Sunday, April 15, 2007

Barron's Summary

Barron’s cover highlights Adobe (ADBE), whose shares have climbed from a ‘01 low of 8.35 to recent 42. But there looks to be plenty of upside left, thanks in no small part to a promising series of product launches slated for the next 3 mo’s. They represent Adobe's first effort to fully integrate its own products with those it gained through the acquisition of Macromedia. The stock doesn't look cheap, at least at first glance. It's changing hands at 28.6x F'07 earnings of $1.48 a share. But looked at in terms of its whopping free cash flow, Adobe is far more attractive: FCF amounts to more than 30% of sales, making the co one of the mkt's most notable cash kings. What's more, the consensus earnings ests of roughly 20% growth may seriously underestimate the real 12-mo potential; it could be as high as 30%. "Adobe stands to benefit from a whole bunch of mega-trends, including the sheer growth of the Web and broadband penetration," argues Jeffrey Hammond of Forrester Research. Bulls figure the shares are headed to at least 50 within a year.

The shares of K-Swiss (KSWS), at a recent 27, are off more than 25% from their 52w high. But the co's turnaround plan could easily lift the price to 32. Some of Street's best bargain hunters already are lining up behind K-Swiss. In mid-Feb, Martin Whitman's storied Third Avenue Mgmt reported holding 2.3m shares, or 8.8% stake.

Office Depot (ODP) trades for 35, or 15x estd earnings, a discount to Staples' (SPLS) 18. The stock could rally into the mid-40s as earnings continue to climb. Office Depot represents "pretty good value," says Bill Collier, of SunTrust. He's been buying more shares recently, and has a 12-mo tgt in the mid-40s. Besides, "the private-equity factor keeps a floor" on many retail stocks, he notes, though he does not necessarily expect Office Depot to become a buyout candidate.

“The Trader” column out saying that last Thu, investors sent shares of the Brunswick (BC) down 4%. The catalyst: yet another warning from the boat retailer MarineMax (HZO), Brunswick's largest customer. Brunswick won't report earnings until April 26, but MarineMax's dire forecast could be a bad omen for those hoping that the worst is over for the slumping boat mkt. But as customers like MarineMax start cutting orders, Brunswick may not be able to reduce production in time to avoid excess inventory, notes Hayley Wolff, of Rochdale Securites. Price discounting and margin pressures further threaten to sink the spring and summer selling season. At 30.6, Brunswick shares trade at 17x estd ‘07 EPS of $1.80. Analysts think profits will bottom this year and rebound to $2.15 in ‘08, but such ests, and the timeline, may prove too optimistic.

“International Trader” column has serious doubts on Ryanair’s (RYAAY) plan to start budget trans-Atlantic routes. A trans-Atlantic operation would immediately face much higher cost pressures, particularly for personnel. Safety rules dictate that air crews rest about 12 hours after a long flight, so the long-haul carrier would have to pay for its crews' hotels and transportation. What's more, the larger airplanes required couldn't be turned around within 90 minutes and would need far more fuel than the short-haul Boeing 737s it now uses. To help offset these higher costs while still offering low economy-class fares, Ryanair USA would need a premium-class section on its planes. Premium-class sections are key profit generators for long-haul airlines and are typically filled by execs jetting between major financial centers. Few are likely to want to go to the secondary airports.

“Follow Up” section discusses another round of takeover speculations on Dow Chemical (DOW). Investors will be further heartened to know that the co's parts might be worth more than its whole. According to Deutsche Bank analyst David Begleiter, a sum-of-the-parts valuation pegs the co's worth at $55, nearly 20% above the stock's recent price. To enhance shareholder value, Bear Stearns analyst Victor Miller has written, Clear Channel (CCU) could spin off its domestic billboard unit and sell its intl billboard operations. Clear Channel already is selling hundreds of its small-mkt radio stations and its TV business, which could raise $2.5bn. Miller has argued that Clear Channel is worth about $44 a share, without leveraging itself to repurchase stock. Despite a 2% boost in sales provided by Panera's (PNRA) new Crispani flatbread pizza, the additional labor and promotional expenses connected with it are pressuring operating margins. This is making some investors doubt that the co can meet its tgt of 25%+ earnings growth over the next 3 years. Panera says it is sticking with the tgt. But in the bitterly competitive, price-sensitive and increasingly saturated casual-food business, it might be biting off more than it can chew.

“Technology Trader” discusses Cepheid (CPHD), whose shares shot recently up in sympathy to Biosite takeover. But, according to the article, one simple difference is that Biosite earns robust profits, as Cepheid repeatedly has claimed to have found a profitable application for its tests. But Cepheid's achievements have fallen short of its forecasts. The co predicted it would make a profit in ‘06, for example. Instead, Cepheid's losses nearly doubled. Now CEO John Bishop eagerly directs investors' attention to the next big opportunity for Cepheid: infection-control testing at hospitals like those run by the Dept of Veterans Affairs. Cepheid glowingly predicts a $1.25bn annual mkt and Bishop believes that infectious-disease testing will bring Cepheid operating profits by the 4Q07. One of the few analysts to attempt a reasoned est of the veterans opportunity for Cepheid is Daniel Owczarski of Soleil. Owczarski concludes that the VHA program would add just over $1m in test sales to the co's annual rev. That wouldn't do a lot to reduce Cepheid's annual losses.

Notablecalls: Expect to see some profit taking following the Barron's call and a sharp increase in stock price.

“Plugged In” column out saying that Apple (AAPL) delay is no big deal. Late Thu, the co announced that the iPhone had "passed several of its required certification tests" and is on schedule to ship on time. The co added that finishing the iPhone on time "has not come without a price. We had to borrow some key software engineering and quality-assurance resources from our Mac OS," which means that the Leopard won't be ready to ship in time for Apple's developers' conference in June. " Leopard's delay isn't very important, says Charles Wolf, of Wolf Insights. "The long-term impact will be absolutely zero," Wolf says. "But it might postpone the upgrade cycle by a quarter or so."

Columbia Mid Cap Value Fund top 10 holdings include: PCG, ETR, APD, EIX, PPL, GGP, CMA, HES, ZION and CIT. Group's current favorites include MTD, HSC, NOV, EL and ATVI.

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