the dust settles, but in cases like these implosions you have to exercise caution and patience. It is also impossible to know yet where the value will be ($20, $15, $10, $5, etc...) ahead of time. After you see a stock lose 48%, 52% and then over 60% it is of little consequence if you have to pay up a little for it days or weeks later, even if it has recovered 10% or 20% off the lows. What is important is to let the dust settle and evaluate the situation when you have a very clear idea of what the picture looks like and when you can evaluate the merits in finite terms and figures.

Also as noted yesterday, when you see these implosions the balance sheet and revenue statements can be very misleading because the entire equation changes and you just do not know what the real picture will look like. After we find out what the financial terms are and what certain covenants are, then it is possible to form a longer-term opinion; but once again, when dealing with biotech implosions patience is usually better than trying to be brave.

Because the company has other partnerships and in many different areas, it will likely be enough to keep the company from being scrubbed off the map entirely. The company does still have cash and does have a shot at generating revenues from this and other areas, albeit less than what would have been expected a mere 48 hours ago. We haven’t even seen the typical shareholder class action lawsuits yet that say the company bilked investors, and you can bet they will come (they always do). There may be some key employee resignations or firings as a result as well, and all of these developments make patience the best strategy if you are evaluating it as a new or potential investment.

You can see how low the fair value estimates from Wall Street firms have come down, and as we get closer to those levels then you can start making some decisions if you want to consider new money in this stock. Let all the coming bad headlines come out, because you have to know that there will likely only be bad headlines in the immediate future.

Normally when you see a rash of downgrades after a blow-up after negative news, the initial reaction is to call the analysts all a bunch of penguins. In the case of Neurocrine Biosciences (NBIX-NASDAQ) it may not be entirely fair to use that term. This did catch almost all analysts off guard, and the street was by and large expecting an approvable indication rather than just a partial. Even the options going into the event were far from expecting the move that occurred.

There are numerous negative calls out there between yesterday and this morning, and these are only a small sample of the calls:

Jefferies downgraded to Underperform from Hold, new target $15;

Lehman downgraded to Equal Weight from Overweight, new target $23;

Piper Jaffray downgraded to Market Perform from Outperform, new target $22;

Prudential downgraded to Neutral from Overweight, new target $23;

UBS downgraded to Reduce from Buy, new target $17;

What may also come at any time is a termination of Pfizer’s (PFE) pact, although it is unknown if that will occur and with a partial approvable nod it is possible that the deal may stay (with lower participation likely). The company’s partnership pacts and milestone payments are what account for the company’s revenues, so the prior revenues may also not be reflective of future revenues.

Also after digging around it appears that a couple more names than mentioned yesterday may be beneficiaries of this. Questcor Pharmaceuticals’ (QSC-AMEX) Doral (quazepam) may be more successfully marketed to neurologists now, and Pfizer already has a similar marketing pact with Exubera from Nektar Therapeutics (NKTR-NASDAQ). Stay tuned for further developments in this ongoing situation.

Another link to yesterday's article is posted here:

http://newscontrast.com/articles/viewer.aspx?id=1373

Evaluating the Implosion in Neurocrine (May 16, 2006)

by Jon C. Ogg
Date Created: 5/16/2006 12:16:00 PM EST

Main Tickers: NBIX, DOVP, SEPR, SNY, PFE, KG, MRK, BOL, PFE, BIIB, ELN

This situation on Neurocrine Biosciences (NBIX-NASDAQ) is quite puzzling, and perhaps outright troubling. The FDA earlier gave only a partial "Approvable" nod to its investigational drug Indiplon for insomnia, a very common sleep disorder. Neurocrine shares are down a massive 59.4% to $22.14 this morning, a level which puts the company at 5-year lows. Some of this may not even be the company's fault depending on how you read into it, and when you see blow-ups like this it leaves little doubt as to why so many investors avoid development-stage biotech companies.

Here are the guts of the press release:

SAN DIEGO, May 16 /PRNewswire-FirstCall/ -- Neurocrine Biosciences, Inc. (Nasdaq: NBIX) announced today that the Company has received communication from the U.S. Food and Drug Administration (FDA) indicating that the agency has determined that indiplon 5 mg and 10 mg capsules are approvable and the 15 mg XR tablets are not approvable at this time. The FDA indicated that they did not have an opportunity to review all of the information submitted during the NDA review cycles. The Company will accept FDA's offer to discuss the applications via a meeting or telephone conference in order to clarify and determine the next steps required to move indiplon towards full approval.

"While we are disappointed in the FDA action, we will move forward expeditiously to address FDA's outstanding questions regarding the applications," said Gary A. Lyons, President and CEO of Neurocrine. "We are heartened by the approvable action for indiplon capsules and are dedicated to working with the Agency to expedite response to the action letters."

The Current Landscape........

The FDA has had a full plate with problems and issues, and now becoming almost entirely unpredictable can be thrown in on the list of problems. It wasn't that the FDA was ever fully predictable, but after recent drug and product recalls it has to make you wonder if they are becoming a Doubting Thomas. Bausch & Lomb's (BOL-NYSE) recent lens cleaner ReNu With MoistureLoc withdrawal, Merck's (MRK-NYSE) Vioxx woes, and even the Biogen-Idec (BIIB-NASDAQ) and Elan (ELN-NYSE/ADR) withdrawal of Tysabri are possibly ALL contributors to Neurocrine's woes this morning as it may be entirely possible that the FDA may be playing purely a defensive game.

Just yesterday and last week the street bet was that Neurocrine WOULD get at approval for at least the lower dosages of its investigational sleep drug Indiplon. Neurocrine was seeking approval for its 5mg and 10mg capsules, as well as its 15mg extended release tablets. The FDA's "Approvable Letter" for the lower doses signals that they will likely approve the lower doses after meeting with the company and getting more data, but the "non-Approvable" status for the higher dose is the killer. Indiplon had the potential of being a blockbuster drug (sales of over $1 Billion per year), and after perusing many research reports it was the higher dose that was expected to be the main contributor. So the company will still likely get sales from its 5mg and 10mg doses, but the lingering issue is going to be how much it can contribute now.

It was expected that the company would get approval in the lower doses, and the wild card was the higher dose. There was also some risk that the labelling would carry warnings indicating potential risks of addiction, as is the case with almost all sleeping drugs. After running some shock scenarios, this stock really looks as though it is trading even worse than would be expected if ALL doses had been denied. It is likely that this FDA treatment may call into question how the FDA will respond to all of Neurocrine's programs. The company licensed this compound and it does have a partial "approvable" status, so it may be unfair to count the entire situation as a write-off like the street is doing. Keep in mind that there will be more conflicting data in the coming days and that there will almost assuredly be shareholder class action suits and other negative headlines about the company in the coming days. Historically 85% of these blow-up situations tend to get worse for shareholders before they get better, but this situation may be worth looking into after the dust settles. Trading blow-ups usually requires more patience than guts or ego, so remember to let the dust settle and be sure to do your own homework on this.

Neurocrine's market cap has been severed from over $2 Billion to merely $840 Million as a result of this. The company posted revenues in 2005 of $123.88M and an attributed net loss to shareholders of $22.19 Million, but its March 31, 2006 posted revenues of $19.47 Million and a net loss attributed to shareholders of $25.9 Million. Its current March 31 balance sheet showed liquid cash and short-term investments of about $264.4 Million, with another $97.3M value to its plant and equipment, and $105 Million listed as "other assets" (usually goodwill, which is pretty hard to pay bills with). Its Current Liabilities were listed as $32.75 Million and its Long-Term Debt was put at $52.4 Million. The trick on evaluating a balance sheet is that they are always backward looking and you can bet what you are sitting on that this could greatly increase expenses and will certainly decrease potential revenues. You have to also discover what financial covenants may be lurking, so you can't just blindly look at the data and say it looks fine. On the surface it does not look like a financial death warrant to be served immediately. This still feels like it will be worth a look after the dust settles, but once again "BE PATIENT!".

At the end of 2005 the company had 9 programs in R&D, 7 of which were in clinical development. The company's other programs include studies on treating Multiple Sclerosis, type 1 diabetes, endometriosis, benign prostatic hyperplasia, anxiety and depression, Parkinson's, and gastrointestinal disorders. It also has two other partners: GlaxoSmithKline (GSK-NYSE/ADR) on CRF Antagonists for psychiatric, neurological, and gastrointestinal diseases, whose shares are actully up 1.4% on positive HIV study data; and with Almirall Prodesfarma, SA for Parkinson’s disease.

Additional Fallout......

Dove Pharmaceutical (DOVP-NASDAQ) fell over 50% this morning as it licensed the compound for Indiplon to Neurocrine. Dove was set to receive 3.5% of the royalties of Indiplon sales. Pfizer (PFE-NYSE) had been down 0.5% as it the co-developer of Indiplon, although they are less impacted as they have dozens and dozens of revenue and income sources.

Other makers of insomnia medications are up strongly today. Sepracor (SEPR-NASDAQ) shares are up about 11%, King Pharmaceuticals (KG-NYSE) shares are up almost 2%, and Sanofi-Aventis (SNY-NYSE/ADR) shares are up about 3%. Sepracor makes the recently launched Lunesta, Sanofi-Aventis makes Ambien, and King makes Sonata.

Below are two charts courtesy of Bigcharts.com, one is a one-year and one is a five-year:

This Week in IPO-Land (May 15, 2006)

by Jon C. Ogg
Date Created: 5/15/2006 2:00:00 PM EST

Main Tickers: BKC, DR, PNSN, REST, QTRX, MAQ, CTCM

This is not an extremely busy week in IPO-land, but we have a key IPO and there is of course always plenty of news and many developments worth looking at.

The largest IPO and the one the street has its eye on is of course Burger King Holdings that will trade under the ticker "BKC-NYSE." It is presumable that if you haven't been locked up for thirty years and that if you are reading this that you already know they are one of the top fast food and burger interests in the US and abroad. The underwriting group is lead by J.P.Morgan and the co-manager group is quite large: Citigroup, Goldman Sachs, Morgan Stanley, Wachovia, Bear Stearns, CSFB, Lehman, and Loop Capital Markets. Burger King is offering 25M shares with an indicated price range of $15.00 to $17.00, and it will have an implied market cap of approximately $2.1 Billion. This sale will represent a 19% stake being sold and is currently controlled by private equity firms Texas Pacific Group, Bain Capital and Goldman Sachs after the group purchased it in 2002 for about $1.5 billion from British drinks company Diageo Plc. Its most recent 12-month implied financial data showed revenues at $2.018B with net income of approximately $119M, but the 9-month bottom-line posted an actual decline of about 18% on what was said to be in-part a $14M loss.

We also have Darwin Professional Underwriters (DR-NYSE), which offers Medical Malpractice, Errors & Omissions, and Directors & Officers insurance products. Its most recent 12-month financials showed $101M revenues with approximately $6M net income. As of now it is projected to sell 5.2M shares at a range of $15.00 to $17.00 per share from the following underwriters: Leaders are Merrill Lynch and CSFB; co-managers are Dowling & Partners, Cochran Coronia, and Keefe Bruyette Woods.

Penson Worldwide is also set to come public this week under ticker "PNSN-NASDAQ." Penson provides securities clearing and related services to broker/dealers and institutions. The joint book-runners are J.P.Morgan and CSFB, with Bank of America, Raymond James and Sandler O'Neill acting as co-managers. PNSN is proposing 7.5M shares at a price range of $15.00 to $17.00 per share. Its most recent implied 12-month financial data showed revenues of $146M with approximately $7M net income.

Restore Medical is also on the IPO docket, and will trade under the ticker "REST-NASDAQ." It manufactures a proprietary palatal implant system, which is an implantable medical device that treats sleep disordered breathing. The company is only selling 4M shares at a proposed range of $9.00 to $14.00. The company's website says that its sleep apnea and snoring solution is FDA-cleared and clinically proven, with results comparable to more aggressive surgical procedures.


Other Developing IPO Stories

Quatrx Pharmaceuticals (QTRX-NASDAQ) is still day-to-day on last look, so there is no assurance it will price this week. They are a research-stage developer of drugs in the endocrine, metabolic and cardiovascular therapeutic areas that has no revenues as of yet. It has indicated that it will sell 6M shares in a pricing range of $11.00 to 413.00 per share. The underwriting group has Bank of America and Cowen as joint book-runners with Lazard and pacific Growth as co-managers.

We also saw a newly-formed blank check company Marathon Acquisition Corp. register to come public via an IPO on the American Stock Exchange under the proposed ticker "MAQ-AMEX." It seeks to operate in "various industries in the US and Western Europe." Citigroup and Ladenberg Thalmann have been listed as the proposed joint book-runners. It is a proposed offering of 37.5 million units of up to $330M total, with each unit consisting of one share and one warrant. Usually these companies come under heavy scrutiny, but Marathon is controlled by former Apollo investment CEO Michael Gross. The offering prospectus indicated that he currently serves on several boards of directors of public companies, including Apollo Investment Corporation, Saks, Inc. and United Rentals, Inc., and in the past has served on the boards of directors of more than 20 public and private companies. Two additional directors listed are Adam Aron, former CEO of Vail Resorts, and Martin Franklin of Jarden Corp.

CTC Media (proposed as CTCM-NASDAQ), which operates two Russian television networks that offer entertainment programming, announced the terms for its upcoming IPO on Friday. According to the SEC filing, the Moscow-based media company plans to offer 29.4M shares at a range of $16.00 to $18.00 per share and will have an estimated market cap of $2.5 Billion. Joint book-running managers Morgan Stanley and Deutsche Bank have yet to announce a pricing date for this IPO.

Friday after the close, software provider Activant withdrew its proposed IPO because of a merger.

If you wish to subscribe directly to our Free newsletter and email list on upcoming IPO's and other special situations, please send an email to info@newscontrast.com and label it "IPO email request." We do not sell our lists and do not share our email list with any outside partners or vendors.

An IPO Filing: Clearwire Finally Filed for an IPO (May 11, 2006)

by Jon C. Ogg
Date Created: 5/11/2006 8:49:00 AM EST

One of the first pure-play Wi-Max companies with an existing coverage footprint in the US may soon be public. Craig McCaw's wireless broadband provider Clearwire has filed to debut in an IPO with a stock sale of $400M. We haven't seen an indication on the number of shares but the underwriting group is fairly large. Merrill Lynch & Co., Morgan Stanley and JPMorgan would be the lead underwriters, with Bear Stearns and Wachovia also in the underwriting. McCaw, who is chairman and co-chief executive, founded Clearwire in October 2003, and the company entered its first market in August 2004. As of March 31, Clearwire offered services in 27 markets in the US, as well as Brussels and Dublin in the EU. The company reported a 2005 net loss of $139.95 million on $33.45 million in Revenues. Clearwire has applied to list its Class A common stock on the NASDAQ under the ticker "CLWR." It is obviously too soon to know what the exact share demand will be, but it is probably safe to note that if you CAN get a share allocation at the IPO pricing from the underwriters it should be worth taking.

If you want an extensive behind the scenes article and backgrounder on Clearwire and McCaw there was a Bloomberg article in February, 2005 that revealed quite a bit.

One current hurdle Clearwire faces is its somewhat limited current coverage footprint in the US, but this will surely expand after the IPO proceeds have been raised (if not sooner). Clearwire is in less-covered areas than many of the major wireless carrier wireless broadband plans that have traditionally launched their services in major metro areas. Despite this coverage area, the company is sure to get much media coverage as the IPO nears and investors will more than likely take whatever allocations they can get their hands on at the IPO pricing. That of course can change at any time and based on market conditions, but as of now that looks like the case. Below is a link to the company's coverage map in the US:

https://www.clearwire.com/store/service_areas.php

If you wish to subscribe directly to our Free newsletter and email list on upcoming IPO's and other special situations, please send an email to info@newscontrast.com and label it "IPO email request." We do not sell our lists and do not share our email list with any outside partners or vendors.

News Corp's Earnings and the Impact of Myspace.com (May 10, 2006)

by Jon C. Ogg
Date Created: 5/10/2006 5:24:00 PM EST

After strong earnings News Corp (NWS-NYSE) traded up $0.48, or 2.51% to $19.60 (versus a $19.12 close). Going into earnings today options traders looked like they had factored in a move of up to $0.60 in either direction, which was about 3% at current levels. Analysts were still mixed, but the current trend and feel was more positive after it was all said and done. Keep in mind that NWS has only officially been labeled a US-based company for a fairly small time compared to most S&P 500 Index components, so it is not officially as widely followed as some other big media companies. Please look at the chart following this article to see the importance of the after-hours activity in the stock.

News Corp reported earnings of $820M, operating income of $1.0 Billion, net revenues of $6.19+ Billion, and it applied an EPS number of $0.26 on a diluted combined basis. The company also hiked its current share buyback plan from $3 Billion to $6 Billion to be completed in the coming 2-years "as the market undervalues the company" according to Murdoch on the conference call. It had already made $2.5 Billion in share buybacks of the current $3 Billion buyback plan. The company also said it was comfortable with its guidance for the year that was offered in February.

It is probably without surprise that print operating income fell 9%, but we finally got to interpolate some company-released figures on Myspace.com. The company said it has over 70 Million registered users, and in the conference call said it was nearing 80 Million users. Of the $6.19+ Billion in revenues for the quarter, it said "other" operations (which would include New Media Initiatives) were $359M in revenues and a loss in "other" operations of $49M.

Outside of its films, broadcast, cable, satellite, and print revenues, the real interest here to us was Myspace.com. It is newer than any of its other key investments and operating units that contribute to revenues because of the possibility of it affecting other new media companies. Rupert Murdoch had been highly criticized over his purchase of Myspace.com through its Intermix acquisition for some $580 Million, but the last laughs so far have probably been by Murdoch himself. Myspace.com is now one of the top 5 web destinations (second in page views according to many), and exact figures vary from various polls, ad agencies, and traffic measurements seen. For now it is probably best to keep exact figures vague because of conflicting data and constantly changing figures.

If you look at the charts below from Bigcharts.com, you will see how critical this current after-hours price is. On a dividend adjusted basis, the stock is right at the upper-end of what has been a $15+ to $19+ extreme trading band for the last two to three years and is within striking distance of dividend adjusted five-year highs.

Earnings Preview for Tomorrow: Cicsco Systems (May 8, 2006)

by Jon C. Ogg
Date Created: 5/8/2006 4:30:00 PM EST

Main Tickers: CSCO, SNDA, DELL, INTC, MSFT, JNPR, EXTR, FDRY, MOT

Tomorrow is Cisco Systems' (CSCO-NASDAQ) earnings report after the close. Before going into all of the different metrics normally covered, please keep in mind that this quarter in particular will almost certainly look substantially different on a year-over-year and on a quarterly basis than in other quarters and it is going to potentially alter the way some analyst research reports look Wednesday and beyond. In February it closed the Scientific-Atlanta acquisition (its largest acquisition in years) and during the quarter it acquired a 9.7% stake of Shanda Interactive (SNDA-NASDAQ) based in Shanghai. Dell's (DELL) lowered-guidance just after the close today may throw a wrench in the machine on these numbers and calculations for tomorrow in this and other major tech stocks, but Intel (INTC) is only down $0.11 and Microsoft (MSFT) is only down $0.04 in after-hours trading.

Analysts expect earnings per share and revenues as follows: EPS $0.26 & R$7.21B.

Earlier in the quarter the company forecast a multi-year revenue growth target of 10% to 15%; and we now we should get to see just how all of the integrations in data transfer, hardware, Wi-Max, and security are all going to add to the top and bottom line.

The recent analyst calls ahead of the earnings have actually been positive and it seems that the street has put the stock back in a favorable position rather than a "ho-hum" stance we have seen for so many of the previous quarters. Merrill Lynch noted that recent weeks may have seen some weakness, but all in all expects a good quarter. Morgan Stanley noted that investors should have CSCO as a core technology holding and both Citigroup and Oppenheimer have boosted their target on the shares in recent days.

On a near-term basis the stock is back at this near-$22 stock handle that has acted as a ceiling in the past, although the shares are up nearly 5% in the last two weeks. The shares are also up over 20% since its last earnings report and up about 29% since the first of the year.

Options traders seem to pricing in more of a move ahead of this earnings report compared to many past recent earnings. Keep in mind that the options expire in under two weeks, but it looks like the options traders are bracing for a move of up to $0.55 based on current prices.

Much of CSCO's recent market share gain in the core router and networking arenas has been at the expense of competitors Juniper (JNPR), Extreme Networks (EXTR), and Foundry (FDRY). It has also recently called off a wi-fi venture with Motorola (MOT), although that is probably of little surprise that collaborations in most areas would seemingly end (after the point of agreeing to various industry standardizations) as these two companies will now be going head to head in the set-top box arena.

Key Offerings This Week (May 8, 2006)

by Jon C. Ogg
Date Created: 5/8/2006 8:49:00 AM EST

Main Tickers: BOOM, GHL, PVH, BKC

Dynamic Materials (BOOM-NASDAQ) should finally get this proposed secondary of 5.15+ million shares behind it. Last month, the company disclosed that France's SNPE would be selling its 5.15+ million share stake so BOOM itself will not benefit from any of the proceeds. Over the last year the shares are up well over 100%, but the shares are now off about 10% and have been down as much as about 17% since BOOM released earnings and disclosed this secondary offering.

Greenhill & Co (GHL-NYSE) is expected to raise over $225M after its filing last week to sell 4.025 million shares, although these shares are being sold entirely by current and former directors and GHL will get none of the proceeds. This stock is also up over 100% in the last year after a strong IPO since it is active in the M&A markets, and the company has actually recovered quite well off of its lows after having been down over 10%.

Phillips-Van Heusen (PVH-NYSE) will be selling 10M shares this week, and just like the other deals the proceed are going to selling holders. Apax Partners is selling these shares it received in conjunction with convertible shares from PVH's acquisition of Calvin Klein in February 2003.

We do have many other offerings, but these were the initial stand-outs on deck. Next week we should see the pricing of the long-awaited Burger King IPO.

NYSE's Secondary Offering Priced, and They Fleeced You As Predicted (May 5, 2006)

by Jon C. Ogg
Date Created: 5/5/2006 9:01:00 AM EST

Main Tickers: NDAQ, NYX

Last night we had the 25M share secondary offering from the New York Stock Exchange (NYX-NYSE) price at $61.50 per share, down from the $62.88 close yesterday. This was something previously (Article link) discussed and compared to the "good type of secondary offering" from NASDAQ (NDAQ-NASDAQ), but noted how this deal felt sleazy since there had been very little transparency from lock-ups and planned share sale dates. Needless to say, the stock hasn't performed well in anticipation of the offering. When we inquired with the NYSE a few weeks ago they didn't even know when certain lock-up effective dates would be on certain allocations. Once again, NONE of the proceeds are going to the NYSE itself and based on the chart below you can see how excited the street was about this. If you think the fleecing of the public from Wall Street was a thing of the past, well this might make you think again.

Chart for the last 10 trading days courtesy of Bigcharts.com:



Usually these work themselves out after the actual pricing and trading because of all the selling ahead of the event, but IF the NYSE puts out any negative data in the immediate future that they could or should have known about they are going to have a scandal on their hands. And, NO.....That isn't a prediction.

What is the Financial Impact From ARIAD's Victory Over Eli Lilly? (May 4, 2006)

by Jon C. Ogg
Date Created: 5/4/2006 12:08:00 PM EST

Main Tickers: ARIA, LLY

ARIAD Pharmaceuticals (ARIA-NASDAQ) was briefly halted before re-opening above $7.00 after winning a lawsuit for patent infringement against Eli Lilly (LLY-NYSE) for Evista® and Xigris®. The damage award was $62.5M for past royalties of 2.3% of the sales, but the kicker is that ARIAD will get 2.3% royalties thru 2019 when its patent expires.

As far as how this will hit LLY, it is really more of an irritation than a killer for the company as LLY has a market cap of nearly $60 Billion with over $5 Billion in cash and equivalents. ARIAD's market cap is only $341M so you would expect them to get a jump on this. ARIAD is (or WAS before today) basically a non-revenue stage biopharma that posted merely $242,000 in revenues over its last quarter and it post losses of $14.99M after R&D and SG&A costs. As of December 31, 2005 the company had liquid cash and equivalent assets of $81.5+M and it listed its total liabilities at $24.7M after having only $5.7M in long-term debt.

LLY's sales on Evista for osteoporosis were $1.03B in 2005, but that is a worldwide number and it is approved in many countries. The annual report shows US sales were $652.9M and foreign sales were $383.2M. This is a US ruling so for now it will have to be calculated based upon US-sales only. Xigris sales in 2005 were $214.6M, with $118.9M in the US and $95.7M outside of the US. ARIAD also has a decent sized short interest ratio of 7.5% that could alter the reaction a bit.


BELOW IS THE IMPORTANT DATA FROM THE PRESS RELEASE:

CAMBRIDGE, Mass.--(BUSINESS WIRE)--May 4, 2006--ARIAD Pharmaceuticals, Inc. (Nasdaq: ARIA - News) and its co-plaintiffs today announced that the jury in the United States District Court for the District of Massachusetts has found in favor of the plaintiffs in their lawsuit against Eli Lilly and Company ("Lilly") alleging infringement of the plaintiffs' pioneering U.S. patent covering methods of treating human disease by regulating NF-(kappa)B cell-signaling activity. The jury ruled unanimously in favor of the plaintiffs in finding that the claims of the NF-(kappa)B patent asserted in the lawsuit are valid and infringed by Lilly with respect to Lilly's osteoporosis drug, Evista®, and Lilly's septic shock drug, Xigris®.

The jury awarded damages to the plaintiffs in the amount of approximately $65.2 million, based on the jury's determination of a reasonable royalty rate of 2.3% to be paid by Lilly to the plaintiffs based on U.S. sales of Evista and Xigris from filing of the lawsuit on June 25, 2002 through February 28, 2006. The jury awarded further damages on an ongoing basis, in amounts to be determined, equal to 2.3% of U.S. sales of Evista and Xigris through the year 2019, when the patent expires.

The co-plaintiffs are Massachusetts Institute of Technology, The Whitehead Institute for Biomedical Research, and The President and Fellows of Harvard College.

"We are extremely pleased with the jury's verdict supporting our assertions regarding Lilly's infringement of our patent and its validity. This finding coincides with the twentieth anniversary of the discovery of NF-(kappa)B by the research groups led by Professors David Baltimore, Phillip Sharp and Tom Maniatis and highlights the importance of their pioneering discoveries," said Harvey J. Berger, M.D., chairman and chief executive officer of ARIAD.

Dr. Berger added, "While Lilly has the right to challenge the verdict in the trial court and on appeal, and certain limited issues relating to validity and enforceability of our patent remain pending before the judge, we are confident that we will prevail in the trial court and the verdict will be upheld by the appeals court, if Lilly files an appeal."

IPO Alerts: DynCorp and Delek; When-Issued Alert: Sprint NexTel's "Embarq" Unit (May 4, 2006)

Jon C. Ogg
Date Created: 5/4/2006 9:30:00 AM EST

Main Tickers DCP, DK, EQ

We had 2 key IPO's price for trading today: DynCorp and Delek. DynCorp of course is the private defense and services contractor for the US governement, allies and corporations; and Delek is the US refining and gas station company in the US. We also have the when-issued trading today for Sprint Nextel's "Embarq" unit.

DynCorp will trade under "DCP" on the NYSE and its 25M share IPO priced at $15.00, which is at the lower-end of the $15.00 to $17.00 expected pricing range. DynCorp is being spun-off from the private equity group Veritas Capital, which it recently purchased from Computer Science Corp (CSC).

Delek will trade under "DK" on the NYSE and its 10M share IPO priced at $16.00, at the high-end of the $14.00 to $16.00 range. For some reason it hadn't gotten much attention up through last week (odd considering it has a refinery of its own), although this shaped up this week. The company had 2005 revenues of $2.03 Billion and posted net income of $65M. Lehman and Citigroup lead the offering with CSFB, Morgan Keegan, William Blair, HSBC, and the Israel Discount Bank of NY were co-managers. Delek U.S. Holdings is being spun off by parent Delek Group, the Israeli oil conglomerate controlled by real estate mogul Yitzhak Tshuva.

We have a new "When-Issued" stock trading today called "Embarq," which is Sprint Nextel's (NYSE: S) local communications company that will trade under the ticker "EQ" on the NYSE. According to the company here is their self-description: Upon the separation from Sprint Nextel, EMBARQ is expected to be a NYSE-listed company with approximately $6 Billion in annual revenues, rank among the Fortune 500 and serve as the fifth largest local communications company in the United States based on the company's 7.4 million access lines as of September 30, 2005. The company will provide a suite of communications services, consisting of local and long distance voice and data services, including high-speed Internet access. The company expects to have approximately 20,000 employees at the time of the separation from Sprint Nextel.

Is There a Way to Look at Helio With an Investor's Eye? (May 2, 2006)

by Jon C. Ogg
Date Created: 5/2/2006 10:15:00 AM EST

Main Stock Tickers: ELNK, SKM, QCOM, S, NWS, YHOO, MSFT, PALM, RIMM, SNE

Today is the launch date for Helio, a new mobile service geared toward the mobile young adults deemed in the twenty-something demographics, although the company is targeting mainly those aged 18 to 34. Helio is a joint venture between EarthLink (ELNK-NASDAQ) and Korea's SK Telecom (SKM-NYSE/ADR) that runs off of Qualcomm's (QCOM-NASDAQ) CDMA technology on space rented on the Sprint Nextel (S-NYSE) network. The investor relations site notes that the company is capitalized with $440M worth of investments from its partners. This is a new service that includes many next generation features as well as what they claim is an exclusive arrangement with NewsCorp's (NWS-NYSE) MySpace and video, audio, 3G, games and the like. Helio's target is reportedly set to be 3 million users over the next 3 years

The joint venture does have an interesting and capable management team: EarthLink's founder Sky Dayton is the CEO; the President & COO is Dr. Wonhee Sull, the former R&D Platform head of SK Telecom; the CFO is Todd Teppin, former CFO of Internet paid-search giant Overture.com; Stuart Redsun is the EVP of Marketing, who was the worlwide general manager of brand marketing for Motorola since 2002; Ali Zanjani is EVP of sales and distribution, formerly the president of consumer retail at Sprint PCS; Terry Boyle is the VP of Operations, who served as vice president of operations at PeoplePC in 2000 that sold to Earhlink in 2002; Michael Grossi is VP of Business Development, a former vice president/partner at Adventis.

Interestingly enough I started typing in affluent zip code searches for New York, Chicago, San Francisco and Los Angeles and found that most of the distributors of Helio are independent wireless shops that resell many wireless plans rather than at any of the big box retailers or at any of the big electronics sales behemoths like Best Buy, Radio Shack or Circuit City. After checking those websites they did not mention anything about it. The importance of this is that in order to successfully grow many new launches it is often required that gadgets and phones be sold and supported by some of the big retailers because they are deemed key destination points for this target audience. It is currently expected to sell at 1,000 retail outlets by the end of this month and expected to sell at 3,000 retail outlets by the end of the year. Retail partners will include music retailers Tower Records and Sam Goody, as well as more than 100 university campus bookstores around the country.

From an investors point of view this looks and feels like it may be a coin toss. SK Telecom (SKM) has a market cap of $20+ Billion after converting the Korean ADR's, but EarthLink (ELNK) currently has a market cap of merely $1.19 Billion at current prices. With EarthLink having such a smaller market cap and with this being more US-based you would expect Earthlink to be the larger beneficiary of this IF it is an astounding success. This service does seem very interesting considering how most US cell phones do not really have 3G capabilities (even though most claim to) and that it really ties in some mobile computing, blogging, and constant contact. The worrisome issue here is that both the phones (starting at $250.00) and the monthly service plan (starting at $85/month) are going to be priced out of the typical range of the target demographics, but the plans do include the wireless data packages. They also need more distribution partners, although it is very possible that they already have that in the works and it may just be too new for all of the resellers to have it up on their sites. While Microsoft's (MSFT) Origami mini-PC launch is significantly more expensive and even with so many other communication gadgets out there such as Palm (PALM), Blackberry (RIMM) and Sony's PSP (SNE-ADR) it seems like the verdict is still out on Helio. The launch campaign hasn't exactly been stellar, which is why you are just getting all of this today instead of a week or two before the launch date.

All-In Membership Includes Unlimited: MySpace on Helio; H.O.T. (Helio on Top) Service; 3G Network Access; Wireless internet plus Yahoo! Search; Video Messaging*; Picture + Text Messaging*; Data Transfer; Night and weekend calling.

CALLING PLANS:
1000 Anytime Minutes $85 / month
1500 Anytime Minutes $100 / month
2500 Anytime Minutes $135 / month

Kickflip for $250:
Loaded Camera - 2 megapixel, 4x digital zoom, with built-in flash for night shots;
Video Camera - MPEG 4 video camera for action shots anywhere you and your friends go;
Big Screen - Large 2.2" QVGA, 240 x 320 resolution screen;
Mega Memory - 70 MB + up to 1200 friends' contacts! Get extra memory via memory cards;
Internet Surfing - Yahoo! Search and one-click access to your favorite websites and MySpace;
Entertainment - Plays the latest 3D games and also supports: MP3, MPEG 4 player, VOD, MMS, Mobile Flash and TV output.

Hero for $275:
Huge Screen - Large 2.2” QVGA, 260K color TFT-LAC, 240 x 320 resolution;
Fast Processor - Power chip to support cutting-edge multimedia, 3D games, and MPEG 4 video;
Mega Memory - 70 MB + extra memory available via MicroSD Card (TransFlash);
Loaded Camera - 2 megapixel, built-in flash, 4x digital zoom, and MPEG 4 video camera;
Superior Audio - Built-in dual full duplex stereo speakers for awesome video and gaming sound;
Entertainment - Personal Entertainment Center supports: MP3, MPEG 4/H.264 player, QVGA video, VOD, MMS, Mobile Flash.

Here is the list of content partners:
Myspace
Yahoo!
IGN.com
EA Games
Fox Sports

Upcoming IPO Preview: DynCorp

by Jon C. Ogg
Date Created: 4/28/2006 4:47:00 PM EST

Next week we should get the planned IPO of US-defense and technical contracting services giant DynCorp. DynCorp will trade under the ticker "DCP" on the NYSE. Credit Suisse Fist Boston (CSR) and Goldman Sachs (GS) are the lead underwriters with Bear Stearns, CIBC, Jefferies, UBS, and Wachovia in the syndicate as well. The expected range for the 25M share IPO is expected to be $15.00 to $17.00, with an expected capital raise of about $365M out of the offering.

It plans to use the proceeds to redeem outstanding preferred stock, pay a $100 million special dividend on Class B shares and repay some debt, including a prepayment penalty. For those of you that do not recall off hand, DynCorp used to be owned by Computer Science Corp (CSC) and it was sold to a private equity concern named Veritas Capital in February of 2005 for about $937 Million. So this looks like it is a corporate quasi-repackage as a standalone play that is going to essentially be resold to the public and it appears that Veritas will still have a two-thirds stake in the recapitalized company. In the 9-months available from 2005 it disclosed in filings that revenues were approximately $1.4 Billion with pro forma income of $18.1M. As of the end of 2005 it had a reported debt level of approximately $600M and its 40+ active contracts on the books are said to have a current backlog of about $2.7B over the coming years.

One interesting aspect about this IPO in particular is that it may partially set the trend for how the street treats the proposed spin-off of Halliburton's (HAL) KBR unit that we should see in the coming weeks to months. The overall expectations for the IPO out of the chute do not look like they are putting it in the "hot IPO" category, but it isn't expected to fall out of bed either. The future of the company has not really been under serious question, but one area that is probably an obvious to watch is the coming elections that would signal any change in the balance of power in Congress and of course any party change in 2008. Despite this as a business environment risk, the company traces its history back to the late 1940's and has survived and continued to evolve under both Democrat and Republican administrations during times deemed peaceful and hostile.

BACKGROUND
DynCorp traces its roots back as far as 1946 and now has approximately 14,000 employees in various aspects as a corporate contractor to the US government and its allies. Its customers are the U.S. State Department, the DoD, Army, Navy, Air Force, Marines, and commercial customers in many foreign countries. It specializes in outsourced civilian defense contracting, private security details, law enforcement activities, the war on drugs, technical services, and other critical support areas for numerous government agencies. In the private security details you may recall a picture of an Anglo bodyguard for Karzai in Afghanistan that was shown in Barron's under what is frequently referred to as the private warfare sector, and that was a DynCorp contractor. In the security and private warfare activities it competes with Marsh & McClennan's (MMC) Kroll unit. It competes with Civilian Police International, SAIC, and PAE Group in law enforcement activities. They compete with many companies such as Halliburton's (HAL) KBR unit (also scheduled to come public soon), Babcock International Group, and IAP Worldwide in international logistics and base support operations. It competes in the technical services field against many behemoths such as Boeing (BA), Lockheed (LMT) and others.

The company's homepage is http://www.dyn-intl.com and its Veritas Capital private equity parent's website is found at http://www.veritascapital.com if you choose to look at the companies yourself.


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Pre-Market Notes (May 23, 2006)

by Jon C. Ogg
Date Created: 5/23/2006 8:27:00 AM EST

Major Tickers: ABAX, AIG, AMT, ASML, BLDP, CYBX, ESCL, GERN, GOOG, HANS, NWS, QSFT, TECD, WTSLA

Yesterdays Closing Levels:
DJIA 11,125.33 (-18.73; -0.17%)
NASDAQ 2,172.86 (-21.03; -0.96%)
S&P500 1,262.07 (-4.96; -0.39%)
S&P FAIR VALUE PRE-MARKET +$3.12.

(ABAX) Abaxis said Henry Schein has halted its distribution pact; ABAX stock fell 6%.
(AIG) AIG’s stake held by Hank Greenberg is likely to be sold because of differences on how the company is run.
(AMT) American Tower gets US attorney subpoena over stock options.
(APSG) Applied Signal $0.13/R$43.5M vs $0.16/$41M(e).
(ATVI) Activision signed video game pact with Mattel.
(AUXL) Auxilium gets approval to sell hypogonadism treatment in Canada.
(BRKS) Brooks Automation received US Atty subpoena regarding option grants.
(CMTL) Comtech Tel gets a $28M potential contract.
(CYBX) Cyberonics released additional VNS data.
(DOVP) Dove Pharma said its back pain trials were no better than the placebo.
(ESCL) Escala up 17% for its investor meeting.
(FNM) Fannie Mae is reportedly paying $400M to settle federal regulatory issues.
(GASS) StealthGas $0.50 EPS vs $0.44e.
(GERN) Geron reports broad efficacy of GRN163L, Geron's telomerase inhibitor drug on invivo tests.
(GOOG) Google will start selling ads that have video.
(HANS) Hansen Natural signed distribution pact with Cadbury in Mexico for distribution of its Monster energy drinks.
(ISIS) Isis filed to sell 4.25M shares.
(KONG) KongZhong signed 2 more pacts in China.
(LH) LabCorp gets subpoena from California attorney general.
(LOUD) Loudeye announced 1-10 reverse stock split.
(MNRO) Monroe $0.21 EPS vs $0.22e.
(MNT) Mentor stock fell 3% after earnings.
(MSFT) Microsoft lost an appeal to Korean regulators about bundling its 0/s with a media player.
(NCOG) NCO Group CFO left the company.
(NWS) News Corp is looking to link its Myspace.com with either Google or Microsoft according to the Financial Times.
(PAY) Verifone $0.26 EPS vs $0.24e.
(QSFT) Quest Software is involved in stock options grant reviews.
(RNOW) RightNow paid $9M for a private acquisition.
(SCMR) Sycamore $0.04 EPS vs $0.03e; SEC started an options inquiry.
(SFNT) Safenet gets system-on-a-chip pact from PMC-Sierra.
(TECD) Tech Data $0.32 EPS vs $0.32e.
(TLEO) Taleo $0.03 EPS vs $0.02e; CFO to step down.
(TOL) Toll Brothers $1.06 EPS vs $1.03e; lowered prior estimates of $4.77-5.26 down to $4.69-5.16 for FY06.
(TPX) Tempur Pedic increased its buyback plan by $40M.
(TRPS) Tripos filed to sell 2.3M shares.
(UNF) UniFirst filed to sell 4.3M shares.
(VAR) Varian Medical Systems gets marketing approval for their Triliogy Machines.
(WTSLA) Wet Seal $-0.22/R$125.1M vs $0.00/$124.75M(e); said mostly on interest charge; stock fell 8% after close.
(XMSR) XM Satellite terminated a plan to acquire spectrum from a private company.

ANALYST CALLS:
ALV started as Buy at Deutsche Bank.
ASML raised to Neutral at Merrill Lynch; stock up 5%.
ATI raised to Outperform at Bear Stearns.
BCSI reitr Buy at Jefferies.
BLDP raised to Hold at Citigroup.
BPA cut to Mkt Perform at William Blair.
CBST reitr Buy at Jefferies.
CPB removed from JPMorgan Focus List.
DG started as Underweight at JPMorgan.
DLTR started as Neutral at JPMorgan.
DNA reitr Overweight at Prudential.
FAL cut to Neutral at UBS.
FDO started as Overweight at JPMorgan.
FRX reitr Sell at Soleil.
GRMN started as Peer Perform at Bear Stearns.
GT raised to buy at Deutsche Bank.
ICE started as Neutral at B of A.
ISV started as Buy at ThinkEquity.
JOE tgt cut to $56 at MSDW.
KLAC cut to Hold at AGEdwards.
LIOX started as Hold at Jefferies.
MNST positive comments at Goldman Sachs.
OCR raised to Peer Perform at Bear Stearns.
OPWV maintained Buy at Oppenheimer.
PALM cut to Underperform at Bear Stearns.
PTV reitr Buy at Citigroup.
RACK started as Outperform at Piper Jaffray.
TSO raised to Buy at Citigroup.
TX started as Buy at UBS.
UTSI maintained Sell at Oppenheimer.
VNDA started as Outperform at Thomas Weisel; started as Buy at B of A.
Lehman positive on AAI, LCC, & UAUA in the airline sector.

Tuesday earnings: ANST, BGP, CRBL, CSC, DY, ELC, MDT, MNRO, PHHM, PERY, PVH, SNIC, TECD, TOL.

Europe Market Report 5/23/06 BAB, BT, HBC, RTRSY, BAY, BF, DT, SAP, SI, AXA

Shares in the UK, Germany and France were up about 1% at 7 AM EST lead by oil and commodities stocks. The FTSE was up 63 points to 5,596. Shares in British Airways were up 1.6% to 334. BT Group was of 1.3% to 221. BP was up 2.7% to 626 as oil prices rose. HSBC was up .77% to 921. Marks and Spencer was off over 8% to 1820. Shares in Reuters were up .53% to 377. And, WPP share rose .78% to 647.

The Daxx rose 1% to 5,602. Shares in Bayer were up 3% to over 34. Shares in BASF rose almost 2% to over 63. Deutsche Telekom was flat at 12.5. SAP rose 1.3% to over 166. And, Siemens was up 1.6% to over 68.

In France, the CAC 40 was up 1.3% to 4,878. Shares in AXA were up 1.5% to almost 27. Cap Gemini was up over 2% to over 41. L'Oreal rose 1.6% to over 69. Michelin was up 1.7% to over almost 50%. And, Total was up 2% to almost 51.

Indices in Scandinavia over 3%.

Douglas A. McIntyre

Daily Press Digest 5/23/06 GOOG, EC, NVS, BF, INTC, FNM, CPB, CMCSA, TWX,

According to Reuters, Euronext, the European exchange, says that the revised offer from Deutsche Boerse is no better than the one it made over the weekend. The New York Stock Exchange is also trying to buy Euronext. Other reports, at MarketWatch, described the new bid as being 10% above the NYSE offer.

Reuters reports that Google (GOOG) Adsense, the text link offering that runs at thousand of affiliated websites, will begin to offer video ads to sites in its network. This could be views as competition for TV ads.

Reuters also reports that Novartis (NVS) will offer a drug for malaria that can be taken in one dose. According to the news service, the disease kills one million people a year.

Also from Reuters, Intel (INTC) is forming a venture with Videsh Sanchar Nigam Ltd. in India to offer wireless broadband.

According to the New York Times, Fannie Mae (FNM) will pay $400 million to settled claims that the senior management at the mortgage company manipulated earnings in the 1990s.

The NYT also reports that VOIP giant Vonage, which is about to go public, is likely to face increasing competition from large cable companies like Time Warner (TWX) Cablevision (CMCSA), and Cox, who also want to cash in on the movement to IP phone service using their existing, extensive networks.

According to the NYT, a start-up, M2Z, has petitioned the FCC to open up radio spectrum so that it can provide wireless internet access to most of the U.S.

The Wall Street Journal says that hedge funds that have put money into emerging market securities could be hurt by the recent sharp sell-off in those markets.

WSJ also reports that online shopping will rise 20% in 2006 to $211 billion.

The WSJ reports the Campbell Soup(CPB) profits rose 14% to $166 million as revenue rose to $1.84 billion.

Also in the WSJ, BASF (BF) has increased its hostile bid for Engelhard to $39 or about $5 billion.


Douglas A. McIntyre

Asian Markets May 23,2006 HMC, NIPNY, SNE, PCW

The Nikkei 225 was off 259 points or 1.6% near the close falling to 15,599. Honda Motor was down 3.7%. Komatsu was off 5.2%. Mazda was down 4%. NEC was off over 2%. Sony dipped over 1%. According to Reuters, the primary cause for the drop was the concern that rising U.S. interest rates could hurt goods being sold by Japan into the American economy.

The Hang Seng Index was flat at 15,792. Lenovo Group was up nearly 2%. PCCW was off 1%.

The KOSPI was down .67% to 1,330. The Straits Times was up .54% at 2,430

The Shanghai Composite Index faired poorly, down 3.2% to 1,604.

Douglas A. McIntyre

Juniper's Last Stand JNPR, KLAC, OPWV, CNET, CMVT, VTSS

The market has hammered Juniper Networks so hard over the last year that when the company announced the the U.S. Attorney was looking at its stock options grants the price of the company's shares actually rose. Juniper now joins a small but growing legion of companies including KLA-Tencor (KLAC), Openwave (OPWV), CNet (CNET), Comverse (CMVT), Vitesse (VTSS) and others being asked similar questions by the government about the timing of their option grants.

Juniper's stock was up almost 2.9% on the day to $15.49. The company dropped below it former 52-week low earlier in the session, touching $14.62. The high for the period was $27.65. The company's market cap has been cut nearly in half in the last year and is now down to $8.8 billion, or 3.9 times sales.

After several years of impressive growth, the most recent quarter was a disappointment. Revenue fell to $566.7 million in the March 31, 2006 quarter from $575.5 million in the December 31, 2005 period. Operating income shrank more to $90.9 million from $116.4 million.

Juniper, the maker of scalable router products, still has its fans. According to Forbes, "Piper Jaffray analyst Troy Jensen maintained an "outperform" rating on Juniper Networks, saying he expects the company to continue to benefit longer-term from deployments of next-generation IP services that require high bandwidth". But, guidance for the next quarter was poor. Revenue was originally slated for $580 to $590 million. The company dropped that to a $560 to $570 range. Apparently a delay in a contract with Verizon (VZ) caused part of the anticipated miss.

Call it perverse, but perhaps when a stock does not have a negative reaction to the announcement of a government investigation, it has fallen too low. Even with the lowered guidance the company is very likely to do better than the $493 million top line in the June quarter last year.

Maybe now, Juniper's stock price is too low.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Lowe's Gets Smoked LOW, HD

Sometimes a company is so good at what it does that the slightest disappointment get magnified well out of proportion. Welcome to Lowes (NYSE:LOW).

The big home improvement retailer turned in genuinely strong results for the quarter ending May 5, 2006. Revenue rose 20% to $11.92 billion. Comparable store sales rose almost 6%. Gross margin improved from 34.28% to 34.97%. Pretax earnings rose to $1.368 billion from $953 million in the period a year ago. Guidance is for the next quarter (ending August 4) to show a revenue increase of 12%. But, the quarter will have one fewer week in it than in the comparable period last year. Sales for the fiscal year ending February 2, 2007 should be up 13% with a 52 week year compared to 53 weeks in the year past.

Perhaps the recent panic gathering on Wall Street has now pierced the veil of rationality. Lowe's Companies' stock dropped 4.5% to $59.82 against a $69.70/$56.50 high/low for the last 52-weeks. It must have been lost on the crowd that Lowe's and competitor Home Depot (NYSE:HD) have been growth engines for years.

In the fiscal year (January 30, 2004) three year back, Lowe's revenue was $30.8 billion. In the most recent fiscal year (February 3, 2006) revenue hit $43.2 billion. Big growth off a big base. Operating income grew at an even better pace. During a comparable period, Home Depot revenue grew from $64.8 billion to $81.5 billion. The two competitors do not seem to be doing one another too much harm.

With a forward P/E of 12.7, Lowe's is cheap.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Is There A Ford In Ford's Future F, GM, DCX

Now that Ford's (NYSE:F) chief operating officer, Jim Padilla, has announced his retirement at 40 years at the company, and is heading out the door, the question is whether Bill Ford will be next. He should be.

According to the Associated Press, a JPMorgan survey of the credit markets now puts the chances of a Ford bankruptcy at 43%. Call it Las Vegas for investment bankers.

The structure that gives the Ford family a super-majority of voting shares and effective control of the company remains in place, which means that shareholders and the board have little say in what happens to the company.

The company still plans to cut 30,000 jobs, but if Ford's market share, especially in North America, continues to shrink, it may not be nearly enough. The labor problems that the company shares with GM (NYSE;GM) and DaimlerChryler (NYSE:DCX) are not going away. Chrysler recently added dealer incentives to reduce inventory, and Ford and GM may be forced to match them to keep share.

Ford's truck sales fell 14.5% in April, which is tough, since this is where the company makes most of its money. Explorer sales were down 42%, and the company's flagship, the F-series truck had a drop of 9%. Gas prices, which tend to cut into truck and SUV sales, are now the enemy along with the UAW.

The Ford "Way Forward", the company's initiative to get its North American operations back profitability is now just a bad joke. While it may reduce costs, it is not producing products that the buying public wants. Witness Ford's Q1 06 revenue drop of $4.1 billion to $41.1 billion. North American revenue dropped 6% from a year earlier.

The stock has dropped from over $16 in mid-2004 to under $7.

Ford's demise may not be a foregone conclusion, but it is unlikely that Wall Street will bet on it with Bill Ford at the wheel.

Douglas A. McIntyre

Murder's Row Hits Bottom YHOO, AMZN, EBAY, INTC, MFST, DELL, GOOG, AMD

The old champions of the tech era almost all made 52-week lows last week. Intel (INTC). Amazon (AMZN). EBay (EBAY). Microsoft (MSFT). And, Dell (DELL).

Was it something in the water, or perhaps the market has turned its back on the group in favor of the likes of Google (GOOG).

Most of the companies suffer from the same set of malaise to hear Wall Street chatter. The companies are not growing fast enough. Innovation has gone elsewhere. The business models are tired.

Perhaps not. Intel's stock has gone from $28.84 to $18.00 over the last year. But, the company is hardly a dog. Revenues rose from $30.1 billion in 2003 to $34.2 billion in 2004 to $38.8 billion in 2005. Operating income moved up at a similar pace to hit $12.1 billion last year. Granted, the top line fell in the quarter ending April 1 after three strong quarters ending the 2005 year. However, the company still posted operating income of $1.7 billion. The resurrection of Advanced Micro Devices (AMD) and its new alliance with Dell has Intel investors running for the doors. But, according to Forbes, Intel "will likely be more competitive in dual-processor servers with its Woodcrest chip, due for launch in the third quarter". Intel continues to have the dominant share, by a mile, of the PC chip market, and its forward PE is only slightly above 15 according to Yahoo!Finance. Perhaps a year from now the shoe will be on the other foot for AMD and Intel.

EBay has also come back to earth, with an astonishing drop from a 52-week high of $47.86 to just above $29. That has effectively knocked out $26 billion in market capitalization. EBay's growth over the last three years has also been impressive. Revenue was $2.2 billion in 2003, $3.3 billion in 2004, and $4.6 billion in 2005. Operating income last year was $1.4 billion. The quarter ending March 31 was up from the immediately previous quarter, with revenue hitting $1.4 billion. Operating income dropped slightly to $323 million. EBay recently made important progress in a patent lawsuit. And, it certainly remains to be seen if EBay's customers will flee by the millions to the new Google Base service. With a forward P/E of 23, and the dominant share of the online auction market, the shares are hardly risky.

Amazon has dropped from $50, on a 52-week basis, to just above $33 taking over $6.5 billion in market cap with it. But, wait. Amazon's revenue grew 61% from 2003 to 2005, reaching $8.5 billion. And, the company trades at only 1.6 times sales. Amazon's first quarter sales were up 20% to $2.28 billion and free cash flow is also up 20% to $501 million for the trailing twelve months. The company also guided that revenue should grow 16% to 24% for the second quarter compared to a year ago. With new initiatives like Amazon-branded consumer electronics devices and movie downloads, the company may well still have a long way to grow.

There may be a negative case to be made for all of these aging tech giants. But, most still lead all competitors in revenue, market share, and balance sheet strength. A 52-week low is not where they belong.

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.

Final Update on Dot Hill Systems (April 28, 2006)

by Jon C. Ogg
Date Created: 4/28/2006 1:39:00 PM EST

Take a look at this poor situation in Dot Hill Systems (HILL-NASDAQ) today. Today shares of HILL traded at the open down around the $5.00 level (down about 15%) and HILL's shares are now even lower down over 20% on the day.

The reason for the blow-up in HILL shares today is that Sun Micro told the company it was moving its low-end storage product to another supplier, and the best figures that can be deduced put Sun's business with the company somewhere in the vicinity of 75% of HILL's total revenues. The company is working on signing other deals and will probably win some, but a loss of a customer that large is just a killer. It is such a large portion that it isn't even worth wondering why the business is leaving.

This was a "Bait Shop" stock we identified to clients as a likely takeover candidate of Sun Microsystems (SUNW-NASDAQ) originally back on May 23, 2005 (when the stock was around $5.10) after Sun Micro had telegraphed it was going to look for storage and other add-on opportunities that would be accretive to earnings. HILL's stock did run up on the potential workings of deal, although it ultimately never surfaced and we said to take profits and call it a day. When we identified and reviewed the news of a Sun Microsystems licensing pact on October 5, 2005 we said to take take ALL or HALF of the profit in the stock at $7.12 for a 38% or 39% gainer. The new licensing pact meant the need to buy the company was no longer necessary, so it no longer fit into the Bait Shop strategy and criteria. Then once again on January 25, 2006 after the company said it had entered into a Master Purchase Agreement with Fujitsu Siemens Computers GmbH and Fujitsu Siemens Computers we noted that if you had not yet unloaded your half of the remaining position or if you still held your entire position that it was definitely time to take the profits and walk away (the stock closed at $7.60 but had traded over $8.00 that day because the street initially over-reacted to the news as "positive headline news").

This is why it is so important to adhere to rules and guidelines in positions. There is a huge opportunity in taking on a value approach and analyzing which companies make sense to be acquired and why and by whom, but when the landscape changes you have to "cut bait" and take your profit or loss at that time. There are obviously many times where the stocks continue to run higher and the reason for selling turns out to be wrong, but waking up one morning and seeing a 25% loser or more is never worth the risk.

Jon C. Ogg


Below is a link to the update chains we provided publicly along the way:

http://newscontrast.com/articles/viewer.aspx?id=1238&h=HILL

Jon C. Ogg
Date Created: 1/25/2006 10:17:00 AM EST
Ticker HILL

Bait Shop Update on Dot Hill Systems, Inc.

UPDATE 2: If you still own your other half of Dot Hill Systems Inc. (HILL-NASDAQ) from when we alerted you to sell ALL OR HALF on 10/5/2005, then it is definitely time to sell as far as a "Bait Shop" strategy. It is difficult to sit there and say this sometimes when you know you missed an extra 10% or so, but the "Bait Shop" has its rules and criteria it stands by to maintain discipline and consistency. There may always be exceptions, but the case for such exceptions in this case of HILL is just not present. The company could run further from other deals like this Fujitsi Siemens deal or on its own merits, but the run has been huge and the likelihood of a merger as far as we can see has diminished drastically. Analysts on the street are still positive, but we would definitely take the rest of the exposure out of this company. Hopefully we are not telling you to sell the "next-big-thing," but we are the "Bait Shop" rather than a pure "growth-catalyst" strategy.

Here is what we said before on HILL:

UPDATE TO (HILL)...CHANGE ON OPINION, TAKE PROFITS HERE (Open 10/5/05 at $7.12 for almost a 40% gain) based on the news this morning, take the money and run. The SUNW contract extension to 2011 is actually old and the stock was up too much on the GOOG-SUNW partnership. Not only that but if HILL was getting many millions more from SUNW they would have specified it. So if SUNW can partner with it out for 6 years, then why the hell would they need to Buyout the HILL company? My answer is simple: They would Not need to buy it. SUNW also needs to buy companies with earnings to Add to their own earnings and as of now HILL started losing money again (even though they say it is temporary). If someone else is out in the wings sniffing around or interested that would blow this thesis out of the water, but our call was specific to SUNW and the logic behind that is now gone. So take your 38 or 39% gainer and run. My technician says HILL is overbought on dailies but could go to $10.00 on the monthlies; so maybe take half profit here so you lock in.

INITIAL CALL: Dot Hill Systems Inc. (HILL-NASDAQ) (5/23/05:$5.12) may be a Sun Micro (SUNW) acquisition target name to look at since it is small and makes money AND already has significant deals with SUNW. Since it has storage assets it could be very attractive based on price.

Ramifications of the NASDAQ & NYSE Stock Offerings; and Thoughts on the Coming Land Grab in Global Exchanges

by Jon C. Ogg
Date Created: 4/28/2006 10:45:00 AM EST

With the recent share sale from NASDAQ (NDAQ-NASDAQ) and the planned share sale from the New York Stock Exchange (NYX-NYSE) there seems to be a need to compare and contrast the two, and the potential ramifications for the entire business segment of “Exchanges” are big. In short, this NASDAQ share sale looks like a good offering and the coming NYSE offering just feels sleazy. It is still worth exploring the current exchange landscape and the coming land grab that is certain to be on the immediate horizon. Please note that many of the shares and dollar figures have been estimated and have been rounded up and down where appropriate, so some of the figures may not be exact.

THE NASDAQ SHARE SALE
NASDAQ (NDAQ) is selling 18.5M shares at $37.36 (raising about $690 Million), which it filed to sell on April 20. When NASDAQ reported earnings on April 20 they reported $0.16/R$396.2M versus $0.11/$360M estimates. According to current prices the market cap of NASDAQ is currently at $3.45 Billion.

The use of proceeds from the NASDAQ offering will be to pay down debt and to help finance its stake taken in the London Stock Exchange. While all stock sales are usually a form of dilution, it looks good that this is being used to help finance that London Stock Exchange stake purchase and paying down debt never hurts. Since they had over $1 Billion in long-term debt as of their last report, paying some debt off now is not a bad idea at all.


THE NYSE SHARE SALE
New York Stock Exchange (NYX) has filed to sell 25M shares (or $1.7 Billion worth of shares) for selling holders on April 26, but the shares have not priced yet and have not been sold. What stinks about this offering is that the pre-IPO NYSE shareholders are getting basically all of the proceeds. When the NYSE reported earnings on April 19 it posted $0.24 vs $0.24-0.25, but the numbers are convoluted because of the Archipelago deal and expenses (as well as a thin group of estimates). The current market cap of the NYSE is about $10.6 Billion.

The largest portion of the offering is from the 1300+ former NYSE seat holders that are selling over 14.5M shares (looks to be about 14.7M). Private equity firm General Atlantic partners is selling 1.8M of the shares, Goldman Sachs is selling 1.7M shares, Merrill Lynch is selling 1.2M shares, UBS is selling 760,000 shares, Bank of America looks like they are selling 716,000 shares (I have seen conflicting numbers on this, so it could be larger or smaller), Citigroup is selling about 1.3M combined shares, and Morgan Stanley is selling about 800,000 combined shares.

Many of these firms are also listed as the underwriters and bankers for the deal, which makes this even sleazier. The stock is marginally lower than when the deal was priced, but this just feels bad for the holders to be getting much earlier cash-outs than the street was expecting. I originally called the NYSE last month to try to decipher the whole order of the lock-up periods and when certain sales would take place, and if you can believe it both the prospectus and the company had it as an undefined and unresolved issue.

The NYSE has been reported as an acquirer for some time and is still rumored to be exploring other mergers and partnerships, and it is likely that they will acquire or partner. It would seem that about the only thing that could be said about THIS NYSE offering is that it is at least expanding what was a relatively thin float. It looks like the days of fleecing the public are far from over. If the company would come out and sell some shares to bolster ITS OWN pockets you would be getting a different tone from this note.

THE CURRENT EXCHANGE ENVIRONMENT
You could probably write a book about the coming consolidation in the global exchanges, and it is just too convoluted to predict exactly who is going to own whom and who will partner with whom. In recent days and weeks there has been much activity: the Osaka Exchange is said to be up from grabs, Euronext is potentially in a deal, the International Securities Exchange (ISE) has said it will enter the equities arena, NASDAQ bought a piece of the London Stock Exchange (and the exchange has long been a potential target of many), the Italian stock exchange has been noted as a potential target, the Dubai Stock Exchange is looking to go public, there have been changes at the American Stock Exchange and at the NYMEX, and the list just goes on. The Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (BOT) have seen successful IPO's that have created a new batch of wealth, and both have been noted to be looking at deals.

NASDAQ was one of the first exchanges to attempt global listings in the late 90's and early 2000's, and both Germany and the old EASDAQ had some less than prosperous operations into global exchanges in the past.

Usually the more things change the more the old principles stay the same, but it does feel like this time is going to be different. It is obvious that there is a land grab in the works and a year from now it is likely that many these exchanges will have a much larger and broader footprint. Exchange Traded Funds are also changing the trading vehicle landscape, and it doesn't look like there is going to be any slowdown there any time soon. The US bulge-bracket firms have also been involved in nearly aspect of every deal from top to bottom, and they will likely be just as involved in the overseas deals on the horizon; and we have even seen a resurgence in IPO's of actual boutique firms. Don't count the private equity funds out of this either, because many of these exchanges are prestigious assets and some are wildly profitable.

If you are wondering at all if some of these exchanges will appear as US and international members of our "Bait Shop Report" it is safe to say "You can bet your assets" that some of them will be, and likely sooner rather than later. About all that can be said without tipping the hand too much and without making too bold of predictions here is "Stay Tuned".....

Jon C. Ogg

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A Re-PO IPO....Corel

by Jon C. Ogg
Date Created: 4/26/2006 9:11:00 AM EST

Corel (CREL-NASDAQ) did price its 6.5M share Re-PO at $16.00, but this pricing was at the low-end of the $16.00 to $18.00 range and well under the original $18.00 to $20.00 range. Initially there was demand from software and IT buyers, but that interest largely faded over the last week. Morgan Stanley (lead underwriter), J.P.Morgan, Deutsche Bank, Piper Jaffray, and CIBC were the underwriters.

Most will remember this company as a provider of affordable and easy-to-use productivity and graphics and digital imaging software such as WordPerfect and Paint Shop Pro, which has long been considered a low-end pricing competitor of Microsoft and Adobe. The reason I noted this a Re-PO rather than a true IPO is that this Canadian based software stock was taken private after being a public company for years (old ticker was "CORL" on NASDAQ) and they just filed to come public back at the beginning of this month.

Its FY11/2005 Revenues were $164M and it posted net income of $28M. Despite the company returning to profitability when it was private after years of losses as a public company there just has been very little demand for the stock. There hasn't been much buzz around the company, so we'll have to see if the reduced prices will sniff out any buyers.

Can Burst.com Take a Bite Out of Apple?

by Jon C. Ogg
Date Created: 4/18/2006 12:14:00 PM EST

This Burst.com (BRST-NASDAQ/OTC) patent infringement suit against Apple (AAPL-NASDAQ) may be worth noting for the investment community. This written piece here is not to meant as an endorsement of these patents and it is not meant to support Apple's claims. I have no dogs in the fight so to speak, but shareholders of AAPL and other streaming media companies may want to track this because it has the earmarks of a case that could affect the industry and many other companies.

CURRENT SITUATION
Burst is alleging that Apple's iTunes Music Store, iTunes software, the iPod devices, and Apple's QuickTime Streaming products infringe the following Burst U.S. Patents (Richard Lang is the Chairman & CEO of Burst.com):

4,963,995 (filed on December 27, 1988 by Richard Lang under Explore Technology, Inc. of Scottsdale, AZ)

5,995,705 (filed on July 18, 1997 by Richard Lang under Instant Video Technologies, Inc. of San Francisco, CA)

5,057,932 (filed May 5, 1989 by Richard Lang under Explore Technology, Inc. of Scottsdale, AZ)

5,164,839 (filed October 11, 1991 by Richard Lang under Explore Technology, Inc. of Scottsdale, AZ)

Burst's filing is in RESPONSE to a suit that Apple filed against Burst in January of this year, seeking a declaration that Burst's patents are invalid and that Apple does not infringe them. Burst requests in its counterclaims that Apple pay a reasonable royalty for Apple's infringing products and services, and also seeks an injunction against further infringement.

A copy of the complaint is on the company website at the hyperlink provided here:

http://burst.com/new/home.htm

QUOTES & EXCERPTS FROM THE PRESS RELEASE AFTER YESTERDAY's CLOSE:
Burst.com Chairman & CEO Richard Lang indicated that the company would rather not have to resort to litigation, but is committed to enforcing its patent portfolio, which was developed over an 18-year period. In its April 17 filing, Burst alleges that its technology has been essential to Apple's success, providing it with a critical audio and video-on-demand media delivery solution. According to Lang, "We have a responsibility to protect our patents and to seek a fair return for the many years and tremendous investment that we have made in developing Burst technology and patents."

Apple failed to license Burst's technology when it introduced its iPod and iTunes products in 2002. According to Lang, Apple may have assumed that Burst's patents would be invalidated in Microsoft's defense of the then-pending litigation. Instead, Microsoft ultimately licensed Burst's patents. "While we had hoped to avoid litigation and negotiate a reasonable license fee, it is Apple's own actions that have forced our hand. We now look to the courts to reaffirm Burst's rights as innovators and to be paid fairly for our widely acknowledged contributions to the industry."

BRIEF AS OF JAN 5
On January 5, 2006 Burst.com, Inc. (BRST-NASDAQ/OTC) SAIT IT WAS SUED BY APPLE COMPUTER in U.S. District Court in San Francisco for declaratory relief, alleging patent invalidity or non-infringement. This was after a breakdown in protracted negotiations for issuance of a license of Burst's patents to cover Apple's iPod and iTunes products. Burst anticipated responding to the complaint and filing a counterclaim for patent infringement, which is what this current action is. Burst has stated in the press that it remains committed to the enforcement of its intellectual property and looks forward to successfully resolving this litigation through a license covering Apple's Quicktime, iPod and iTunes products, including Apple's iTunes Music Store.

OLDER BACKGROUNDER
Last year, Burst settled its patent and antitrust suit against Microsoft (MSFT) with Microsoft taking a license to Burst's patents and paying a lump sum of $60 million. Since the Microsoft settlement, the company has been in patent licensing discussions with several companies engaged in the distribution of audio and video content on computer networks.

MY TAKE & CONJECTURE ON THIS
What is important here is that you could make a case that a precedent has sort of been established (pardon the "Legalese" if it has been referred to improperly). With MSFT already having capitulated and paying a one-time $60M fee instead of fighting this, it does at least establish a quasi-precedent of perceived patent validity and a recognition of the patents. This is likely NOT going to be the same magnitude as a "RIMM/NTP scenario," but it certainly can be a financial issue that AAPL may have to deal with until they settle or until there is a legal resolution (which could take years). That does not mean a court WILL rule in favor of them automatically, but it could be the basis for the suit and may at least set the tone; and if this continues endlessly and if it looks like it may not be going that well for Apple then could be a thorn in their side for some time to come.

I have not found a list of the "other companies" that Burst is noting, but some companies that instantly come to mind in this arena would be Napster (NAPS), Audible (ADBL), and RealNetworks (RNWK). There are literally dozens of others that could be affected or indicated and it is just too soon to try identify the entire universe since it could go up and down the chain. Please note that the mention of these other companies here is purely hypothetical and is only for conjecture purposes as the types of companies that would fit the bill. I am still waiting on an email response from the company regarding which "other companies" this may be, but I would presume they will choose to not tip their hand on that (would you?...probably not).

Burst is seeking a jury trial on this, so we'll just have to see what unfolds. Some of the basis of this suit seems to be on initial claims and some seems to be based on counterclaims. That being said, it isn't at all clear yet if this is just me making a mountain out of a molehill or if this is going to be a decent threat to AAPL investors. One thing is probably a safe bet for the immediate future: with AAPL reporting earnings after the close tomorrow this will probably be dwarfed by earnings, guidance, iPod & iTunes sales, and the endless hoard of analyst calls Thursday morning.

Stay tuned.

-Jon C. Ogg

IPO Spin-Off: A Known Backdoor Play on KBR & Halliburton

by Jon C. Ogg
Date Created: 4/17/2006 9:49:00 AM EST

On Friday we got to see a formal filing from Halliburton (HAL-NYSE) showings its plans to sell a stake in its KBR unit ("Kellogg Brown & Root") in an IPO. It would be great to tell you that HAL was an unknown backdoor play, but in truth this has been one of the most telegraphed deals on the street and has been in the works for longer than memory can serve. The significance of the filing is simply that HAL is going to completely divest this to become a pure-play on oilfiled services and operations.

The KBR unit is a Houston-based global engineering, construction and services company supporting the energy, petrochemicals, government services and civil infrastructure sectors; and it has been very controversial on no-bid contracts in the US, Iraq, and elsewhere. KBR will trade under the NYSE ticker "KBR" when it starts trading. HAL is selling just under 20% and in the filing indicated that it would sell up to $550M in stock in this IPO. We still do not have any exact share indications and the expected price range has not been indicated, but these should start to surface in the coming weeks as we get more information from the company and the underwriters. The company stock already rose about 5% when it had previously announced it was going to pursue this IPO, so once again you should know that this has been in the works for a long time and that this is the formal filing that has been in the works for a long time. HAL had also previously looked for buyers of the controversial unit, but it looks like the IPO-route was going to be the highest value solution for the unit.

Here is how the two businesses compare on a bottom-line basis: KBR earned $240 million on sales of $10.14 billion last year, compared to Halliburton's total profit of $2.36 billion on $21.01 billion in sales. KBR has a large portion of its revenues tied to military support services in Iraq, and the street has been concerned about the ultimate profitability on this in the past as operations such as these tend to be less than predictable and less than stable on a longer-term basis.

Shares of HAL are up another 1.5% after the open this morning on this news.

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Is a GoDaddy.com IPO on the Horizon? and UPDATE

by Jon C. Ogg
Date Created: 4/13/2006 11:07:00 AM EST

I have been searching for a filing and not found one yet, but there is word out that domain hosting and registrar GoDaddy.com is looking to come public via an IPO later this year. Lehman is the name that has been mentioned as the banker, and the discussed market capitalization is expected to be up to $1 Billion. Why does this all bleed of phrases similar to "supposed to," "word," and "may"? It is because none of this has been confirmed as of yet.

Hopefully an "S-1" filing will be available soon because it will be interesting to see exactly how many customers it has and if there are any new owners not previously disclosed. If memory serves me correctly, the CEO Bob Parsons was the only shareholder as of last year. If a filing does come out we will also start to get a look at some of the profitability metrics there, which has been the point of many discussions since GoDaddy.com has such low fees for domain registration, site hosting, merchant accounts, and other services.

What is perhaps most interesting about this IPO (if it comes) is that it will shed light on an industry segment that has become very difficult and opaque in determining a fair value for each company. The industry leader is clearly VeriSign (VRSN-NASDAQ), which has been hounded publicly by GoDaddy's CEO because of some unfair monopolistic advantages that Internic has given to VRSN. A member of my "Bait Shop" is Web.com (WWWW-NASDAQ), which was formerly known as Interland under ticker "INLD" and a name that is up over 150% since my recommendation on this last summer. This will also shed some light on Register.com, now owned by Vector (private equity); and it will even shed some light on Internet advertising solution companies such as DoubleClick (now owned by private equity), 24/7 (TFSM-NASDAQ) and others.

This looks as though it may be the second "attempt" to come public as various online news reports in 2004 and 2005 indicated that GoDaddy.com was considering an IPO. I personally have experience in using VeriSign's "Network Solutions" and also Register.com for domain registration, but I chose GoDaddy.com for the new "eventdrivenanalysis.com" site registration and other services and will end up switching any existing domains over to them in the future. Price alone was not the only determining factor, because it was the "ease of use" that the company offers to non-techie business executives.

In a Sarbanes-Oxley world it is very understandable why many companies choose to go private or remain private, but if GoDaddy.com is able to come public it will certainly be one to watch. This company is the type that could greatly benefit from being public and it would offer a huge degree of safety to its customers as it would potentially give the company vast access to the capital markets. Until its financials are public it will be difficult to do any open endorsing, so stay tuned. I have not heard back from GoDaddy.com's PR department as of yet, but it usually takes some time to get official comments from a company on information like this.

If you wish to subscribe directly to our Free newsletter and email list on upcoming IPO's and other special situations, please send an email to info@newscontrast.com and label it "email request list". We value privacy and do NOT sell our lists and do NOT share our email list with any outside partners or vendors. We are in the process of rebranding as "Event Driven Analysis" as we are more into analyzing news and events for our subscribers than a reporting mechanism. For the time being please feel free to sharing this data with any friends in the investment field. If this is used in article we are protected by copyright in the US and internationally, so we do require a hyperlink or track back to this site.

UPDATED: Following Up on GoDaddy's IPO Status: Unknown (posted at 2:28 PM on 4/13/06)



Unfortunately, the standard "No comment" was all that was returned on my inquiry into GoDaddy.com's PR department. That really isn't out of the norm for most companies and in this day and age with regulations it is probably hard to blame anyone for not wanting to comment.

I still haven't seen any financials on the company itself and we all know that there can be serious risks to any emerging company, but all things being equal the company does have the profile of other successful IPO's.

Here is the link to the previous story below:

http://newscontrast.com/articles/viewer.aspx?id=1332

Stay tuned.

Jon C. Ogg

IPO Pricing Alerts: Targacept and Vanda

by Jon C. Ogg
Date Created: 4/12/2006 9:42:00 AM EST

A weak biotech sector makes for poor pricings in biotech/pharma IPO's. Both Targacept (TRGT-NASDAQ) and Vanda Pharma (VNDA-NASDAQ) priced under their indicated ranges and will begin trading today.

(TRGT-NASDAQ) Targacept 5M share IPO priced at $9.00, under the $11.00 to $13.00 range. Deutsche Bank, Pacific Growth, CIBC and Lazard were the underwriters. This company may actually get interest down the road since it is a developer of a new class of drugs to treat Alzheimer's and cognitive loss, although we'll have to see how indications and trials go down the road and we'll have to see how the weak environment treats another pre-revenue stage company with no products on the market. This was the second attempt to IPO after it had to withdraw its S-1 early in 2005 because of poor market conditions (and biotech conditions aren't poor right now?).

(VNDA-NASDAQ) Vanda Pharmaceutical 5.75M share IPO priced at $10.00, under the $12.00 to $14.00 range. Underwriters were JPMorgan, Bank of America, and Thomas Weisel. The company is developing drugs for central nervous system disorders, such as schizophrenia and insomnia. As most biotech and emerging pharma companies, this too is a non-revenue stage company with no current products on the market or coming on the market in the immediate future.

A Backdoor Play to Yesterday's IPO Filing From Perlegen: Affymetrix

by Jon C. Ogg
Date Created: 4/11/2006 9:41:00 AM EST

Yesterday morning we had an IPO filing from Perlegen Sciences Inc. for up to $115M in stock, all of which will be sold by the company according to the press release. Perlegen is a biopharmaceutical company developing a pipeline of late-stage genetically targeted medicines. The company also collaborates with pharmaceutical companies to apply genetics to drug response and disease to filter out patients that may experience adverse side-effects during drug trials.

One public company that benefits directly and indirectly from this is Affymetrix (AFFX), who owns 25.4% according to filings. AFFX shares did promptly respond to this yesterday with an approximate 2% gain for the day. AFFX is already profitable and has a market cap of $2.26B. Their fiscal 2005 revenues were $367.6M, with a $57.4M operating income and $57.5M net income applied to common shareholders after items. As of year-end the company reported $766.8M total assets ($284.9M of which were cash and equivalents) and $246.9M total liabilities.

Based on this financial data, it is going to depend entirely on the reception and demand from the street for Perlegen shares ahead of the IPO as to how AFFX shares will directly and indirectly win.


If you wish to subscribe directly to our Free newsletter and email list on upcoming IPO's and other special situations, please send an email to info@newscontrast.com and label it "email request list". We value privacy and do NOT sell our lists and do NOT share our email list with any outside partners or vendors. We are in the process of rebranding as "Event Driven Analysis" as we are more into analyzing news and events for our subscribers than a reporting mechanism. For the time being please feel free to sharing this data with any friends in the investment field. If this is used in article we are protected by copyright in the US and internationally, so we do require a hyperlink or track back to this site.

Bausch & Lomb Fallout

by Jon C. Ogg
Date Created: 4/11/2006 9:23:00 AM EST

Bausch & Lomb(BOL-NYSE) is down 17% pre-market after it announced it is halting shipments in the US of its ReNu MoistureLoc contact lens solution. There was already writing on the wall last week after Singapore banned shipments of this product. There are other companies that could be effected by this, and here is a partial list of other companies:

This blowup is said to be good for Johnson & Johnson (JNJ-NYSE) according to a UBS note, but JNJ is likely too diversified to be a pure-play;
Cooper Cos (COO-NYSE) makes contact lenses;
Alcon (ACL-NYSE) treats eye infections and makes contact lense solutions;
Allergan (AGN-NYSE) also has contact lens solutions, although it is still somewhat diversified;
Advanced Medical Optical (EYE-NYSE) is the eye laser company;
TLC Vision (TLCV-NASDAQ) does the actual laser sugeries at its centers;
1-800-Contacts (CTAC-NASDAQ) could have issuesif this gets too widespread and if it starts to impact contact lens sales in general.

Goldman Sachs, Bear Stearns, JPMorgan, R.W. Baird and First Albany have all downgraded BOL pre-market. The one analyst who deserves a pat on the back is Bank of America's David Maris, who already had a SELL rating that he maintained this morning.

Starbucks 10% S-S-S and Its Stock Not Up Huge? Here is Why

by Jon C. Ogg
Date Created: 4/6/2006 4:41:00 PM EST

Starbucks (SBUX-NASDAQ) would seemingly be up more than $0.50 in after-hours trading after reporting 10% same-store-sales (s-s-s) growth, but there are a couple things that have acted as the governor. You have to probably assume the company is giving itself some wiggle room and that they are being conservative so that management doesn't have to face charges of duping investors down the road in the Sarbanes-Oxley world we live in.

Here were the caveats they put out that may be acting as an offset to that strong 10% headline number (copied verbatim off their press release):

"In addition to strong sales driven by new store openings, March revenue growth was positively impacted by the conversion of 67 stores in Hawaii and Puerto Rico to Company-operated status following the acquisition of those previously licensed markets in January, as well as the addition of two new stores in those markets during March," stated Michael Casey, Starbucks chief financial officer. "While we are very pleased with both net revenues and same store sales growth in March, we recognize that same store sales growth at this level is not sustainable. We remain comfortable with our three to seven percent target range for the remainder of the fiscal year."

"In addition to strong sales driven by new store openings, March revenue growth was positively impacted by the conversion of 67 stores in Hawaii and Puerto Rico to Company-operated status following the acquisition of those previously licensed markets in January, as well as the addition of two new stores in those markets during March," stated Michael Casey, Starbucks chief financial officer. "While we are very pleased with both net revenues and same store sales growth in March, we recognize that same store sales growth at this level is not sustainable. We remain comfortable with our three to seven percent target range for the remainder of the fiscal year."

This may create some minor estimates changes tomorrow and Monday since we now have what is the entire calendar-quarter. This is $1.866B on a translated basis (barring any rounding), which compares to $1.87B estimates ($1.83-$1.91B range). For the 26 weeks ended April 2, 2006, Revenues were $3.8 billion, up 23% same 26-week period in fiscal 2005. Comparable store sales increased 8% for the 26 weeks ended April 2, 2006, as compared to the same 26-week period in fiscal 2005.

Take a look at the fundamental data below, and you probably won't be too shocked as to why management may be offering some conservative numbers:

After Hours (RT-ECN): 38.10 0.65 (1.74%)

Closing Trade: $37.45
Change: $0.04 (0.11%)
Prev Close: $37.49
Open: $37.59
52wk Range: $22.29 - $38.50
Volume: 4,543,404
Avg Vol: 5,179,190
Market Cap: $28.59B
P/E: 57.62
EPS: $0.65
Forward P/E: 44.1

Regis Takes a Haircut, Albert-Culver Ready For a Makeover

by Jon C. Ogg
Date Created: 4/6/2006 10:56:00 AM EST

Last night Alberto-Culver's (ACV-NYSE) board voted unanimously to terminate a sale of its Sally Beauty and BSG operations to Regis Corp. (RGS-NYSE). Regis (RGS) also terminated the pact in return. Regis (RGS) is saying this will force the $50M termination fee, but these problems cited for the deal cancellation "may" not make that $50M payment a sure bet. Usually these termination fees have to be paid at least in part, but we'll see.

ACV cited the following reasons for voting against the deal: two consecutive earnings shortfall announcements since execution of the merger agreement, significant revisions to Regis' financial forecasts, uncertainty about its fiscal 2007 outlook and differences over operating and governance approaches.

Shares of RGS were up almost $1.00 at the open this morning, but this made no sense at all. This merger was never an easy one to digest because this was going to make ACV the majority shareholder with a 54.5% stake in a deal originally worth approximately $2.2B to $2.6B. GS has never been a Bait Shop member here internally, and it would probably take a more significant haircut than this for it to be looked at. RGS stock has been performing dismally on all of the negative developments, and despite the claim over a merger termination fee this just continues to add to the malaise for RGS shareholders. RGS is even expensive if you consider it is a hair salon operator with a current 25 P/E ratio; but it does trade at a much cheaper forward multiple of approximately 16.

This company would theoretically be the right fit for a private equity firm or another services-related company, but the current price and underlying issues may make this improbable for now. If it traded at much lower multiple at a 12 or 15 P/E this might make more sense, but "IF, IF, IF" is exactly an endorsement. You have very fixed costs, somewhat predictable stable cash flows through time, low R&D expenses, steady demand for the service, and an easy to understand business; but the thing to consider is who is running this and what else ACV may be inferring. The company operated 10,879 system-wide North American and international salons, 24 beauty career schools, and 90 hair restoration centers, as of June 30, 2005. Despite this many salons, there are really no barriers to entry and probably half of the consumer base probably won't lose any sleep if they get their hair cut at a different salon. This makes the underlying value a toss up as far as RGS is concerned.

Normally with a basic service industry stock trading 25% off its highs it would start to garner some interest from other buyers, but something really feels off here. If ACV thought the RGS shares were bottoming out they would have probably tried harder to close the deal and just ask for contingencies, but this feels like they are saying more bad things may be coming. Who knows if that is really the case, but that is how it feels.

The one to watch here may be Alberto-Culver (ACV). They have already signaled that they would sell the units and a quasi-price already seems established. This would make a spin-off probably more than possible and it may even portend a "Backdoord Play" for a future deal. ACV also has to do something with this unit because right now it manufactures shampoos and other products, but also sells competitors' brands through its Sally retail chain. Those stores would have become part of Regis in the deal, but now Alberto still remains both a vendor for and competitor against other manufacturers.

So far the street is rewarding ACV for dumping the deal with RGS. ACV was trading up 3.4% and depite trading up initially RGS is now down another 1.9% this morning.

IPO Alert: VISICU Pricing

by Jon C. Ogg
Date Created: 4/5/2006 9:17:00 AM EST

VISICU (EICU-NASDAQ) priced its 6M share IPO priced at $16.00, which is above the already revised $13.00 to $15.00 range (original was $11.0 to $13.00). Morgan Stanley and Wachovia were the underwriters in the deal.

This company provides remote monitoring of Intensive Care Units in hospitals, and is said to be set up to potentially expand into many other areas of remote monitoring for hospitals and healthcare facilities. Fiscal 2005 revenues were $18M and the company posted a $2M net loss (rounded number), so keep "valuations" in mind when you consider that the company looks set to have a market cap in excess of $500M out of the chute.

The company has no direct public pure-play competitors although NightHawk Radiology (NHWK-NASDAQ) does provide radiological interpretations to its customers in the United States primarily from its centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. This is not a direct overlap by any means, but NHWK's success has been attributed indirectly to the strong demand for the shares of EICU.

Since the range has already been bumped up twice, the "market chatter" on the opening price has been around $17.00 to $17.50. Please keep in mind that those numbers are never formal and can be much different than the actual opening price.

More information can be found on the company's website at www.visicu.com for your review. The company was founded in 1998 and boasts the following client data:
- 34 health systems and one government facility
- 150+ hospitals in 22 states
- More than 4,000 beds in over 300 ICU's

IPO Pricing: Himax Technology

by Jon C. Ogg
Date Created: 3/31/2006 9:39:00 AM EST

Himax Technologies, Inc. (HIMX-NASDAQ) priced its initial public offering of 52,000,000 American depositary shares (ADS's) at US$9.00 per ADS, which is at the high-end of its $7.50 to $9.00 estimated range. Each ADS trades on a 1:1 share basis to its local shares. Morgan Stanley acted as lead underwriter of the offering, with Credit Suisse as co-lead manager, Banc of America, Piper Jaffray, ABN Amro Rothschild and HSBC acting as co-managers. The underwriters have 7.8M shares indicated for the 30-day over-allotment.

Himax is a Taiwanese fabless designer of semiconductors used in TFT-LCD flat panel displays. Its fiscal 2005 Revenues were $540M and it posted net income of $61.5M, which is up from $300M revenues and $36M net income in 2004. While the company did price at the high-end of the range and while the overall demand for flat panel displays has been strong, the company is coming public the day after a revenue warning from Genesis Micro (GNSS-NASDAQ) on weaker-than-expected flat panel TV demand in the EU and China. It is possible this will be dismissed as an issue since GNSS noted that one of the circuits in the chip did not meet the standards of one of its biggest customers, but we'll have to see today how HIMX trades and if it weakens demand for the shares after the open. Demand from the street on this has so far been described as good and above average, but not sizzling. It did price at the high-end of the range but demand didn't create an above-range pricing. One figure for the initial post that was tossed out there to me was a $9.35 indicated opening price. These price levels are highly subjective and can be very inaccurate so keep in mind that the level may be off. We'll find out soon enough.

Its largest customer, Chi Mei Optoelectronics, a publicly traded company in Taiwan (stock ticker '3009' in Taiwan), owns about 14% of the company. It appears as though some 40M of the shares being sold are from existing shareholder(s), but that hasn't been confirmed.

Long-Term Watch List for a Backdoor Play: Internet Capital Group and Vcommerce (March 30, 2006)

by Jon C. Ogg
Date Created: 3/30/2006 11:37:00 AM EST

We constantly looks for backdoor plays in upcoming IPO's, spin-offs, and special situations. It looks like there may be a new one to place on a "Watch-List" after Internet Capital Group (ICGE-NASDAQ) took a 36% stake (28% on a fully diluted basis) in VCommerce Corporation this morning. ICG purchased $13 million of Series B Participating Preferred Stock of Vcommerce, and will hold two of six Board seats in this Scottsdale, Arizona based entity. Please be advised that a "Watch List" is meant solely for monitoring purposes until it becomes an "active list."

Here is how Vcommerce describes itself: Vcommerce provides on-demand commerce and fulfillment solutions for multi-channel retailers and direct-to-consumer companies of all types. The Company offers turn-key solutions and customized features that allow customers to rely on Vcommerce for some or all of their e-commerce functions, from hosting an entire e-commerce site to supporting back-end functions such as managing drop-ship suppliers. As a complete solution, Vcommerce enables retailers, distributors and manufacturers to merchandise products, accept orders from customers, authorize and settle credit card transactions, ship products directly to the consumer, handle returns and manage customer service through the Vcommerce platform with minimal operating overhead and no IT infrastructure.

My Take on the company: This sounds like a super supply chain management software suite that also integrates on the front-end of the store for consumers as well, all in one broad-based solution. After having done some work for a supply chain management software company last year, this seems to take the software suite a step further by acting as the front-end for returns and for its e-commerce suite but also eliminates part of the back-end in that this sort of picks up from the point that a retailer (for example) actually receives its widgets at their supply point. It may go much further than that, but that is just how it sounds on the surface.

Vcommerce reportedly expects its 2006 revenue to be approximately $20 Million, inclusive of hosting fees, implementation fees, transaction fees and, in some cases, gross merchandise sales revenue. Vcommerce's clients according to the company are Target, Overstock.com, eToys Direct, David's Bridal, MTV Networks, Baby Universe and Ritz Interactive, among others.

The interesting thing about this company is that they have been around for some time and has raised capital in the past, and it has been on the IPO radar before as "one to watch" in the group. Vcommerce previously had raised over $65 million in total VC funding, including a late 2000 infusion that valued the company up supposedly around $221 million. Participants in that deal included Benchmark Capital, Archery Capital, American Express (AXP-NYSE), Pequot Capital, Dain Rauscher, PaineWebber (part of UBS, UBS-NYSE/ADR), Inktomi Corp. (now a Yahoo! YHOO-NASDAQ subsidiary), and CMGI @Ventures (part of CMGI-NASDAQ).

I have to go way back to review percentages of ownership, but this 33% stake from ICGE today is likely the largest if you recall that the valuations being made in 2000 were up in the stratosphere. If you back-out today's numbers this would imply roughly a $36.1M approximate current valuation, or something to the tune of $46.4M if it was on a fully diluted basis. You should double-check those numbers on your own since I usually just eyeball these for a glimpse of what to expect instead of getting down into the minutia on something that will take a long time to pan out. ICGE's market cap is currently pegged at $357.2M, so it will be interesting to see if they are able to get this to come out in an IPO in the next 12 months. CMGI is also already more than twice the size of ICGE with its $725M market cap and I didn't see it as an "Active" listed portfolio company on CMGI's @Ventures roster found at http://www.cmgi.com/ventures/fundedco.shtml for your review. Typically we need to see valuations climb back to $200M or more before any large underwriters will bother to bring a software company public, although there are many smaller underwriters that would consider much smaller deals. This will likely take a long time to pan out, so stay tuned and keep this as a potential back-door play into a future IPO.

If you wish to subscribe directly to our Free newsletter and email list on upcoming IPO's and other special situations, please send an email to info@newscontrast.com and label it "email request list". We value privacy and do NOT sell our lists and do NOT share our email list with any outside partners or vendors. We are in the process of rebranding as "Event Driven Analysis" as we are more into analyzing news and events for our subscribers than a reporting mechanism. For the time being please feel free to sharing this data with any friends in the investment field. If this is used in article we are protected by copyright in the US and internationally, so we do require a hyperlink or track back to this site.

Rethinking the Impact of Google's Filing to Sell Shares (March 30, 2006)

by Jon C. Ogg
Date Created: 3/30/2006 9:12:00 AM EST

Yesterday after the close Google (GOOG-NASDAQ) made a filing showing the street that it would sell up to 5.3M shares, or $2.1 Billion worth of stock based on the $394.98 closing price yesterday. The stock is down about 2% pre-market, but it had been down as much as almost 4% in after-hours trading after the knee-jerk reaction. So far this morning the shares have already been defended at Thomas Weisel, Oppenheimer, and J.P.Morgan. For a moment let us pretend that efficient market theories are correct and that the current price reflects all information, even though time has shown that rationale to work only in a vacuum. Let us be thinkers here and come up with a different thought process of what an additional $2Billion+ means for Google and the street. Google's market cap is $117+ Billion based on today's closing price, so an additional $2+ Billion would create less than a 2% dilution on a fully diluted basis. Should the stock be down on the news? Quite simply the answer is yes on the surface, but dig a layer deeper and let's really consider this. On a static basis this will likely help it end up with what will likely be around $10-$11 Billion cash by the end of the year, up from about $7.9 Billion at the end of last quarter. Also for disclaimer purposes, we are NOT paid to hold this in any light nor are we biased because of any stock holdings (we are neither long nor short).

Larry Page and Sergey Brin, despite the fact that their mantra was to "do no evil" and despite the fact that they refuse to offer official Wall Street guidance to investors and analysts, are certainly not clueless and probably can't be accused of not knowing what they doing. If I am wrong in this statement, then perhaps they are just the luckiest guys on the planet and everyone on the street has been duped into thinking Google is the best thing since sliced bread. I read an Associated Press article yesterday evening that stated GOOG would need to earn an additional $45M to $50M this year to match the Thomsopn Financial EPS estimate of $8.82 per share; but analysts usually account for this in short order and rarely say that this creates an earnings warning, because in theory the reverse side of the coin would be that if a company buys back 10% of its stock it is able to increase its adjusted EPS guidance by some 11%. This stock is up 15% in the last week ahead of its entrance into the S&P 500 Index, so it looks like they may just be recapitalizing on their stock strength. These shares are for its growing capital expenditure budget and possible acquisitions. The company sold about 14.1M shares last September and the stock is up well over 20% since then, despite being well off its highs.

Despite the fact that Larry and Sergey do not offer guidance, you can probably bet what you are sitting on that they at least read the street estimates when it comes to making big financial decisions. If this is true it may mean that GOOG doesn't feel as though they are going to miss this quarter on its earnings report like they did last quarter since we are only 2 days until the end of the quarter. When companies sell shares and turn around around within a couple of weeks and issue an earnings warning or give shoddy guidance the street tends to punish them relentlessly and often will never be warm to management again, so this "could" even be telegraphing to the market that GOOG is very comfortable with how it will report this quarter.

You may even be able to say that the company is just going to finance for free what we already knew, or you can say it will be looking to do more deals sooner rather later. Google has also made several private transactions for technology and even acquired another company, and this will likely continue if I am correct. The company plans to be involved (as of now) in almost everything that involves search functions and beyond online, and in the coming weeks to years it will have to decide how much it wants to keep up with that goal. We already know GOOG has been in talks to pay $1B to Dell (DELL-NASDAQ) for a Google-already-included bundling arrangement and we know they are paying $1B for the 5% AOL stake to Time Warner (TWX-NYSE). So what is next? According to the latest comScore Media Matrix data Google has 42.3% market share in the US online search market and just Tuesday a report from RBC noted that it was only "how long will it take" for them to reach 70% market share.

There are important lessons to be learned from Microsoft's (MSFT) yet-to-be-proven strategy of trying to adequately compete in every aspect of every segment in the online and software markets, and this $2 Billion will just get us on the street a little closer to understanding how far the company is willing to go. Based on the fact that they have started doing outside deals, it is probably a safe bet that in order to grow into new untapped markets the company will use these proceeds for more acquisitions and technology buildouts. So now, it is time to delve into this for a BAIT SHOP REPORT where we identify would-be acquisition targets that make sense. Unfortunately that is going to be some time to consider who would be worth buying rather than making a homegrown grass roots effort, but I would be willing to bet that there are prospects out there. This will take time to develop because of the fact that GOOG may enter into so many new and existing arenas, so stay tuned.

Upcoming IPO Alert: China Grentech

by Jon C. Ogg
Date Created: 3/29/2006 10:18:00 AM EST

China GrenTech (GRRF-NASDAQ/ADS), a provider of wireless coverage products and services in China, is shaping up to be a hot IPO that is expected to price on Thursday for Friday trading. The Chinese company plans to offer 6.25 million ADSs with a range of $14.00 to $16.00. Out of the sale 5M shares are being sold by the company and 1.25M shares are being sold by insiders. Bear Stearns, Piper Jaffray and WR Hambrecht are the underwriters on the deal. It appears as though the price range may be hiked after the company's roadshow, so watch out to see if they bump up the number of shares as well.

The company on a fully diluted basis is projected to have a market cap of approximately $375M, but keep in mind that after warrants and additional classes of stock that come into play these numbers are frequently inaccurate. According to its initial filings the company had revenues of $89M and ended up with $23M net income for its fiscal 2005 period.

There was initially very little known about this company, and the formal filing for its IPO looks like it was only about two weeks ago. The conversion ratio for the ADS's is 1 ADS per 25 local shares. The IPO pitch was apparently pretty easy despite no one having heard of the company......"China. Wireless. Profits. Growth."

If you wish to look deeper into the company, their website link is here at www.grentech.com.cn for your review. The self-description of the company can be found at http://www.grentech.com.cn/en/Introduction.asp for your review.

Upcoming Secondary Alert: Amylin Pharmaceuticals

by Jon C. Ogg
originally created 3/28/2006

We have a couple of interesting secondary offerings this week, but the one that really stands out is this proposed 8.5M shares being sold by Amylin Pharmaceuticals (AMLN-NASDAQ). Its secondary is set to price Wednesday evening for a Thursday trade, but so far there is not any great buzz around the deal. This was announced yesterday morning, so much of the initial knee-jerk reaction that you would usually see has already occurred. Unfortunately there really hasn't been a lot of institutional demand according to street sources, and this may end up being retailed out instead of being placed mostly with institutions. The one thing that has prevented this from getting hit too hard is that Amylin persistently releases positive data on its diabetes product, and more positive data will probably come out in the next 30 to 60 days if the company lives up to form. If you really want to know why the demand is weak on this deal, you need look no further than the chart below. Fortunately all of the proceeds are going to the corporate coffers rather to make a wealthy executive even wealthier, so they can either eliminate debt entirely or they can use proceeds to bolster its R&D pipeline and current business development.

Morgan Stanley & Co. Incorporated is acting as the sole book-running and joint lead manager for the offering. Goldman, Sachs & Co. is acting as a non-bookrunning joint-lead manager of the offering. Co-managers for the offering are Bear, Stearns & Co. Inc. and Lehman Brothers Inc. If the 1.3M overallotment options is exercised by the underwriters then the total sale will result in 9.8M shares.

This stock is one that has been on the Watch List for our subscriber Bait Shop service that identifies takeover candidates and special situations, but it never made the formal Bait Shop list because of valuation and aggressive anticipation of positive news by the street. Here are some stats on the company:

52wk Range: $14.50 - $47.00
Avg Vol (3m): 2,071,070
Market Cap: $5.06B
P/E (ttm): N/A
EPS (ttm): -$1.96
Div & Yield: N/A (N/A)

BALANCE SHEET & FINANCIAL DATA (as of 12/31/05, figues in $000):
ASSETS
Cash And Cash Equiv. 72,026
Short Term Investments 371,397
Total Current 514,804
Total Assets 568,046

Current Liabilities 99,670
Long Term Debt 387,454
Deferred 11,658
Total Liabilities 498,782

As you can see, the additional $380-ish Million raised from this sale will bolster the company balance sheet, although it will still not be considered a "cheap stock" by any real metrics. Now we just have to see how effective and dominant they can be with their diabetes treatment. While the company is still expected to lose money through at least 2007, you will see what is expected from them here: FY DEC-2006 EPS -$1.79 & R$390.22M; FY DEC-2007 EPS -$0.74 & R$649.50M. Official analyst calls are more cautious now as the valuation of the company has grown significantly.

Who May Benefit From Check Point's Blocked Sourcefire Buyout?

by Jon C. Ogg
Date Posted: 3/24/06

Protectionism and Outsourcing are perhaps some of the most sensitive topics among US citizens when it comes to the combined business and investment community colliding with how we live our lives. Before you read any further, please understand that what I am about to discuss is from a financially agnostic and unbiased point of view. A question does need to be posed: Is protectionism GOOD or BAD? The answer is convoluted as hell because it depends on which angle you are coming from. If you are Joe Q. Public that goes to work worrying that today could be the day that a foreign work group has been tapped to assume your work duties for wages that are 45% lower than your, then you will probably say protectionism is GOOD. If you are an investor that looks as companies merely as stock-tickers and instruments for you to make money on, then you will probably think that protectionism is BAD. As "Event Driven Analysis" is geared toward active investors, you can bet your assets which aspect will be covered here.

Take a look at what is perhaps the leader in data security this morning, which is Check Point Software (CHKP-NASDAQ/ADR). Many investors may not even know that they are an Israeli-based security venture, which means they were not subjected to the US rules on 128-bit data encryption maximized rules that the US imposed on all US-based companies in the 1990's. The government watchdog "CFIUS" had its eye on a recently announced transaction where Check Point was going to acquire privately-held Sourcefire, which claims to be the world leader in real-time network defense solutions. Sourcefire is at work in leading financial, healthcare, manufacturing, technology and educational organizations throughout the U.S., Europe, Asia and Latin America; BUT here is the kicker: Sourcefire solutions are trusted by all branches of the military, the largest civilian agencies, and domestic, internal and military intelligence organizations. This kicker has all the earmarks of a red flag, and that is exactly what came up. Just last night Check Point announced that with consent of the U.S. government, Check Point and Sourcefire have agreed to withdraw its existing CFIUS application related to Check Point's acquisition of Sourcefire. According to the press release (excerpt): The companies have determined that it would be more effective to create a customer focused business partnership. "We've decided to pursue alternative ways for Check Point and Sourcefire to partner in order to bring to market the most comprehensive security solutions," said Gil Shwed, Check Point's CEO. In short, this deal was going to be scrutinized (even though this may just be to show Dubai that we will be prejudiced against the Israeli's and others owning what are deemed critical infrastructure assets rather than the US just being prejudiced against Arabs owning critical infrastructure assets).

This acquisition was going to allow CHKP stock to have potentially another growth engine in what has been a relatively mature data security market. If you think this analysis is flawed, then go run 18-month charts on these stock tickers: CHKP, MFE, WGRD, RSAS, & SYMC. The street has reacted by punishing the stock based on would have been a core growth engine for CHKP stock, and the earnings numbers are having to be ratcheted down as well. Morgan Keegan maintained its Market Perform rating, but noted that this may have added $0.04 to the 2006 EPS. JPMorgan cut this to a Neutral from Outperform, and both Cowen and Merrill Lynch cut their Buy ratings down to Neutral. Pacific Crest said this destroys any compelling reason to own the stock, CIBC trimmed its target from $28 to $26, and Jefferies trimmed its $22 target down to $21. Even Susquehanna cut this down to Neutral today and Wachovia cut its rating to Market Perform from an Outperform rating. Usually I am in the business of being skeptical when it comes to what they have to say, but I agree with them this morning.

As far as CHKP stock is concerned this is going to have to be left up to the technicians and chartists from here on out now. It also looks like the fundamental crowd is going to have to hang their hat on the fact CHKP may be looking like a "Value Stock" as opposed to a great tech or growth story. There is more to the story here after the chart sample, but here is a brief chart (from BigCharts.com) on CHKP:

CHART HAD TO BE REMOVED OVER HTML IMAGE TRANSFER COMPATIBILITY



HOW CAN YOU PLAY THIS OUTSIDE OF "CHKP"?

I have always thought of how to make idea-generated stock calls based on certain events (hence "Event Driven Analysis") and really sort of roll-played "IF, Then.." scenarios for years now in this area. Have you been watching Cramer's "Mad Money" on CNBC two hours after the close each night? If you have been watching him for insight on how to think about analyzing events or trends, then you will easily see where I am going with this. So, Who Will Benefit From This? Surely after this long of an article you will get an idea of what you could do here. Here goes:

My primary function outside of on-demand research for brokers and investors is selecting PUBLIC COMPANY targets that should be and could be acquired AND coming up with a pool of candidates that would be the acquirers. That being said, this is actually a REVERSE of that goal since this deals with the target being a PRIVATE COMPANY. This was just a situation that turned out bad for CHKP, but this was signaled nack at the end of February and beginning of March around the same time as the Dubai Ports issues were making headlines every hour in the US. The price tag WAS $225M for a company that reportedly had $35M in approximated revenues last year. So what is the likely scenario going forward: One of the US data security MUST acquire this private company. They now know what th