24/7 Wall St.
Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

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Saturday, September 30, 2006

Weekend Edition

The 24/7 Weekend Edition are articles picked from the best and most quoted material from the last week.

Weekend Edition: GM: Render Unto Caesar...

Stocks: (F)(GM)

And, so it goes. With Renault and Nissan more anxious to build a three-way partnership with GM than GM is, the big American car company has asked for a multi-billion cash compensation based on the fact that the North America partner brings more to the table than the Japanese or European ones do.

With Nissan losing share in its own home market of Japan and Renault without a dealer network to sell cars in the US, GM is probably right.

Carlos Ghosn, head of Renault and Nissan, waited to long to press the GM board. GM has now taken $9 billion a year out of its annual costs, and its stock is up almost 60% this year. GM's business is also growing quickly in markets like Russia. The company's market share was also up in August in the US market.

With GM demanding tribute in exchange for forming a partnership, it is time for Nissan and Renault to catch a cab across town to Ford. If they have cabs in Detroit.

Weekend Edition: Nasdaq Short Interest

Nasdaq Short Interest, September 2006
These are figures for short interest in stocks listed on Nasdaq. Numbers compare September 15, 2006 with August 15, 2006.


Largest Short Positions:

Sirius Satellite 129.5 million shares, up 12.2 million
Level 3 99.1 million shares, up .4 million
Yahoo! 87.2 million, down 5.1 million
JDS Uniphase 85.8 million, up 1.7 million
Microsoft 74.6 million, up 1.7 million
Intel 69.2 million, down .1 million
Charter 65.6 million, down .5 million
Cisco 62.3 million, up 6.9 million
Oracle 60.3 million, up 6.5 million
JetBlue 54.6 million, up 1.2 million
eBay 49.0 million, down 2.4 million
Comcast 46.4 million, up 3.2 million
Amazon 43.6 million, up 3.4 million
Dell 43.3 million, down 4.2 million
Starbucks 35.2 million, up .5 million
Take Two 34.2 million, up .9 million
Sun 32.7 million, down .4 million
Apple 32.3 million, up 4.0 million
Finisar 31.2 million, up .2 million
XM Satellite 30.2 million, up 1.4 million
Conexant 29.8 million, up .5 million
Brocade 28.7 million, up 10.5 million

Largest Increases:

Level 3 14.3 million to 99.1 million
Brocade 12.2 million to 28.7 million
Cisco 6.9 million to 62.3 million
Oracle 6.5 million to 60.3 million

Largest Decreases:

Genesis Micro down 5.9 million to 4.6 million
Yahoo! down 5.1 million to 87.2 million
TDAmeritrade down 4.5 million to 10.6 million
Dell down 4.2 million to 43.3 million
Novell down 3.5 million to 11.7 million


Coverage Ratio:

SCO Group 261 days
Intergr Alarm 123 days
Bnk Ozarks 60 days
ZipRealty 58 days
ParkerVision 55 days

Sources: NASDAQ and WSJ

Weekend Edition: The Shorts And Dell

Stocks: (DELL)(HPQ)(SUNW)

Short interest in Dell dropped 4.2 million shares in September to 43.3 million. Maybe Dell has had enough and could make a little turn North.

Over the last year, the stock has dropped from $34.50 to $22.72. It has had a tiny rally since it was below $20 in July.

Most investors think that the air has gone out of the PC ballon and that Dell's poor execution and bad customer service has hurt the company. It has also lost share in the critical server market. However, it is still the No. 1 PC manufacturer, and the management is acutely aware of its problems. The CEO knows he only has a certain amount of time to improve things, or founder Michael Dell will be pressured to replace him

Dell's stock is also cheap It trades at .9 times sales and has a P/E of about 18. Hewlett-Packard's P/E is 21 and it trades for 1.1 times sales. Even server company Sun Micro, a stock kicked around like a soccor ball for the last several years, trades at 1.4 times sales.

Dell may be down, but it may not be out. If so, some of the short sellers are making a wise decision.

Weekend Edition: Can Ad Reveue Save XM Radio?

Can Advertising Revenue Save XM? (XMSR)(SIRI)

Satellite radio has had a rough road. But, advertising revenue could change that. There is a broad perception that satellite radio is commercial-free. But, that is only true on some channels. The new Oprah show carries commercials and some of them are large marketers including like Target, Dove and Snapple.

According to XM, the company did $20 million in revenue in 2005. The previous year the figure was $8.5 million.

XM’s revenue run rate is about $1 billion a year. Advertising is clearly an extremely small part of this. But, XM has not had Oprah before. As here syndicated TV show and magazine have proven, she is a tremendous draw for marketers.

With an operating loss of $100 million a quarter, and a slowing subscriber base that may only reach 8 million by the end of the year, XM needs a hand. The market for advertising revenue on radio is still huge. Citadel Broadcasting, a modest-sized public radio company did $420 million in revenue last year. The company owns 153 FM and 58 AM stations. The company had an operating profit of $143 million last year.

Over the air radio has lost a great deal of it momentum to satellite radio. But, with its stock But, with its stock down from over $36 a little less than a year ago to $13 now, XM hardly looks like it has taken the momentum torch from the old line broadcast companies. Rival Sirius is doing no better. In December, its stock traded near $8. It is now below $4.

A hybrid model of paid subscribers and advertising is what may save XM’s bacon. The Oprah channel is not just an experiment. It may be XM’s future.

Weekend Edition: Is Google A $200 Stock?

Is Google A $200 Stock That Trades At $400?

Google had net income of $721 million last quarter, its best quarter of the last four. At eBay, the best quarterly number over that same period was $279 million. Of course, the holidays make their business more seasonal. At Yahoo! the best of the last four Qs was net income of $632 million. At Amazon, the number was $199 million.

Google’s market cap is about $124 billion now. Yahoo!’s runs about $35 billion. eBay weighs in at $40 billion. Amazon at $13 billion. So, Google is worth 41% more than the other three combined.

Of course, Google’s revenue almost doubled last year, to $6.1 billion. At Yahoo! revenue has not doubled since 2004, when it was up 120%. eBay almost doubled revenue in 2003, and came close again in 2004. Amazon has not grown that fast since 2000.

Obviously, Google gets a huge market premium for its spectacular growth being in a more recent period than the rest of the companies. Based primarily on anticipation of future increases in revenue and operating income, Google trades at about 15 times sales. At Yahoo!, the number is 5.7 times. At Amazon, the number is only 1.5 times, but their big growth year was six years ago. The eBay ratio of sales to market cap is 7.3 times.

Virtually all of Google’s revenue comes from key word advertising. Internet advertising has been growth at an extremely rapid rate, but a recent study from the Internet Advertising Bureau says it is slowing. While US internet advertising was up 37% in the first half of 2006 compared to the same period in 2005, it only grew by 5.5% from Q1 2006 to Q2.

Predicting whether internet ad revenue growth will continue to slow is impossible. Obviously Yahoo! has suffered recently from the perception that some of its major ad categories are not doing well. It is too early to tell whether this will spill over into other internet companies.

One thing is certain. When Wall St. gets a whiff of slower growth, stock prices stumble. Yahoo! is a case in point. This year its price has gone from over $43 to $25. In late 2004, eBay traded at over $58. Today, it changes hands at $26.

Google’s day is coming. In the June quarter, revenue jumped to $2.456 billion from $1.385 billion in the same quarter a year ago. Another double. But, with overall web ad revenue growing at less than 40%, Google is too big to gain enough market share to overcome the overall trend.

And, when the trend is not your friend, eBay and Yahoo! would indicate that a company’s market cap can fall by half.

Weekend Edition: Cramer Loves DIVX

Cramer on MAD MONEY (9/26/06) Says BUY Walgreens and DivX

Tonight Cramer on MAD MONEY, Cramer wanted to note that this is a high-five type of market and we have a broad-based rally where almost everything is rallying. Cramer says the market is not done going up, and this rally is based extra because commodity prices are falling. Cramer said it is good for all companies consuming natural resources for their products. He is giving the market a Boyah Buy.

Cramer said that Walgreen's (WAG) has been condemned for the wrong reason and the jury is wrong. It is not a broken stock and is not a broken company. He calls WAG a "mom-back" buy. He says the Wal-Mart $4 generics and the lower-margins and the potential store growth slowing are worries that are wrong and overblown. It trades at 22 times next year's earnings and is growing at 16%. Cramer says the $5 stock could really be a $72 stock. Cramer shotdown the Wal-Mart program as a PR campaign and said that some of Walgreen prices are actually under that of Wal-Mart.

Cramer on a call-in said that the charts showing a breakout are right and you need to be in Tech stocks and Drug stocks as they will lead the market higher. He did say sell Barr Labs (BRL) in another call-in.

A Broken tech IPO that has been overlooked. Cramer said DivX (DIVX) was overlooked. He said it rose 17% after the IPO and you should buy this company with limit orders. He said the video compression and decompression. He said 18% of their business is with Google (GOOG). He said Google pays them a fee when people download videos. He said DIVX is sexy as there may even be a bandwidth glut. Cramer said the fundamentals and the numbers are a thing of beauty. He thinks the operating margins may be so big he wants to do a mom-back. He thinks there could be 93% gross margins in 2003. It has doubled revenues for 6-years so it has accelerated revenue growth. He even compared it by saying it could be the next Akamai (AKAM). He said it has $4 cash and no debt per share and it was overlooked. DIVX traded up 8% on this.

Jon C. Ogg

Weekend Edition: High Seas Mergers

Overseas Shipholding Group, Inc. (OSG) and Maritrans Inc. (TUG) jointly announced this morning that they have entered into a definitive merger agreement. We have OSG will acquire Maritrans for some $37.50 per share. Maritrans a leading U.S. Flag crude oil and petroleum product shipping company that owns and operates one of the largest fleets of double hull vessels serving the East coast and U.S. Gulf coast trades.

The Boards of Directors of each company have already approved this all-cash transaction for $37.50 per share. The transaction is valued at approximately $455 million based on approximately 12 million shares outstanding and the assumption of net debt outstanding as of June 30, 2006. OSG will finance the acquisition through a combination of available cash and borrowings under existing credit facilities. The transaction is expected to be immediately accretive to OSG's earnings per share, before considering any transaction synergies. This compares to OSG's $2.4 Billion market cap, and represents a 47% premium to Maritrans (TUG) closing prices.

"The strategic fit of Maritrans within OSG's diversified portfolio of assets will broaden our service offerings to customers in the Jones Act market," said Morten Arntzen, President and CEO of OSG. "Additionally, the lightering business in Delaware Bay and the addition of new customers in the complementary ATB Gulf of Mexico and Florida short-haul trade, will contribute meaningfully to our contractual base of business. Most importantly, however, are Maritrans' strong commercial reputation and its team of talented personnel which, when combined with our U.S. Flag operation, will give us the platform to support our 10 Jones Act product carrier newbuilds, as well as future growth opportunities in U.S. coastal trades."

Jonathan P. Whitworth, CEO of Maritrans, commented, "We are very excited about the transaction with OSG and the benefits it brings to shareholders, customers and employees. A greater commercial footprint will allow us to serve our customers better with a more diversified product offering. The larger fleet also enhances our market intelligence, a critical ingredient in effectively competing in the shipping market. Moreover, the financial strength that OSG brings to the combination will enhance our ability to compete. We look forward to a successful integration and to becoming the newest member of the OSG family."

We have been expecting many such mergers to commence in the international shipping companies, particularly as the switch to double hull tankers is in full tilt. We have about 5 other shipping companies in our BAIT SHOP that we believe will be acquired in a similar fashion. In the wake of hurricane damage to US ship building and because of a myriad of other factors, this industry is ripe for added consolidation.

ADDITIONAL DATA ON THE MERGER
The transaction combines two fleets with complementary strengths in different trade routes and diversifies OSG's U.S. Flag presence with the ability to offer expanded services to current and future customers of both companies. The addition of Maritrans' fleet of 11 articulated tug barges (ATBs), five product carriers, two of which have been redeployed to transport grain, and three large ATBs under construction will complement OSG's U.S. Flag fleet of seven operating vessels and 10 newbuild product carriers. The combination will expand OSG's market presence in the U.S. Gulf coast, Florida and East coast trades and add lightering operations along the U.S. East coast. It is expected that Maritrans' vessel construction program, which involves ATBs to be used in lightering operations, will allow OSG to use a substantial portion of its Capital Construction Fund. OSG's commitment to invest and expand in the Jones Act market results from strong, positive market fundamentals that include a steady and growing demand in the U.S. for oil and refined petroleum products, especially transportation fuels such as gasoline, low sulfur diesel and ethanol, and the need to replace the capacity of ships that will be retired pursuant to the OPA-90 phase-out schedule. The transaction, which is expected to close by year-end 2006, is subject to approval by a majority of Maritrans' shareholders and other customary closing conditions, including regulatory approvals. Upon completion, the U.S. Flag strategic business unit will operate its combined fleet from Maritrans' headquarters in Tampa, Florida and will report to Jonathan P. Whitworth as Senior Vice President of OSG.

UBS Investment Bank is acting as OSG's sole financial advisor and Cravath, Swaine & Moore LLP is acting as lead legal counsel to OSG. Merrill Lynch & Co is acting as Maritrans' financial advisor and Morgan, Lewis & Bockius LLP is acting as legal counsel to Maritrans.

Jon C. Ogg

Weekend Edition: Halliburton Spin-Off

Halliburton Still Plans to Spin-Off Its KBR Unit
KBR, the former Kellogg Brown & Root, is cooperating with Halliburton (HAL) to accomplish a tax-free distribution by Halliburton to its stockholders of shares of common stock, and it agreed to promptly take any and all actions necessary or desirable to effect any such distribution. The distribution may occur through a dividend, exchange or other transaction. We still do not have any formal plan, but the plan still apears "to have a plan."

An amended filing with the SEC was dated September 22, 2006, so this is fresh and doesn't make it look like the company wants to hold off on the division of the two operations. This will also allow Halliburton and KBR to each be evaluated as pure-play companies rather than the culmination of an oil services company mixed with a warfare support and infrastructure builder.

THE TWO COMPANIES (Mostly described by themselves)

Notes from KBR regarding the filing: We will enter into a master separation agreement with Halliburton that will provide for the separation of our assets and businesses from those of Halliburton. The master separation agreement will also contain agreements relating to the conduct of this offering and future transactions, and will govern the relationship between Halliburton and us subsequent to the separation and this offering. In addition, we will enter into several ancillary agreements with Halliburton, including a tax sharing agreement, a registration rights agreement, two transition services agreements, an employee matters agreement, and an intellectual property matters agreement. The terms of these agreements were determined by Halliburton. These agreements will continue in accordance with their terms after any distribution by Halliburton of our common stock to its stockholders. Summaries of the master separation agreement and the ancillary agreements are set forth below, and these agreements will be filed as exhibits to the registration statement of which this prospectus forms a part.

Founded in 1919, Halliburton is one of the world's largest providers of products and services to the oil and gas industries. The Company adds value through the entire lifecycle of oil and gas reservoirs and provides and integrates products and services, starting with exploration and development, moving through production, operations, maintenance, conversion and refining, to infrastructure and abandonment. Halliburton employs more than 100,000 people in over 120 countries working in five major operating groups:

Halliburton's Energy Services Group consists of four business segments:
•Drilling and Formation Evaluation
•Fluid Systems
•Production Optimization
•Digital and Consulting Solutions

These segments offer a broad array of products and services to upstream oil and gas customers worldwide, ranging from the manufacturing of drill bits and other downhole and completion tools to pressure pumping services.

KBR, Halliburton’s engineering and construction subsidiary, employs more than 60,000 people in 43 countries. Its strength is in engineering and project management, with a strong historical position in LNG and oil and gas projects. The company is a leading government services contractor as well. This global technology and services company is composed of two distinct divisions: the Energy & Chemicals Division and the Government & Infrastructure Division. The Energy & Chemicals Division provides state-of-the-art engineering, procurement, construction and technology capabilities focused on upstream and downstream markets. The Government & Infrastructure Division, with its premier civil infrastructure capabilities, is one of the largest government logistics and services contractors in the world. Whether designing an LNG facility, serving as a defense industry contractor or providing capital construction, KBR delivers world-class service and performance.

There will be many indemnifications. KBR is an entirely different operation than Halliburton and it carries many different liabilities.

FINANCIALS:
KBR posted revenues of $10.2 Billion and net income of $240 million. Its first half of 2006 revenues were $4.7 Billion and net income was $118 million. Its first half of 2005 showed over $5 Billion in revenues, but $91 million attributable net income. As of June 30, 2006 KBR held some $930 million in cash and total short-term assets of $3.956 Billion, and its total assets were listed as $5.623 Billion; and liabilities were broken down as $2.844 Billion in current liabilities with its total liabilities listed as $4.098 Billion.

Perhaps the most interesting issue in the entire prospectus is that the sale date and terms are blank, but it still says: Delivery of the shares of common stock will be made on or about , 2006. That still says that 2006 is the anticipated time frame. You need to be aware that this is a cookie cutter prospectus from the company, but it does still lend hope that KBR will be its own public company by the end of the year. This is an updated prospectus date September 22, and the last filing was listed as May 26. This incorporates the new six-month period of performance. There are still no listed terms because this is still pending and is still up in the air, so there is no assurance it will occur this calendar year.

There are still no underwriters listed on the prospectus, which is the same as before. That also means this may not be via a legitimate IPO, but it is too soon to know since the company hasn't determined its path. The "2006" date indication, while not specific, still lends hopes that a tax-free spin-off, sale, or distribution is the hoped-for route here. This will likely be an IPO or paid out in another tax free situation. Halliburton (HAL) has been drifting lower and lower is actually trading at the lowest level since it went ballistic last summer. It has also been trading outside of its uptrend for several weeks with the oil-patch names as oil prices have officially entered bear market territory.

We do not yet know what avenue the company will use to seperate KBR from Halliburton, but the company is still at least going through the motions that it wants to seperate the operations. KBR has been deemed a laggard and worse for the entire Halliburton organization, and the company still knows that. Hopefully this will get the process expedited.

Jon C. Ogg

Weekend Edition: Ebay Learns Chinese

Changes Coming at eBay in China?
If reports out of China are "accurate," there could be some changes in eBay's (EBAY) China operations. The company is reportedly in its 5th round of negotiations with Tencent. There are questions about how much Tencent wants and it may be too high for what eBay is willing to shell out.

There is even a mention that eBay may sell its Chinese operations of eBay Eachnet, although that isn't clear if it is all or part. It also noted that Tencent may be an interested buyer.

This article is sourcing Sohu, so you will have to decide for yourself if there is any validity to it. It has happened on many many more times than a few that "rumors" on Asian online news sources that post freely to the public have been.....how do you say "Far from accurate"?

We'll check around to see if this has any legs to it, but it would be interesting if ebay really changes its efforts very much there.

Goldman Sachs has maintained its Buy rating in a seperate note this morning.

Jon C. Ogg

Weekend Edition: World's Biggest IPO

Bracing For The Largest IPO Ever: Industrial & Commercial Bank of China Ltd.
China's largest bank, the Industrial & Commercial Bank of China Ltd., has shown its planned date for its long-awaited IPO. The price will be determined on October 23 and it should debut for trading on October 27, 2006, assuming there are no major market changes. Its stock will initially only be listed in Hong Kong and Shanghai. This may make it hard for US and European retail investors and many US-only institutions to participate in what appears to be the world's biggest initial public offering ever.

"ICBC" hopes to raise up to an equivalent of $19 billion and if this amount is raised it would break the IPO record of $18.4 Billion raised in the 1998 IPO in Japan's mobile phone operator NTT DoCoMo.

Before any over-allotments over subscriber indications, "ICBC" plans to issue 13 billion A shares priced in Chinese currency in Shanghai and 35.39 billion H shares. The actual price range is not indicated, but that is equal to 14.8% of its share capital. The company has indicated that up to 16.7 percent of total capital could be raised if the subscriptions come in higher than expected. If these numbers are accurate on the base amount, it would put the overall equivalent market cap of "ICBC" at roughly $128 Billion. That number may not be accurate because of share discrepancies, but there is over 1 month yet to figure out the comparative details.

PRIOR CAPITAL RAISED

"ICBC" already plans to sell IPO shares worth $3.5 billion to strategic investors from government investment agencies from Kuwait, Qatar and Singapore. It also received a commitment in June from China's social security fund to invest an equivalent of $2.25 Billion in the bank. Another group of global financial powerhouses including Goldman Sachs, American Express and Allianz AG invested about $3.78 Billion back in January, 2006. That totals over $9.5 Billion raised so far in capital this year alone, and not all of that may be on the prospectus by the actual IPO date. "ICBC" listed assets of 6.5 trillion Yuan ($800 billion) as of the end of 2005.

EXCHANGES AND MARKETS

Hong Kong has its own financial system and mainland regulators treat it as a foreign market even though it is Chinese territory. This does open it up more easily to foreign investors, but most individuals and many smaller institutions in the US do not have access to any foreign accounts other than trading US-listed ADR's and GDR's. It appears as though 3/4 of the funds raised would come from Hong Kong.

COMPARED TO OTHER CHINESE & GLOBAL BANKS:

The country's second-biggest lender, Bank of China (#2), raised $11.2 billion in May, 2006 with an IPO in Hong Kong. China Construction Bank (#3) raised $8 billion in October, 2005. We were supposed to already have the IPO for the Agricultural Bank of China (#4), but its IPO was delayed because it has to get its books in order after its bad loans are higher than any normal banking standards.

China's banks are modernizing as they prepare to meet Beijing's December deadline of opening their market to foreign competitors under its World Trade Organization commitments. Interestingly enough, some ownership and license regulations have been restricted in recent months, so the true degree of "opening up to foreign competitors" may be somewhat overstated. Bank of America recently sold its Hong Kong and Macau retail and commercial operations to China Construction Bank.

If the $128 Billion is accurate, and we stress the IF, here is how it compares to the other large financial institutions with banking operations you know quite well (in market caps): Citigroup (C) $247 Billion; Bank of America (BAC) $242 Billion; J.P.Morgan (JPM) $163 Billion; UBS AG (UBS-ADR) $116 Billion; Mitsubishi UFJ Financial (MTU-ADR) $122 Billion; Banco Bilbao Vizcaya Argentaria (BBV-ADR) $77 Billion; Allianz AG (AZ-ADR) $71 Billion; Lloyds TSB plc (LYG-ADR) $56 Billion; Royal Bank of Canada (RY-ADR) $56 Billion; ABN AMRO NV (ABN-ADR) $55 Billion; Deutsche Bank (DB-ADR) $54 Billion.

You can see that this massive IPO will garner a lot of discussions in global circles, but because of the share listings it is going to be difficult for most US individuals and smaller institutions to participate directly in this IPO.

Jon C. Ogg

Weekend Edition: Predicting Earnings Winners

StarMine Telegraphs Winners & Losers for Earnings Season"

Predicting Stocks That Will Beat and Miss Estimates Ahead of Earnings Season
Stock Tickers: SAIA, UHS, CINF, F, HET, BRC

StarMine is an analyst tracking service we like to review and to refer to. This service is essentially an analyst "of the analysts' predictions and they monitor analysts' track records on the calls they make. They break it down by sector, but more importantly they break it down by individual stocks. Based on the "5-star" rating of certain analysts in a given stock, StarMine actually goes out and derives its own earnings prediction for companies that may exceed or miss the street estimates ahead of each earnings season. This is the sort of behavior we have done on many select names in the past, but they do it on most of the liquid stocks out there.

If you can believe it we are essentially within 3 weeks of the next earnings season that will begin in the second week of September and go into full-tilt earnings season mode in the 3rd and 4th weeks of September.

Today on CNBC StarMine gave some interesting predictions around 1:55 PM EST on CNBC. The gave a short list of 3 companies that they felt would exceed estimates and 3 they felt would miss. They use who they deem as the best 5-star analyst for each stock.

We have each StarMine prediction noted as Consensus estimates, Brokerage 5-star analyst prediction, and by the implied StarMine estimate based on a blend of the two. We took this one step further by including today's stock price, its dollar gain/loss so far today, and we even provided an adjusted 52-week trading range to show if it was at the high-end or low-end of each range.

The ones that StarMine thinks will BEAT estimates:

SAIA Inc. (SAIA) $0.63 consensus; Morgan Keegan at $0.67; so StarMine is predicting $0.66.
SAIA $32.29, up $0.01; 52-week trading range $14.70 to $34.04.

Universal Health (UHS) $0.62 consensus; $0.64 at B of A; so StarMine is predicting $0.63.
UHS $60.10, up $0.41; 52-week trading range $44.50 to $59.84.

Cincinati Financial (CINF) $0.72 consensus; Keybanc $0.76; so StarMine is predicting $0.74
CINF $48.20, down $0.05; 52-week trading range $39.91 to $48.55.

The ones that StarMine thinks will MISS estimates:

Ford (F) -$0.53 consensus; Citigroup is far lower on it; so StarMine predicts -$0.70.
F $8.12, down $0.29; 52-week trading range $6.06 to $10.04.

Harrah's (HET) $1.00 consensus; Calyon is lower; so StarMine is predicting $0.97.
HET $65.66, up $1.01; 52-week trading range $57.29 to $83.33.

Brady (BRC) $0.61 consensus; R.W.Baird is 0.50; 0.56 is StarMine.
BRC $35.34, up $0.13; 52-week trading range $26.98 to $42.79.

Last quarter they were 3 for 3 on positives on Wesco (WSO), Investment Technology Group (ITG) and IntercontinentalExch (ICE). Not all stock prices followed with higher prices but ITG & ICE were noted well. We look forward to tracking these predictions. Please keep in mind that StarMine only chose 6 names here, and that is a fraction of their stock coverage universe.

Weekend Edition: XBox Profit

"Microsoft Debut Should Make Xbox Profitable Net-Net in 2007"

Master Chief is....Peter Jackson?

At the X06 conference in Barcelona, Spain the Xbox team showed many developments, all of which are going to be good for gamers AND items which should turn Microsoft's Xbox franchise into a net-net profit center for Microsoft (MSFT). To date the Xbox unit has been a net money-loser for the company. I have said that the street acronym of Microsoft as "Mister Softie" should be changed to "Master Chief," and that is even more true after looking over today's news and reviews for the Xbox franchise at the X06 conference.

"Lord of the Rings" mega-film series creator Peter Jackson has teamed with Microsoft to launch a development studio and collaborate on a new "Halo" game.

Jackson is also producing a big screen "Halo" movie. He and Microsoft to create Wingnut Interactive to focus exclusively on video games, and its first untitled game will be set in the "Halo" universe. Wingnut will work with Bungie Studios, which created the franchise and is currently working on "Halo 3." Halo 3 is set for release next year, and as a big personal fan of the game franchise hopefully this one won't be delayed like the company's Vista operating system.

Besides Halo 3, Wingnut is supposed create another game that will focus on attracting non-gamers to gaming. Microsoft-owned Ensemble Studios also revealed it has been working on a game set in that universe: "Halo Wars," which is said to be a real-time strategy game for the Xbox 360.

The announcements came Wednesday at Microsoft's annual X06 event, held in Barcelona, Spain. There is no word of financial terms and it is not disclosed if Microsoft will invest in Jackson's company. Microsoft said the Xbox360 peripheral player will go on sale in the U.S. in mid-November for $199.99, and it will come with a HD-DVD version of Jackson's film "King Kong." This is a corporate strategy geared directly to mess with Sony and even Nintendo as they release their new consoles. Xbox 360 has more than 5 million units sold and the company said it is on track to sell 10 million by the end of the year.

Sony's PlayStation 3 launches in November, but the street is criticising it as late and not as good. The PS2's market share was roughly 70 percent of the global console market, and with the launch of Nintendo's new Wii around the same time and with the Xbox360 price cut and some exclusives it is being questioned about the prospects of Sony maintaining such an outright dominance.

Part of the key to Sony's success has been having exclusive deals with game makers such as Take Two Interactive (TTWO), but that is not the case this go-round. Microsoft today announced Take Two will offer Xbox 360 players of "GTA 4" two exclusive, downloadable episodic add-ons within months of the game's release. Take Two confirmed the upcoming title "Bioshock," which wowed critics earlier this year at E3, would be console-exclusive to the 360.

id Software and Microsoft announced a downloadable Doom title for the Xbox Live Marketplace that is actually a port of Ultimate Doom, including that game's fourth episode, "Thy Flesh Consumed."

This downloading of games is something we will have to monitor and something we have to monitor VERY closely for the investing community that trades video game stocks and the peripherals around it. If studios can start selling downloads direct, it could have major implications for retailers such as GameStop (GME), Best Buy (BBY), and even Amazon.com (AMZN). That is not to mean it is a threat yet, but it is something the retailers need to strike with publishers. These games would be nothing if it was not for the sales efforts of the retailing chains that depend on these sales, so you would think the retailers would secure their future with game publishers. I personally have a strategy for the stores to fight this if the publishers try to go around them, but this is still a ways out.

Electronic Arts (ERTS) has showcased the following for Xbox360: FIFA 07, Need for Speed(TM) Carbon, Tiger Woods PGA TOUR® 07, NBA LIVE 07, NHL(TM)07, Half Life 2 and SUPERMAN RETURNS(TM): THE VIDEOGAME.

Weekend Edition: Keefe Bruyette IPO

"Keefe Bruyette & Woods IPO on Track"

KBW, Inc. is still planning to come public via an IPO. For those who are not familiar with the name KBW this is the parent of Keefe, Bruyette, & Woods, a stellar investment bank that tends to focus on the financial sector.

The underwriters include KBW, Merrrill Lynch, Banc of America, Fox-Pitt Kelton, JMP Securities, Thomas Weisel, BNY Capital, and FTN Midwest.

430 people as of June 30, 2006, including 101 in investment banking, 151 in sales and trading and 82 in research; it covers 489 companies under research.

-U.S. registered broker-dealer, Keefe, Bruyette & Woods, Inc.;
-U.S. registered investment advisor, KBW Asset Management, Inc.;
-Keefe, Bruyette & Woods Limited, an investment firm authorized and regulated by the U.K. Financial Services Authority.

The firm specialized in the bank and thrift sector; and expanded the financial services sector: insurance companies, broker-dealers, mortgage banks, asset management companies, mortgage REITs, consumer and specialty finance firms, financial processing companies and securities exchanges. It also expanded from the United States into Europe with a European-focused team in the London office.

It provides research, sales & trading, investment banking, and fixed income services.

KBW posted 2005 revenues combined at $307.8 million and net income was listed at $17.4 Million on an after-tax basis. For the first 6 months of 2006 the company posted revenues of $193.1 million and after-tax net income of $14.8 Million. As of June 30, 2006 it carried Assets of $622 million and total operating liabilities of $340 million.

The company has the traditional range of risks listed in the prospectus for the company, including the equivalent comments that its real assets walk out the front door and go home every night. In truth, unless they have hidden and buried ghosts that aren't known this IPO will be well received. It is hard to call that before you start to see some price indications, so we will wait to see the financial details before we blindly go out with an open endorsement.

This is a financial IPO we are looking forward to.

Jon C.Ogg

Weekend Edition: RIMM Goes Wild

"Research-in-Motion Blows Past Estimates"

RIM's Good Job
Research-in-Motion (RIMM) is trading up some 15% in after-hours trading. The company beat its estimates handily and raised guidance. The stock closed at $86.06, down 0.16%, and is trading up to around $99.00 and $100.00 in after-hours.

The stock initially slid because there was a delay in the call announced, but the results are being viewed as far better than the restatement announcement.

QUARTER:
Revenue for the second quarter of fiscal 2007 was $658.5 million, compared to estimates of $648+ million. Revenues were up 7.4% from $613.1 million in the previous quarter and up 34.4% from $490.1 million in the same quarter of last year. It posted preliminary net GAAP EPS of $0.74 and pro forma was $0.77 vs. $0.71 estimates.

The revenue breakdown for the quarter was approximately 72% for handhelds, 19% for service, 6% for software, and 3% for other revenue. Approximately 705,000 BlackBerry subscriber accounts were added in the quarter. At the end of the quarter, the total BlackBerry subscriber account base was approximately 6.2 million.

GUIDANCE:
Revenue for the third quarter of fiscal 2007 ending December 2, 2006 is expected to be in the range of $780-$820 million. Subscriber account additions in the third quarter are expected to be approximately 800,000. GAAP earnings per share for the third quarter are expected to be in the range of 88-95 cents per share diluted. Adjusted earnings per share for the third quarter, which excludes regular stock option expense of approximately $4.5 million, are forecast to be in the range of 90-97 cents per share diluted. ESTIMATES are $0.78 EPS and $699+ million in revenues.

RESTATEMENT:
RIMM announced today that the Audit Committee of RIM's Board of Directors, comprised solely of independent directors, is completing a management-initiated, voluntary review of RIM's historical option granting practices. The Audit Committee has made a preliminary determination that GAAP accounting errors were made around the administration of certain historical stock options granted from fiscal 1998 to present, and has made a preliminary determination that a restatement of RIM's historical financial statements will be required to reflect this. Although the review is ongoing, it is currently expected that the potential effect of such restatement will be to increase the amount of non-cash charges associated with past option grants and thereby reduce the amount of the Company's previously reported GAAP earnings by an aggregate amount of approximately $25-45 million over the period since the Company's IPO in 1997. The Company has voluntarily informed the SEC and the OSC about its internal review of its stock option grants. The Company does not at present anticipate a material adjustment to current or future fiscal years' operating results, including the preliminary Q2 operating results reported today in its separate earnings press release, and RIM has defined enhanced procedures and controls to address issues of this nature. All figures in U.S. dollars.

Jon C. Ogg

Weekend Edition: HP Keeps Moving

"H-P Proves It Isn't Slowing Down"

H-P (HPQ) today announced it has signed a definitive agreement to acquire Canadian-based VoodooPC, a leader in high-performance and personalized gaming computer systems.

Before getting too far into the acquisition, this at least shows the company can still operate on developments while it is in the midst of a corporate PR crisis.

HP will form a separate business unit within its Personal Systems Group focused on the gaming industry. VoodooPC co-owner Rahul Sood will become chief technologist for the unit and co-owner Ravi Sood will become the unit's director of strategy. Both will report to Phil McKinney, who will become general manager of the gaming business unit while maintaining his current role as chief technology officer of HP's Personal Systems Group. HP plans to maintain VoodooPC's current distribution model and brand name along with its marketing, sales, support and development operations.

"HP is already a market leader in two of the three major segments in the gaming market by providing industry-leading workstation solutions for game development and powering the largest online game services," said Todd Bradley, executive vice president, Personal Systems Group, HP. "We're absolutely thrilled to welcome VoodooPC, gaming industry pioneers and the premier name in gaming, to the HP team. Together with VoodooPC's leadership and influence, HP will have the expertise to become the leader in the gaming customer segment."

The acquisition is expected to close by November 2006. Terms of the deal were not disclosed.

HP obviously isn't too worried about this pre-texting and spying ruining their future, and it is obvious that VoodooPC isn't too worried about it either. This is the exact strategy that Dell (DELL) employed when it announced it was acquiring Alienware in March of this year.

This should at least put some of the cool-ness factor into H-P for the gaming crowd.

Jon C. Ogg

Weekend Edition: Bare IPO

"Bare Escentuals IPO is a Hit"

Bare Escentuals IPO Priced Higher, and Then Some
Bare Escentuals (BARE) is an IPO we noted earlier about being met with strong demand. There was talk of aprice above the range this week, but it cam in much higher than the range. BARE priced at $22.00 for 16 million shares, well above the $15.00 to $17.00 range.

Weekend Edition: Western Digital To Be Bought?

"Why Western Digital Should Be Acquired"

Western Digital (WDC; $18.20) has been up earlier this week on hopes of a buyout. It began the week around $17.00 and traded just over $18.50 on Wednesday before coming back down. Its shares tried a brief rally earlier today, but it seems that has slowed. A buyout of Western Digital makes sense, although a different scenario makes more sense than rumors that have gone around this week.

Western Digital (WDC) is one to watch in the wave of ongoing mergers and private equity buyouts. In the game of pure hard drives for PC's it and Seagate (STX) are the last of the big independents domiciled in the US, and Western Digital is far behind Seagate. Maxtor used to be there in the space, but Seagate took them out in an acquisition this last May. Western Digital acquired Read-Rite assets in 2003. Disk drive makers do their best to make comparing apples to apples difficult, but historically Western Digital has been thought of as the "value purchase" for hard drive while Seagate has been viewed as the premium brand. If you go in and start comparing prices at Best Buy and again at CDW you will see the pricing differences.

Seagate is significantly larger with a market cap of some $13.3 Billion compared to Western Digital's market cap of $4 Billion. WDC trades at a mere 10.4 P/E ratio (pre-options issues) and if analyst forecasts for fiscal Jun-07 are correct it has a forward P/E of 10.1 and a forward P/E for Jun-08 of merely 9.1. These estimates may change based on the options review. Keep in mind that these can change any time a company speaks and we are going into earnings season in two to three weeks. StarMine rates Bear Stearns and Citigroup as the two top 5-star rated firms covering the stock; and Bear Stearns downgraded the stock in July to Peer Perform and Citigroup downgraded the shares earlier in September to a Hold. Bear Stearns' Andrew Neff hinted as this company being the next logical acquisition in the space, but that was before he downgraded the stock.

This stock has been hovering in a tight range of $16.50 to $18.00 for most of the last two months and its 52-week trading range is $11.25 to $24.70.

The company's new smaller personal and portable storage devices have helped the company ramp up sales in each of the last 3 years and they are projected to post $4.85 Billion for Jun-2007 and $5.15 Billion in Jun-2008 fiscal years. It is very difficult to accurately compare WDC's balance sheet and operating results now that Seagate and Maxtor have just folded into one report, but WDC spends about 6.6% of its revenues toward research and development. Its options review has been an issue. The company has delayed its annual report, and based on comments that some options backdating existed you should just assume there will be restatements.

The open interest in the options is not indicative of an impending merger as the closest strikes only show open interest of 17,000 for October and 5,300 for November. That is only indicative of 2.3 million shares on a fully leveraged basis, and average daily volume in the stock is 3.3 million shares. This month's short interest showed a reading of 9.6+ million shares short, down from 10.1+ million shares short in August.

The rumors out there earlier in the week actually had rumors that Seagate was the would-be acquirer. Since our FTC and DOJ in the U.S. haven't blocked a single merger in years this may be possible for Seagate to get it done, but you should expect PC makers and others to raise hell. The problem I have in a merger of this magnitude is that Seagate wouldn't just dominate the domestic disk drive market, it would own it outright and could put a real squeeze on lower-price PC makers and on consumers. The recent debt offering of Seagate may have fuelled these rumors, and 1 of 100 other possibilities could have fuelled it.

This company actually looks like a private equity firm could pursue it, and if the company wants to sell itself it should go the private equity route. It has a cheap enough "P/E yield," it has essentially no serious long-term debt and it has enough cash and current assets that a private equity acquirer could pay themselves a hell of a dividend after the acquisition. A private equity firm would also have no anti-trust issues, while Seagate should. If Seagate makes an offer, it is quite possible a private equity buyer would consider upping the ante. There are several firms that could do this. Groups like Bain, KKR, Silver Lake, Blackstone, and others could do this in a club deal or individually. The premium on this probably will not be a mega-premium deal because they do not have to worry about rewarding many shareholders that are deeply buried in the name. This stock traded much higher back in 1997, but that is nearly a decade ago and what the stock traded at back then should be as relevant as gold to a dead man.

The company also has already launched its newer wave of personal and portable storage devices, so it is not as dependent on lower-cost internal and external storage devices. That may actually help keep some of the R&D costs at bay, and high R&D costs at most technology companies typically keep private equity firms and other private groups from being interested. It even has factories, so it is not entirely fables like so many other technology companies.

One of the larger overseas competitors could fairly easily try to acquire the company. That is an unknown as to which it would be, but Hitachi, Fujitsu, Toshiba, and Samsung could all pursue the company if they wanted.

Management may be a mixed bag for a potential deal, but that can go either way. It has a relatively young management team compared to many other technology companies that have been around this long, and they are well paid. The top 5 institutional holders also hold about 32% of the stock as of the last filing dates.

There are risks and Seagate isn't the only competitor. The options review and 10-K delays could create further problems. The company could get hosed if Seagate and Maxtor decided to lower apples to apples product costs to PC makers and to the consumer. It competes against Hitachi, Fujitsu, Toshiba, Samsung Electronics, and Seagate. They could develop internal issues, and so on.

The risks here seem reasonable for the rewards, and it is honestly surprising why no one has tried. There is no way to know if the company will meet, beat, or miss estimates next month and it is very likely that the company will only show revenues and promise to show earnings post-options at a later date. This options issue is actually part of why the stock is cheap, and a private equity firm can take advantage of that malaise better than a US-domiciled public company.

This is actually able to be hedged with options as well. The $17.50 Puts for Jan-07 are listed at $1.50, for November they cost $1.00, and they cost $0.45 for October.

On the surface it seems like there is no reason to not have this on the Bait Shop AND on the Technology Value List. There are always risks, but this seems like a very ripe candidate for a deal in a consolidating world.

Jon C. Ogg

Weekend Edition: Viral Video

"....even if MySpace is worth $20 Billion and before Mark Cuban hosesYouTube"

Pondering Viral Video and Social Networking Valuations
All of the recent Organic video and social networking announcements should make the buyout or acquisition valuations for both YouTube and Facebook seem ludicrous more than they should validate the valuations each is/was seeking. Cisco (CSCO) and Yahoo! (YHOO) have already taken some initiatives that could either make those two viral growth companies either valued much lower. Viacom (VIA) needs to do something, but they should focus on start-ups that are not in the 9-digit handles. Before giving the full synopsis of the potential deals, we need to show the layout and the most recent data from July's comScore reading (yes, we know it is July data).

NewsCorp's (NWS) MySpace is the leader in social networking and is actually big in videos as well.

Microsoft (MSFT) spin off Wallop said Tuesday it was starting service and will compete head on with MySpace and Facebook. Wallop starts with $13 million in backing from Microsoft, Norwest Venture Partners, Bay Partners and Consor Capital. This is just after MSFT lached its Live.com service.

Yahoo (YHOO) has acquired San Francisco start-up Jumpcut, the online video editing company, for an undisclosed amount.......according to Venture Beat.

Cisco Systems (CSCO) has recently announced its video comprehensive digital media system.....

Google (GOOG) has its video sharing....

Time Warner's (TWX) AOL has its UnCut and new open video search initiative.....
http://uncutvideo.aol.com/Main.do

About 106.5 million people, 3/5 of US Internet surfers, watched an online video in July, according to comScore.

Does anyone remember TheGlobe.com (TGLO-OTC)?

Yahoo was listed as #1 with 37.9 million people initiating 812,000 video streams. MySpace was listed as #2 with 37.4 million people initiated 1.5 million streams. YouTube was ranked #3 in the list of video properties on free content. Time Warner's network (including AOL) ranked #4, and Microsoft sites were listed #5.

One other noteworthy situation is that comScore said adding Adobe's (ADBE) Macromedia Flash video increased the number of online video viewers between 10 percent and 20 percent.

YouTube was reportedly not going to accept anything under $1.5 Billion, and that is after it secured Level 3 (LVLT) as its nationwide broadband provider and after it signed terms with Warner Music. Mark Zuckerberg's social networking site Facebook was reportedly in talks with Yahoo! or another for a $900 million or $1 Billion deal.

If you take this all at face value it essentially leaves Viacom (VIA) as the last man standing. The company has signaled that it wants to go more into web content, and it very much needs to. They have to make acquisitions and they have to do it soon. They have said the intent is to rapidly identify companies as they are emerging, or at least that was my understanding.

The problem is that if Viacom goes out and tries to buy a Facebook or YouTube, then they will be overpaying if it is anywhere close to current expectations from these kids. These kids that started the two companies do not yet know their business models yet, and the street hasn't figured out the model yet either. Neither will replace the overall dominance of other services, even if their traffic is actually up among the top sites. The truth is that this video is going to be around, but it will likely not replace all web models out there. Personally I run 4 monitors, watch numerous updating pages, monitor some feeds, and have kept up to 4 different news channels before. BUT, the thought of monitoring a dozen video feeds simultaneously seems numbing and honestly as worthless as gold to a dead man. I may have to eat those words one day and will accept the hickey if I am wrong, but I doubt that will be the case.

These kids that created YouTube and Facebook have created a service and deserve to be rewarded for it, but they do not deserve at all to become Billionaires. If someone pays the current and most recent asking prices for either one of those then they can expect to get a call from me asking them to buy the London Bridge. There are literally almost NO barriers to entry in this field, and it is cheaper to grow it organically. Quite literally you can create a start-up for this with all licensed and leased technology in very little time. With the compression now available even the bandwidth costs out there are not going to be murderous, and that is likely true if if Cramer is correct about a bandwidth shortage coming soon.

I thought Murdoch's acquisition of MySpace was brilliant and I thought News Corp (NWS) stock was a steal around the time he initiated that buyout this time last year and the street was criticising him. I recently noted that maybe Yahoo! should consider YouTube instead of Facebook previously because of the price, and while I think YouTube has more value I cannot think of the need to fork over over $900 million, $1 Billion, or $1.5 Billion for either one of these companies for any reason on earth.

Here are the top 25 sites tracked by Alexa in overall US-related web-based traffic based on the traffic information available as of today:

1. Yahoo!

2. Google

3. Myspace
Social Networking Site.

4. Microsoft Network (MSN)
Dialup access and content provider.

5. EBay
Person to person auction site, with products sorted into categories.

6. Amazon.com
Amazon.com seller of everything

7. Craigslist.org
Online community

8. YouTube
YouTube is a way to get your videos to the people who matter to you. Upload, tag and share your videos worldwide!

9. Wikipedia
Free encyclopedia built collaboratively using Wiki software.

10. Go.com
A searchable directory, news, stocks, sports and free e-mail.

11. CNN - Cable News Network
Includes US and international stories and analysis, weather, video clips, and program schedule.

12. Live.com
part of Microsoft

13. AOL
America On Line's portal, offering search, shopping, channels, chat and mail.

14. Blogger.com
Free, automated weblog publishing tool that sends updates to a site via FTP.

15. Thefacebook (facebook.com)
An online directory that connects people through social networks at colleges. FAQ, news coverage, schools covered, and terms of use.

16. Microsoft Corporation
Official homepage of Microsoft Corporation

17. Comcast.net

18. The Internet Movie Database imdb.com
Features plot summaries, reviews, cast lists, and theatre schedules.

19. The New York Times
Online edition of the newspaper's recent content with searchable archives for a fee.

20. Flickr
Picture galleries available with social networking, chat, groups, and photo ratings.

21. MapQuest
Find directions for and explore towns and cities worldwide. Display addresses on a map, view nearby businesses, get driving directions and maps, and plan a trip with city information. Also includes aerial photographs of selected areas.

22. Weather.com
Offers forecasts for cities worldwide as well as radar and satellite maps. Also includes news stories and allergy information.

23. Digg
Technology focused news site where the stories are chosen by community members rather than editors.

24. Apple Computer, Inc.
Apple's main homepage.

25. About.com
A network of sites where visitors can find many targeted topic areas, each one managed by a personal guide; part of New York Times.

Jon C. Ogg

Friday, September 29, 2006

Market Wrap (Sept. 29., 2006)

DJIA 11,679.07; Down 39.38 (0.34%)
NASDAQ 2,258.43; Down 11.59 (0.51%)
S&P500 1,335.85; Down 3.30 (0.25%)
10YR- Bond 4.633%

Today was the end of the quarter, and it felt like the big fund mark-ups and window dressings took place earlier in the week. We had flat economic numbers that didn't show a runaway inflation with +0.3% income, +0.1% spending, core PCE +0.2%, core PCE yr/yr was +2.5%. The Chicago purchasing managers index was 62.1, making the weak Philly Fed reading early this week irrelevant. University of Michigan Confidence Reading was 85.4, which is compiled by students and has been referred to as the country club housewives' confidence index.


Research in Motion (RIMM) blew past numbers and raised guidance, so shareholders blew off its statement that internal options investigations would lower past earnings. RIMM closed up 19% at $102.65.

An article where president Bush pledged to increase alternative fuels spending caused rallies in small alternatives: Capston (CPST) +12% at $1.40; Quantum Fuels (QTWW) +14 %at $1.98; and Active Power (ACPW) +27% at $2.50.

Bare Escentuals (BARE) priced its IPO at $22.00, well above the $15 to $17 range; it closed at $27.15.

Shutterfly (SFLY) priced its IPO at the top of its range at $15.00; it closed up at $15.55.

H-P (HPQ) rose 2% after Mark Hurd alleved fears on Capitol Hill that the company was rotten to the core.

Dell (DELL) fell 0.5% to $22.84 after adding another 100,000 laptop batteries to its recall.

Labopharm (DDSS) lost 22%to close at $5.65 after the FDA did not give it an approval.

Sanders Morris Harris (SMHG) fell 11.7% to close at $12.51 after it had to price its 5 million share secondary well under current market prices.

Advanta (ADVNB) fell 1.8% to $36.90 despite rumors that Citigroup may be interested in the $1 Billion company.

Acorda Therapeutics (ACOR) rose over 5% to $9.15 on the day after Piper Jaffray raised its rating to an Outperform. ACOR had over a 300% rise this week on its MS studies.

AZZ Inc (AZZ) rose 14% to $36.50 after beating earnings handily and raising guidance.

Thai Fund (TTF) rose almost 5% to $9.90 on hopes out of Thailand.

Have a great weekend!!!!

24/7 Wall St.

Bait Shop: Western Digital (WDC)




Western Digital (WDC; $18.20) has been up earlier this week on hopes of a buyout. It began the week around $17.00 and traded just over $18.50 on Wednesday before coming back down. Its shares tried a brief rally earlier today, but it seems that has slowed. A buyout of Western Digital makes sense, although a different scenario makes more sense than rumors that have gone around this week.

Western Digital (WDC) is one to watch in the wave of ongoing mergers and private equity buyouts. In the game of pure hard drives for PC's it and Seagate (STX) are the last of the big independents domiciled in the US, and Western Digital is far behind Seagate. Maxtor used to be there in the space, but Seagate took them out in an acquisition this last May. Western Digital acquired Read-Rite assets in 2003. Disk drive makers do their best to make comparing apples to apples difficult, but historically Western Digital has been thought of as the "value purchase" for hard drive while Seagate has been viewed as the premium brand. If you go in and start comparing prices at Best Buy and again at CDW you will see the pricing differences.

Seagate is significantly larger with a market cap of some $13.3 Billion compared to Western Digital's market cap of $4 Billion. WDC trades at a mere 10.4 P/E ratio (pre-options issues) and if analyst forecasts for fiscal Jun-07 are correct it has a forward P/E of 10.1 and a forward P/E for Jun-08 of merely 9.1. These estimates may change based on the options review. Keep in mind that these can change any time a company speaks and we are going into earnings season in two to three weeks. StarMine rates Bear Stearns and Citigroup as the two top 5-star rated firms covering the stock; and Bear Stearns downgraded the stock in July to Peer Perform and Citigroup downgraded the shares earlier in September to a Hold. Bear Stearns' Andrew Neff hinted as this company being the next logical acquisition in the space, but that was before he downgraded the stock.

This stock has been hovering in a tight range of $16.50 to $18.00 for most of the last two months and its 52-week trading range is $11.25 to $24.70.

The company's new smaller personal and portable storage devices have helped the company ramp up sales in each of the last 3 years and they are projected to post $4.85 Billion for Jun-2007 and $5.15 Billion in Jun-2008 fiscal years. It is very difficult to accurately compare WDC's balance sheet and operating results now that Seagate and Maxtor have just folded into one report, but WDC spends about 6.6% of its revenues toward research and development. Its options review has been an issue. The company has delayed its annual report, and based on comments that some options backdating existed you should just assume there will be restatements.

The open interest in the options is not indicative of an impending merger as the closest strikes only show open interest of 17,000 for October and 5,300 for November. That is only indicative of 2.3 million shares on a fully leveraged basis, and average daily volume in the stock is 3.3 million shares. This month's short interest showed a reading of 9.6+ million shares short, down from 10.1+ million shares short in August.

The rumors out there earlier in the week actually had rumors that Seagate was the would-be acquirer. Since our FTC and DOJ in the U.S. haven't blocked a single merger in years this may be possible for Seagate to get it done, but you should expect PC makers and others to raise hell. The problem I have in a merger of this magnitude is that Seagate wouldn't just dominate the domestic disk drive market, it would own it outright and could put a real squeeze on lower-price PC makers and on consumers. The recent debt offering of Seagate may have fuelled these rumors, and 1 of 100 other possibilities could have fuelled it.

This company actually looks like a private equity firm could pursue it, and if the company wants to sell itself it should go the private equity route. It has a cheap enough "P/E yield," it has essentially no serious long-term debt and it has enough cash and current assets that a private equity acquirer could pay themselves a hell of a dividend after the acquisition. A private equity firm would also have no anti-trust issues, while Seagate should. If Seagate makes an offer, it is quite possible a private equity buyer would consider upping the ante. There are several firms that could do this. Groups like Bain, KKR, Silver Lake, Blackstone, and others could do this in a club deal or individually. The premium on this probably will not be a mega-premium deal because they do not have to worry about rewarding many shareholders that are deeply buried in the name. This stock traded much higher back in 1997, but that is nearly a decade ago and what the stock traded at back then should be as relevant as gold to a dead man.

The company also has already launched its newer wave of personal and portable storage devices, so it is not as dependent on lower-cost internal and external storage devices. That may actually help keep some of the R&D costs at bay, and high R&D costs at most technology companies typically keep private equity firms and other private groups from being interested. It even has factories, so it is not entirely fables like so many other technology companies.

One of the larger overseas competitors could fairly easily try to acquire the company. That is an unknown as to which it would be, but Hitachi, Fujitsu, Toshiba, and Samsung could all pursue the company if they wanted.

Management may be a mixed bag for a potential deal, but that can go either way. It has a relatively young management team compared to many other technology companies that have been around this long, and they are well paid. The top 5 institutional holders also hold about 32% of the stock as of the last filing dates.

There are risks and Seagate isn't the only competitor. The options review and 10-K delays could create further problems. The company could get hosed if Seagate and Maxtor decided to lower apples to apples product costs to PC makers and to the consumer. It competes against Hitachi, Fujitsu, Toshiba, Samsung Electronics, and Seagate. They could develop internal issues, and so on.

The risks here seem reasonable for the rewards, and it is honestly surprising why no one has tried. There is no way to know if the company will meet, beat, or miss estimates next month and it is very likely that the company will only show revenues and promise to show earnings post-options at a later date. This options issue is actually part of why the stock is cheap, and a private equity firm can take advantage of that malaise better than a US-domiciled public company.

This is actually able to be hedged with options as well. The $17.50 Puts for Jan-07 are listed at $1.50, for November they cost $1.00, and they cost $0.45 for October.

On the surface it seems like there is no reason to not have this on the Bait Shop AND on the Technology Value List. There are always risks, but this seems like a very ripe candidate for a deal in a consolidating world.

Jon C. Ogg
September 29, 2006

DISCLAIMER: Information has been taken from sources deemed reliable, but no assurances can be made to the accuracy of any figures, claims, or opinions. This is for informational purposes only and is not to be interpreted as investment advice or a recommendation to buy or sell securities. It is the sole responsibility of each individual to do their own research and form their own opinions. Neither 24/7 Wall St., LLC nor its officers assume any responsibility or liability for investor gains or losses, and neither holds any material knowledge that any merger in any form will occur. The writer of this does not hold any securities in the companies mentioned, and has not been compensated by outside parties to portray this situation in any particular manner.

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Cramer on STOP TRADING (9/29/06)

On STOP TRADING on CNBC at 2:55 PM EST, Jim Cramer said he is tired of hearing the market is expensive.

He said ConocoPhilips (COP) and steel names are cheap at 5 or 6 times earnings, but names like Coca Cola (KO) isn't.

On tech stocks, Cramer said he thinks it positive on techs. He thinks Cisco (CSCO) at 18 times earnings is too low. Cramer thinks many estimates are too low.

Cramer also is sticking by General Motoros (GM) and a $40 target. He thinks Tracinda is buying more and he thinks Ford (F) will have earnings explosions into next year.

Jon C. Ogg
September 29, 2006

Will Q4 Be Strong Yet Again?

Fourth quarters in recent years have been strong periods for the equity market, but I wanted to put some hard numbers behind my recollections. I went back all the way to 1990 and calculated the S&P 500's performance for each of the last sixteen fourth quarters. The results were even stronger than I had remembered.

Fourteen of the last sixteen years have produced positive S&P 500 returns in Q4. The mean return for the period since 1990 has been 6.5%. The average gain in the positive years is 8.0%, while the average loss in the negative years is only 4.5%.

Does this mean investors should be 100% equities going into October? Surely some will do just that based on these statistics, but I am being more cautious. The market has had a very, very strong third quarter and I want to protect some of those gains.

Stocks simply feel overbought currently. With the average fourth quarter producing a 6.5% gain since 1990, I am going to have to take "the under" and say this year will be less impressive than average. On the bright side, I'll be thrilled if I'm wrong!

http://www.peridotcapitalist.com/

Will Lampert Bail on AutoZone (AZO)?

From 13D Tracker

In an amended 13D filing after the close yesterday on AutoZone, Inc. (NYSE: AZO), Eddie Lampert's hedge fund ESL Partners, which is a 30.99% holder (22 million shares) of the stock, noted the news that Mr. Lampert would step down from the Board of Directors of the company, in order to devote more time to other duties at ESL and Sears Holdings (Nasdaq: SHLD).

Yesterday, shares of AutoZone were under pressure as rumors surfaced Lampert's fund would start to liquidate the position. The rumors were abound even though Mr. Lampert stated in the press release, "I plan to remain involved with the company, and ESL currently plans to remain a significant shareholder in AutoZone for the foreseeable future."

I guess one could view the word "significant" as meaning a 5% or 10% holder, not a 31% holder.

Wording in the SEC filing certainly leaves the door open for a sale. The disclosure notes that "Filing Persons (ESL) may acquire additional Shares; may sell all or any part of their Shares pursuant to Rule 144, in privately negotiated transactions or in sales registered or exempt from registration under the Securities Act of 1933; may distribute Shares to various of their partners or may engage in any combination of the foregoing."

This wording is not new and is a pretty standard disclosure, so in and of itself is not an indication that Lampert is bailing. But speculation on Lampert's next move have been rife lately, with talk centering on the hedge fund guru accumulating stakes in Home Depot (NYSE: HD) or Gap (NYSE: GPS).

Using funds from a sale of all or part AutoZone would surely give Mr. Lampert some play money to throw around.

http://www.13dtracker.blogspot.com/

Can The Wall Street Journal Say "Opps"?

Stocks: (DJ)(GM)

The front page of today's Wall Street Journal is one of the first on which they have run advertising. Page One has been strictly devoted to news for many years.

But, wouldn't you know it, starting off on a new venture ends up being an embarrasment. Below the fold on the right is an article on GM titled "Kerkorian Aims to Boost GM Stake In Bid to Add Pressure on Wagoner". Right below it, an ad for GM's new 100,000 mile warranty. The headline of the ad: "A New Level Of Confidence". Maybe they should send it to Kerkorian and tell him to keep his money.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Further Implications on the Talk America Buyout

We have already covered this Talk America (TALK) acquisition yestrerday and last week, so this will likely be the last note on the company.

This Talk America (TALK) that was recently given a buyout offer from Cavalier Telephone is up above even the new-higher $9.00 bid submitted yesterday by Sun Capital Securities Group. This traded above that level yesterday on the potential raised-bid for the company from Cavalier.

Here are the guts of the SEC Filing this morning to help determine if a new-higher-higher bid may be forthcoming:

On September 28, 2006, Talk America Holdings, Inc. received an unsolicited letter from Sun Capital Securities Group, LLC proposing "to purchase for cash all of the outstanding shares of Company Common Stock for $9.00 per share," subject to the terms and conditions set forth therein, including Sun Capital's satisfactory completion of due diligence. A copy of the Letter is filed as Exhibit 99.1 to this Report and the foregoing summary of the terms thereof is qualified in its entirety by reference thereto.

Also on September 28, 2006 and in response to the receipt of the Letter, the Company's Board of Directors, as permitted by an exception to the general "non-solicitation" terms of the Agreement and Plan of Merger, dated as of September 22, 2006 (the "Merger Agreement"), among the Company, Cavalier Telephone Corporation and Cavalier Acquisition Corp., made the necessary determinations in respect of the Letter and the proposal contained therein so as to permit the Company to furnish information about the Company to Sun Capital and its representatives pursuant to a confidentiality agreement with Sun Capital and to participate in discussions and negotiations with Sun Capital in respect of its proposal. The Company does not know whether any further or other proposal will be forthcoming from Sun Capital and the Company's Board of Directors has made no determination in respect of the proposal contained in the Letter or any other proposal of Sun Capital other than the limited determinations described above.

Here is a full link to the Sun Capital stake and offer.

BACKGROUNDER

Sun Capital Partners, Inc. is a leading private investment firm with more than $3.5 Billion under management. It focuses on leveraged buyouts, equity, debt, and other investments in market-leading companies that can benefit from its in-house operating professionals and experience. Sun Capital affiliates invest in companies which typically have the number one or two market positions in their industry, long-term competitive advantages, and significant barriers to entry. The company has made 10 new transactions this year, and made 5 add-on investments. Sun Capital has offices in Boca Raton, Los Angeles, New York, London, and Shenzhen.

MARKET ACTION

This stock has just crossed into new higher territory than yesterday's highs. The 52-week high on TALK is $10.20, and the company was just at its 52-week lows earlier in September. What a difference a couple of weeks can make. Sun Capital Securities is a subsidiary of Sun Capital Partners, Inc. and the subsidiary is already a 13.9% stake holders in TALK.

IMPLICATIONS
If the Sun Capital's mantra is accurate and their intentions are not just to get a higher buyout price, then it is obvious that the price of poker just went up. The company now has a $292 Million market cap, and it may be an issue for Cavalier to do this much more. Cavalier itself could actually be a longer-term candidate for a deal now, or it is possible that Sun will do this acquisition to repackage it for another Telco down the road. At $275 million, $9.00 per share in cash, the stock is trading at a decent premium to the deal. Based on some remedial calculations it would seem as though a bid of $9.75 to $10.00 could come without breaking the bank, but then what happens while the deal is waiting to be closed. It is obvious that TALK will sell for a higher price than the Cavalier $8.10 bid, but this probably won't end up being sold at much higher than $10.00. The company has been profitable in the past, but profits have been dwindling. So while it seems obvious that this is going to sell at a much higher price than $8.10, it may not be worth the risk at $9.60 plus compared to the new $9.00 bid.

The other top 3 large holders appear to be Eton Park Capital, Barclays, and Dimensional Fund Advisors. We will probably not get to hear anything from these fund management groups today, and this is a smaller company for those fund managers. At this point and based on past buyouts it would seem prudent to cut and run. We are in the midst of an unprecedented private equity craze and this is a fairly small price tag for any serious buyer, so anything is probably in the realm of possibilities.

Jon C. Ogg
September 29, 2006

Think Equity Thinks Little of DELL

By William Trent, CFA of Stock Market Beat

You may not have noticed, but computer maker DELL has not exactly been hitting the ball out of the park lately. Well, investment boutique Think Equity Partners has noticed, and is so concerned they believe DELL will miss guidance they didn’t even give.

According to CNet News.com:
Think Equity Partners believes Dell will have to preannounce poor earnings once again, as it deals with a host of issues, including the market, the recall, executive defections, a SEC investigation into its accounting practices, and the loss of marketing support from Intel as a result of its decision to adopt Advanced Micro Devices’ chips.

Even though Dell hasn’t issued guidance for its current quarter, it’s likely to try to slip the bad news in among the other earnings reports that will arrive in mid-October, analysts said in the report.

Now that is an earnings surprise! Of course, when you don’t give earnings guidance anything should qualify as a surprise. As far as DELL’s woes, we were a little curious as to what why and particularly why now these became a concern.

For example:
The market. We assume Think is thinking about the market for computers as opposed to the stock market. To some extent, though, both are outside DELL’s control. Today’s personal computer buyer is the consumer rather than big business, and we would no more penalize DELL for that than we would Oracle. It just isn’t their customer.

The recall. With similar recalls now issued by Lenovo/IBM, Apple, Toshiba, and pretty much anybody else who makes laptops, it is hard to call this a concern for one company in particular.

Executive defections. The way things are going, we could use at least one more of these.
SEC investigations are never a buy signal. But with “SEC options investigation” turning up “about 9,390,000″ results in a Google search, again we don’t see the company-specificity on this.

Last but not least, we have the AMD switchover and the question of whether the market share to be gained by offering AMD chips offsets the margin losses from foregone marketing support. While we assume somebody at DELL did the math, given their recent performance we are unsure whether they have anyone at the firm who can properly do the math - so we’ll let Think Equity Partners have this one.

Still, the last point has us more than a little confused at the fact that Think’s semiconductor analyst downgraded AMD on concerns of collateral damage. We guess it goes back to who was doing the math. If DELL loses its subsidy but doesn’t sell any AMD processors anyway, then it would indeed be bad for both companies.

Disclosure: Author is short DELL put options, a position that reflects a neutral to bullish outlook on DELL common stock.

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

http://stockmarketbeat.com/blog1/

Energy Beat - Debunking the Bear Case

By William Trent, CFA of Stock Market Beat

Barry Ritholtz recently expressed his dissatisfaction with the explanations being bandied about in the media as to why oil prices have fallen:

Here is a short list of the most common current explanations circulating in MSM:

1. More Supply coming online;
2. Reduction of global terror threat;
3. Cooling of hostilities between Israel and Lebanon
4. Seasonally weak demand, as Hurricaine season ends;
5. Iran cooling inflammatory rhetoric

I find these some of the mainstream explanations unsatisfying. At the risk of creating a strawman (only to knock it down), let me put forth my top 5 list:

1. Fast money rotating out of commodities and into tech;
2. Cooling economy consuming less energy;
3. No major supply disruption from weather or Middle East;
4. Psychology peaked earlier in year; (see Business Week Cover Story)
5. Stretched consumer shifts behavior;
6. And lastly, the Weak Strong US Dollar (Crude is priced in greenbacks)

We agree with Barry that each of these can pretty easily be explained away, as we do here:

Supply coming on line takes years. What new supply could have come on line that was not anticipated three months ago?
Just because they will let you take some of the liquids back on the plane now doesn’t mean the terror threat is any lower.
Israel and Lebanon don’t exactly have much oil - no oil supply was disrupted during their skirmish and it did not create any particularly unusual demand, so why would it have any effect on price (which was rising for years before the skirmish started?)
Seasonality is a valid point but certainly a very temporary one. It is long-term supply/demand balances that sent oil to $78, and those haven’t changed.
Iran? Isn’t this sort of the terror/Israel arguments tied together? Iran either wants to sell oil or it doesn’t. We’re betting on the former and think they are selling as much (or nearly so) as they can produce and that this won’t change any time soon.
Amaranth certainly suggests there was some speculation on the way up, but also suggests that (post their pop) there may be limited downside remaining.
The economy would have to cool to zero percent growth for the next five years for technology and substitution to offset the normal demand increase attributable to growth. If that is your forecast, fine (although I hope you are wrong.) Otherwise, your outlook for oil should be consistent with your economic outlook.
Psychology? Perhaps it had an impact on price, but it sure doesn’t affect supply or demand much. Unless you can quantify the impact on price, how do you know the current price is any more correct than last month’s?
Stretched consumer: See #6 above.
Dollar: Ditto.
So with the easy explanations as easily tossed aside, how about something with more meat? John Mauldin recently reposted a Charles Gave article on his site. Its basic tenet that oil prices will be brought back down due to substitution and new technology is beyond reproach. As far as the timing, however, we found it to be long on optimism and short on consistency. Consider:

1- The return of king coal: In WWII, the Germans (who were long coal and short oil) refined processes to make gasoline out of coal. This old process has been perfected and is now a source of energy in South Africa. Why is this important? Because there is more coal in North America or Australia than there is oil in the Middle East. The problems in using coal have historically been a) ecological issues (which can be solved with some money) and b) costs (using/moving coal is not as economic as low oil prices).

2- The exploitation of tar sands or bituminous coals in Canada, the US, and yes, Venezuela. Here, once again, the technology exists and the extraction costs are roughly US$30/bl. The production build-time is roughly around three to four years. The big hang-up is the shortage of technicians. Such shortage problems can however be solved after a few years (time of schooling/training) or, by enticing retired technicians to come back.

The company that converts South Africa’s coal into fuel is Sasol (SSL) and is on our Watch List. During the last few months they have not opened vast new capacity, nor even announced plans to start building vast new capacity. In fact, the recent decline in oil prices has hit Sasol and the tar sands producers harder than it hit traditional suppliers because these processes are only profitable when oil prices are as high as they have been recently. Given the long lead times for building the plants and extracting these resources, companies naturally want some degree of comfort that the price will not fall significantly below current levels for some time. The recent price decline reminded them why they did not start building these plants five years ago, and is unlikely to encourage them to start building them now.

The article continues:

3- The emergence of new technologies to recover more oil out of old and decaying oil fields. With the price of oil where it is, it makes a lot of sense to invest substantially to try and optimize the output from any individual well. In the past 25 years, we have seen the average extraction at existing wells climb, thanks to technology, from 25% of known reserves to 40% of reserves. Norway has set a target of 65% to 70% recovery for a good part of its reserves and is already achieving that in some fields. Where do the improvements come from? Technological progress!

Once again, technological progress that has not occurred overnight. If it took 25 years to increase extraction to 40% it is likely to take as long for it to reach 65%.

4- The possibility to produce oil/ethanol out of agricultural products. On this very topic, the best summary we have read of the issues at hand was produced recently by our friend Mark Anderson, the editor of the SNS newsletter. We lift his work below shamelessly: “Ethanol is a liquid fuel, currently produced from corn… Now here’s the rub: there is a debate about whether it actually takes more energy to create a gallon of ethanol than the energy contained in a gallon of ethanol. According to Report No. 814 from the Office of the Chief Economist of the U.S. Department of Agriculture, corn ethanol contains 1.34 times the energy required to manufacture it….

There are longer-term solutions. In a period of about five years, we could be producing ethanol in quantity from cellulose. Cellulose is found in a variety of plant material, including the stalks of the corn plant. The process for production of ethanol from cellulose does not require large amounts of hydrocarbons and is, therefore, much less expensive. If the federal government continues to provide large subsidies for corn-derived ethanol, however, we are in effect providing a disincentive to make capital investment in cellulose technology. The corn lobby will fight tooth and nail, but in the end, democracy, just like the free market, has a way of doing what is right and sensible (usually, after trying out all other options). In this case, that would see cellulose derived ethanol become widely available in the marketplace.

Well, call us in five years when the cellulose plants are up and running. In the meantime, with a 1.34 energy output/input ratio the best ethanol can do is cut fuel consumption 34% - and that is assuming there is that much excess corn produced, that the plants can be built, that the increased demand for corn doesn’t make it even less profitable, and so on.

6- Prices & Substitution

High energy costs are not impacting just oil. We have witnessed a stupendous rise in the price of all forms of energy through the substitution effect. And here technology is also making huge leaps. Let us, again, go through a few examples:

* Nuclear power. There are two main problems with nuclear plants. The first is that building a plant takes a long time (though the Chinese are definitely not wasting any time on that issue). The second issue is the disposal of the nuclear waste. But this is where the exciting news lies: we have recently read reports highlighting that the volume of the waste in the new French reactors is a tenth of what it was in the old reactors. This implies that the amount of space needed to store the waste is much smaller, and the arguments of the anti-nuclear green lobby further reduced.

* Production of energy at the individual and local levels: everywhere we go, especially in Europe (where the price of energy, on top of being very high, is also heavily taxed), we find new and interesting forms of energy production: in Scandinavia geothermal energy (one drills in the rocks, and gets the heat coming from below); in France, a massive movement towards heating pumps (exchanging heat between a source of water and the atmosphere - in fact, after a brutally hot summer in Provence, I am biting the bullet and having such a system installed in my Avignon house); in Denmark, there are quite a lot of wind turbines; in Spain, you can see solar panels on a growing number of roofs. All these systems enjoy huge tax breaks, and, once they are put in, they are here to stay; markets lost for oil, for ever.

By themselves, none of the above factors is sufficient. And the rate of substitution from oil to these new sources of energy is excruciatingly slow. For example, if one had the bad luck of installing an oil boiler in one’s house three years ago, one is not going to change now. The capital costs are simply too high. But taken together they are significant and will change for ever the demand for oil or natural gas used to heat or cool houses, factories, or office buildings.

This is indeed the meat of the article, but there is nothing to say that this can happen any time soon. With a ten-year lead time to build nuclear plants, we just don’t see it making a sizable dent any time soon. Then, apart from the environmental issues, Gave offers the reason why it may not help even then:

Our 19th century world was dominated by coal. Our 20th century was dominated by oil. It is our firm belief that the 21st century will not be dominated by oil. It will be dominated by electricity; and oil will become a marginal energy. This simple truth might help explain why, since 2001, uranium has not had a single down month, and since 2003, uranium has never traded down for even a single day, regardless of what was happening to oil prices.

With uranium prices rising so much, why even bother? It sounds like it won’t do much to make energy cheaper, which is after all the point. In fact, there may not even be enough uranium out there to support much additional demand. As far as substitution consider that the median age of vehicles in the US is 9 years. If you assume that hybrids improve fuel efficiency by 50% over their gas-only counterparts, even if 100% of new car sales were hybrids it would take 18 years to fully replace the vehicle fleet and reduce fuel consumption by 50% overall (assuming demand doesn’t continue to rise.) Based on a more realistic (but still wildly agressive relative to today’s sales levels) assumption that 10% of new vehicle sales will be hybrids, the annual demand reduction is less than 0.3%. Color us unimpressed.

With that off our chest, some stories affecting individual companies recently:
Statoil STO) strikes gas at Barents Sea Well

Pension and endowment funds aren’t giving up on commodities yet.

ConocoPhillips Confirms North Sea Discovery - Oil and Gas Online

Helix names new CEO
Disclosure: Author owns shares of United States Oil Fund (USO). The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

Shutterfly IPO Prices at High-End of Range

Shutterfly (SFLY) priced its 5.8 million share IPO at $15.00 per share, at the higher-end of the $13.00 to $15.00 range.

We had been critical of this IPO early on and then noted that the street had been warming up to the terms of the IPO. Here is the last article with links to the financial data and prior notes.

Jon C. Ogg
September 29, 2006

Bare Escentuals IPO Priced Higher, and Then Some

Bare Escentuals (BARE) is an IPO we noted earlier about being met with strong demand. There was talk of aprice above the range this week, but it cam in much higher than the range. BARE priced at $22.00 for 16 million shares, well above the $15.00 to $17.00 range.

HERE is the article from Monday with all of the details.

Jon C.Ogg
September 29, 2006

Pre-Market Stock Notes (Sept. 29, 2006)

(ACN) Accenture $0.39 EPS vs $0.38e.
(AH) Armor Holdings gets $46+ million in new orders from the Army.
(AZZ) AZZ beat earnings and raised guidance.
(BARE) Bare Escentuals 16 million share IPO priced at $22; above the $15 to $17 range.
(BCRX) BioCryst announces positive results from Peramivir human clinical data.
(BLTI) Biolase received notice from FDA that it has addressed recent concerns from a September 5, 2006 warning letter.
(DDSS) Labopharm gets FDA approvable letter fpr Tramadol, but not an approval; stock trading down over 20%.
(ESIO) Electro Scientific $0.23 EPS vs $0.19e.
(GPN) Global Payments beat earnings and raised guidance.
(GT) Goodyear positive article in Business Week.
(HPQ) H-P acquired gaming PC maker in Canada called VoodooPC for undisclosed terms.
(JCG) J. Crew announced 3 directors have resigned.
(LMT) Lockheed Martin gets $1.4 Billion US Air Force support contract.
(MIR) Mirant announced a $100 million share buyback plan.
(NURO) NeuroMetrix positive article in Business Week.
(OFSI) Omni Financial 3.3 million share IPO priced at $9.50.
(PFE) Pfizer gets drug for anti-smoking approved in Europe.
(PNC) PNC gets positive article in NYTimes.
(PNR) Pentair announced $100 Million share buyback.
(RIMM) Research in Motion trading up 19% after beating earnings and raising guidance.
(RSTI) Rofin Sinar gets positive article in IBD.
(SFLY) Shutterfly priced its 5.8 million share IPO at $15.00.
(SMHG) Sanders Morris harris 5 million share secondary priced at $12.50.
(SMOD) Smart Modular $0.19 EPS vs $0.18e.
(STLD) Steel Dynamics gets positive articlein Business Week.
(SWFT) Swift lowered guidance.
(TEVA) TEVA PHARMA says Copaxone treatement was effective.
(TIBX) Tibco trading down 6% as revenues were slightly under plan, cut to Hold at Citigroup..
(YHOO) Yahoo! announced service pact for bundling on H-P PC's.
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