Edited by Anita Peltonen
The following research reports were issued recently by investment firms. Many may be obtained through Thomson Reuters at www.thomsonreuters.com or 800-638-8241. Some are available in the company research area of The Wall Street Journal Online at WSJ.com, or through Factiva.com. Some of the reports' issuers have provided, or hope to provide, investment-banking or other services for the companies being analyzed.
Allos Therapeutics - ALTH-NNM
Buy - Price 6.98 on March 4
by Needham & Co.
Target: 12. Allos recognized $3.6 million in sales of Folotyn [for treating patients with relapsed or refractory peripheral T-cell lymphoma] in 4Q09. Allos made Folotyn available to U.S. patients in October 2009....We believe Folotyn may have potential as a "pipeline in a product." Near term, we expect the continued update on commercialization of Folotyn to drive ALTH stock. Longer term, we expect clinical-trial progression in other indications....Allos ended 2009 with $158.5 million in cash and securities; it expects operating expenses of $120 million to $130 million in 2010. We believe the company will generate revenues from Folotyn sales to offset these operating expenses. Market cap: $840 million.
Avon Products - AVP-NYSE
Buy - Price 31.06 on March 4
by Jefferies & Co.
Initiating an estimated 2011 ongoing EPS forecast of $2.50, up 13.6% from our 2010E and above consensus of $2.36. Implicit in our forecast is 8% to 9% local currency-sales growth. Underlying momentum remains favorable....AVP has managed successfully through hyperinflation in the past, and is uniquely positioned to capture strong secular growth trends in the Latin American and Eastern European cosmetics, fragrances and toiletries market. Our 44 target is 17 times to 18 times our 2011E ongoing EPS estimate of $2.50, as we believe the multiple will approach historic averages as we exit the global recession. [In] 2003-07, AVP averaged a 20.9 times prospective price/earnings ratio, with a range of 14 times to 25.6 times. Risks include currency [exchange], input costs, and competition. Market cap: $13.3 billion.
Carmike Cinemas - CKEC-NNM
Strong Buy - Price 9.50 on March 4
by Raymond James
Carmike Cinemas reported 4Q09 EPS of 48 cents, which included about 3 cents in noncash asset disposals and impairment charges. Top-line revenue grew 17.5% year/over/year, with attendance up 12.1% y/y (12.3% on a same-screen basis) and average ticket prices up 7.1% y/y. The y/y increase in average ticket prices was driven by a mixture of 3-D premiums and, to a lesser extent, organic-pricing growth; 3-D tickets accounted for 18.6% of admission revenue during 4Q09. Cost containment was a large driver of the company's y/y earnings growth during 4Q09....Operating expense was a big driver for earnings' upside in the quarter relative to our model.... In response to the increased 3-D film slate in 2010 (currently at 20 films, versus 13 in 2009), Carmike will be adding 50 additional 3-D screens to its existing 3-D screen count (now about 500)....We are raising our 2010 EPS estimate to 80 cents, from 42 cents, to account for higher revenue and lower operating expenses, offset by higher interest rates from the new credit facility and a higher tax rate. Our 2011 EPS estimate is also revised to $1.25, from 80 cents. We are raising our price target to 21, which reflects 7.5 times our revised fiscal '10 Ebitda [earnings before interest, taxes, depreciation and amortization] estimate. This multiple is still below the company's historical forward median Ebitda multiple of about 8 times since 2004. We reiterate our Strong Buy rating. Market cap: $120 million.
Fred's - FRED-NNM
Outperform/Speculative - Price 10.64 on March 4
by Morgan Keegan
Fred's, a Memphis-based discount-store operator, was founded in 1947 and operates [some] 700 discount general-merchandise stores, including 24 franchised stores, primarily in the Southeast. About half the stores have full-service pharmacies, and a majority have drive-up windows. February comps [comparative-store sales] increased 2%, compared with the consensus estimate of a 0.2 loss%, our 1Q estimate of a 0.5% gain and last year's 1.8% gain. We remain comfortable with our 1Q10 estimate, with a healthy start to the most difficult quarterly comparison of the year....We also remain comfortable with our 4Q09 [estimated EPS] of 15 cents, with FY09 results expected to be reported in late March. We believe the approximately 50 remodeled stores are outperforming the chain, with 200 stores expected to be remodeled in 2010. We reiterate our Outperform rating, and hold additional confidence in the risk/reward outlook. Market cap: $422 million.
Buy - Price 68.98 on March 3
by Merriman Curhan Ford
We continue to believe Netflix will dominate (monopolize) the by-mail segment as others have tried and failed to enter this business and take share. While we are currently projecting 22% to 25% EPS growth over the next two years, we believe there is substantial upside to those estimates, as subscriber metrics continue to improve and share buybacks continue to accelerate. Therefore, our current projected valuation range of 66 to 75 (based on 22 times to 25 times our FY11 EPS estimate of $3.01) could easily be surpassed. We believe NFLX shares should remain a core holding of investors looking [for] a media and entertainment company that has a strong foothold in both the physical-DVD world and the emerging digital world. Market cap: $3.7 billion.
Rovi - ROVI-NNM
Outperform - Price 33.43 on March 2
Target: 36. Rovi announced a new licensing agreement with Comcast that should serve as a template for other cable and satellite operators expanding content online and accessibility to mobile devices. The new licensing agreement is for Rovi's interactive program guide (IPG) patents in Comcast's online and mobile environments, which could be used in the deployment its Xfinity (formerly TV Everywhere) service. We believe this agreement with the cable-industry leader, Comcast, positions Rovi to benefit from the wave of TV content moving online. While the value of this contract is likely a fraction of digital-TV opportunity, it remains a multimillion dollar and multiyear agreement. Moreover, we believe the validation of Rovi's patent for use online and in the mobile environment by the industry leader could serve as a springboard to [more business]. We're reiterating our Outperform rating and 36 price target. We believe Rovi's shares remain a compelling investment opportunity, trading at 15 times our FY10 pro forma EPS estimate of $1.91, a discount to the 36 times of its peer group. Risks to attainment of our share-price target include slower-than-expected repayment of debt, acquisition-integration issues, slower adoption of new technologies and faster decline of older technologies, increase in competition, a weakening macroeconomic environment, and slowing consumer-spending trends. Market cap: $3.5 billion.
Take Two Interactive
Hold - Price 9.03 on March 4
by Signal Hill
We prefer to be on the sidelines for now, given the continued title delays [for the video-game software developer], coupled with remaining uncertainty surrounding the company's bloated cost structure, and the unknown timing and/or existence of GTA V [ Grand Theft Auto: Vice City ]. We believe that shares of TTWO are fairly valued in a range of roughly 8 to 11, based on a blended average of historical earnings and revenue multiples. Positive catalysts: Bioshock 2 , Red Dead Redemption, E3 [the Electronic Entertainment Expo], potential cost cuts, unannounced second-half 2010 title[s], or activist investors pushing for restructuring or sale. Negative catalysts: additional cash burn, title delays, or lack of GTA V announcement. Market cap: $736 million.