Through The Fly's Eyes: Contest

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


Clear Indexes: NEXT GENERATION ETF CONTEST

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

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

We have received outstanding support from professors and career offices.

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

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

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

Through The Fly's Eyes: Chrysler & UAW

from Joseph Lazzaro of Theflyonthewall.com

Chrysler / UAW: As Expected, A Short Strike

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

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

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

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

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

Through The Fly's Eyes: ScanSource

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



ScanSource: Gear For High-tech Check-outs

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

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

ScanSource got the Street's attention earlier in the week, when it guided fiscal Q1 revenues to $546-$554 million. That range was up from prior guidance of $525-$545 million and topped the consensus Street estimate of $535.5 million. SCSC shares popped on the news and have begun defining a bullish "flag" consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with one "strong buy," one "buy," four "holds" and one "sell." Analysts see a 17% average annual growth rate, through the next five years. The SCSC P/E ratio (19.78), PEG ratio (1.13), Price to Sales ratio (0.42), Price to Book ratio (2.56), Sales Growth rate (21.47%) and Revenue per Employee ($2.01M) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $25.22 and $34.14. A stop-loss of $27.75 looks good here. Note that the company is expected to report Q1 results on October 25, after the close.

Through The Fly’s Eyes: Roche and Ventana

from Louis Jacobs of Theflyonthewall.com

Ventana’s Stalling Tactics

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

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

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

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

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

Through The Fly's Eyes: Research In Motion

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



Research In Motion Shares Enter Bullish 'Flag' Pattern

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

The firm pleased investors last week when it reported Q2 EPS of 50 cents and revenues of $1.37 billion. Analysts had been expecting 49 cents and $1.36 billion. The CEO said that recent product and market initiatives are expected to extend business momentum through the remainder of the fiscal year. Management guided Q3 EPS to 59-63 cents (55 cent consensus) and Q3 revenues to $1.60-$1.67 billion ($1.52B consensus). Officials anticipate third quarter subscriber account additions of about 1.65 million. The stock popped on the news and has since passed into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

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

Through The Fly's Eyes: MGM Mirage

from Larry Ramer of Theflyonthewall.com

MGM Rolling the Dice on Atlantic City Resort/Casino

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

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

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

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

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

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

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

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

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

from Theflyonthewall.com

Don't forget about the large telcos

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

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

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

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

Through The Fly's Eyes: Protectionism

from Theflyonthewall.com

Protectionism Politics

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

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

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

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

Through The Fly's Eyes: IAC/InterActiveCorp

from Laurie Pasternack of Theflyonthewall.com

Ask.com-Google Partnership Sunk?

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

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

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

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

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

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

Through The Fly's Eyes: Sprint Nextel

from Joseph Lazzaro of Theflyonthewall.com

Sprint's Lackluster Performance

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

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

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

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

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

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

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

Through The Fly's Eyes: Altera Corporation

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



Altera Corporation: Trading Channel Possibilities

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

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

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

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

Brokers recommend the issue with four "strong buys," five "buys," 15 "holds" and a "sell." Analysts see a 32% growth rate, through the next year. The ALTR PEG ratio (1.40), Price to Free Cash Flow ratio (33.26), Operating Margin (24.17%), Net Profit Margin (26.72%), Return on Assets (16.37%), Return on Investment (22.63%), Return on Equity (23.89%) and Revenue per Employee ($129k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $17.51 and $26.24. A stop-loss of $21.25 looks good here. Note that firm is expected to report Q3 results in early November.

Through The Fly's Eyes: Garmin

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



Garmin: Following A Positive Trading Channel

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

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

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

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

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

Through The Fly's Eyes: YUM! Brands

from Eric Buscemi of Theflyonthewall.com

YUM! Brands Keeps on Cookin'

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

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

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

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

Through The Fly's Eyes: Children's Place

from Louis Jacobs of Theflyonthewall.com

Bad Times In Toyland

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

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

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

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

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

Through The Fly's Eyes: Force Protection

from Larry Ramer of Theflyonthewall.com

Anticipation of Election Results May Ground Force Protection

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

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

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

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

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

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

Through The Fly's Eyes: Aeropostale

from Laurie Pasternack of Theflyonthewall.com

Aeropostale’s Big Drop

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

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

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

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

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

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

Through The Fly's Eyes: AMR Corp.

from Louis Jacobs of Theflyonthewall.com

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

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

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

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

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

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

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

Through The Fly's Eyes: Immucor

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



Immucor: Upside Potential For The Maker Of Blood Bank Systems

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

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

The company made the news last week, reporting fiscal Q1 EPS of 25 cents and revenues of $63.6 million. Analysts had been expecting 22 cents and $59.8 million. It was the sixteenth straight quarter of sequential revenue increases for Immucor. Robert W. Baird subsequently reiterated its "outperform" rating on the shares. BLUD popped into a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers recommend the issue with one "strong buy" and three "buys." Analysts see a 22% average annual growth rate through the next five years. The BLUD Sales Growth rate (24.61%), EPS Growth rate (38.89%), Operating Margin (41.87%), Net Profit Margin (27.55%), Return on Assets (25.73%), Return on Investment (30.45%) and Return on Equity (33.21%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 88 percent of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $23.73 and $39.96. A stop-loss of $33.75 looks good here.

Through The Fly's Eyes: Focus Media Holding

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



Focus Media Holding: Innovation In Chinese Advertising

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

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

FMCN investors were pleased late last month, when the company said that an internal investigation did not find evidence of alleged undisclosed rebate payments to a third-party advertising agency through a related party. Focus Media filed its annual report and audited financial statements for 2006, which had been delayed as a result of the investigation. Susquehanna Financial initiated coverage of the shares with a "positive" rating. Then, management reported fiscal Q2 EPS of 38 cents and revenues of $113.3 million. Analysts had been expecting 34 cents and $102.2 million. Officials also guided Q3 EPS to 41-43 cents (43 cent consensus), Q3 revenues to $132-$135 million ($115.51M consensus) and full-year 2007 revenues to $440-$450 million ($409.65M consensus). CIBC World Market and WR Hambrecht reiterated "buy" recommendations and boosted their price targets to $70. The stock popped into a bullish "flag" consolidation pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the shares with two "strong buys" and nine "buys." Analysts expect a 34%growth rate, through the next year. The FMCN Sales Growth rate (126.33%), EPS Growth rate (123.53%), Operating Margin (35.75%), Net Profit Margin (37.13%) and Return on Assets (9.46%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95 percent of the outstanding shares. Over the past 52 weeks, FMCN has traded between $26.05 and $61.39. A stop-loss of $50.00 looks good here.

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

from Larry Ramer of Theflyonthewall.com

The gPhone May Sting Microsoft and Apple

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

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

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

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

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

Through The Fly's Eyes: Financial Stocks

from Theflyonthewall.com

Is It Time To Jump Into Financial Stocks?

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

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

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

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

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

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

Through The Fly's Eyes: UAW and Chrysler

from Joseph Lazzaro of Theflyonthewall.com


With Wed. Chrysler Deadline Set, Analysts Debate UAW Leverage

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

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

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

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

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

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

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

from Theflyonthewall.com

Negative Sentiment of the Dollar Continues To Build

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

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

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

Through The Fly's Eyes: Taser

from Larry Ramer of Theflyonthewall.com


Taser Is Hitting Its Stride

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

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

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

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

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

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

Through The Fly's Eyes: IPO & Syndicate Preview

from Joseph Lazzaro of Theflyonthewall.com


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

Those deals tentatively scheduled to price include:


IPOs:

Possible

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

Midweek

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

Tuesday

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

Wednesday

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

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

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

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

Thursday

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


Secondaries:

Midweek

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

Wednesday

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

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

Thursday

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

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

Friday

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

- -



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

Through The Fly's Eyes: Chattem Inc.

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



Chattem: OTC Drug Specialist

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

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

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

The stock popped on the news and has since moved into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside. Brokers recommend the stock with two "strong buys", one "buy", six "holds" and a "sell". Analysts see a 24% growth rate, through the next year. The CHTT Sales Growth rate (51.39%), EPS Growth rate (102.44%), Operating Margin (26.81%) and Revenue per Employee ($923.50k) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $34.21 and $74.00. A stop-loss of $63.00 looks good here.

Through The Fly's Eyes: Global Payments

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



Global Payments: Paying The Electronic Way

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

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

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

The news popped GPN into a "pennant" consolidation pattern, from which it is expected to rise. Altogether, brokers recommend the issue with twelve "strong buys," four "buys" and seven "holds." The GPN Price to Book ratio (3.83), Price to Free Cash Flow ratio (22.01), Sales Growth rate (50.75%), Operating Margin (19.85%), Net Profit Margin (13.04%), Return on Assets (12.97%) and Return on Investment (15.02%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $30 and $49.13. A stop-loss of $38.25 looks good here.

Through The Fly's Eyes: Rumor Mill

from Tedd Cohen of Theflyonthewall.com


Rumor Round-up




POLARIS (PII)

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


CIRCUIT CITY (CC)

Bleeding cash and the stock is way down.


EASTMAN KODAK (EK)

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


THE ST. JOE COMPANY (JOE)

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



STILL FLYING AROUND

MOTOROLA (MOT)

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

USG CORP. (USG)

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


BIOGEN IDEC (BIIB)

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


ANHEUSER-BUSCH (BUD)

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



BUZZ

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

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

from Joseph Lazzaro of Theflyonthewall.com


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

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

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

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

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

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

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

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

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

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

from Laurie Pasternack of Theflyonthewall.com

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

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

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

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

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

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

Through The Fly's Eyes: A Quick Look Ahead

from Eric Buscemi of Theflyonthewall.com

Highlights For Next Week

Monday October 8

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

Tuesday October 9

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

Wednesday October 10

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

Thursday October 11

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

Friday October 12

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

Through The Fly's Eyes: Level 3 Communications

from Theflyonthewall.com

Service Provider Attempts To Show Its Power

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

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

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

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

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

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

Through The Fly's Eyes: NutriSystem

from Louis Jacobs of Theflyonthewall.com


NutriSystem Lowers Guidance, And Stock Plunges

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

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

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

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

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

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

Through The Fly's Eyes: WESCO International

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



WESCO International: Electrical And Industrial Products For Big Business

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

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

The company pleased investors last week, when it announced that it had completed a $400 million stock repurchase program and had authorized a new program for the same amount. CIBC World Markets and Bank of America Securities subsequently initiated coverage of the stock with "buy" ratings. The stock popped on the news and has since moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the stock with four "strong buys," seven "buys" and three "holds." Analysts see a 15% growth rate, through the next year. The WCC P/E ratio (10.42), PEG ratio (0.77), Price to Sales ratio (0.36), Price to Book ratio (3.68), Price to Cash Flow ratio (7.78), Price to Free Cash Flow ratio (7.79), Return on Investment (17.23%) and Return on Equity (37.94%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $37.65 and $71.10. A stop-loss of $38.90 looks good here. Note that the firm is expected to announce Q3 results on October 18, before the open.

Through The Fly's Eyes: GSI Group

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



GSI Group: Industrial Laser Maker

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

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

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

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

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

Through The Fly's Eyes: Crude Oil

from Joseph Lazzaro of Theflyonthewall.com

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

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

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

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

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

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

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

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

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

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

Through The Fly's Eyes: Ford

from Larry Ramer of Theflyonthewall.com

Ford's Labor Contract Dilemma

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

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

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

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

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

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

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