VMWare, Inc. (NYSE:VMW) has certainly been the darling of Wall Street ever since its shares jumped 76% on its first day of trading. Indeed, the company's final IPO filing showed an impressive 125% jump in net income. But VMWare's latest 10-Q filing with the SEC left many investors running for the exits.

VMWare's latest 10-Q filing gives investors a look into the company's cash flows, which is always the most telling of the financial statements. We already knew that the company's revenues increased 90% with net income growing 125%, but this latest filing shows operating cash flows increasing only 43%.

Why the slow increase in cash flow? Well, it turns out the company's R&D budget jumped 120% while sales and marketing costs rose 83%. Meanwhile, the company's current valuation, standing at 231x earnings, certainly indicates that the stock is overvalued when compared to its peers.

So, why the jump today? It turns out that some analysts don't think all of this is a big deal. Jefferies & Co. issued a buy rating on the stock today and increased its price target from $74 to $89. This follows many others that have issued lofty valuations for one of the hottest stocks on the market.

In the end, investors should be careful when trading VMWare. The company is clearly betting that its advertising will pay off, but the lack of organic growth makes it much less of a "Google" stock. And so far, this stock seems to be mirroring Google's post-IPO life.

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Accredited Home Lenders (NDAQ:LEND) shares rose $1.78, or 18.2%, to $11.56 today after it finally reached an agreement to sell out to Loan Star at $11.75 per share, according to a statement released by both companies.

"This new agreement fairly settles our dispute and will expedite the completion of the merger with Lone Star," said Accredited chairman and CEO James A. Konrath in the statement. "We will now turn to the business of rebuilding Accredited for a brighter future with Lone Star."

The revised bid comes substantially lower than the previous offer, but just hours after the company released its 10-Q saying it lost $260 million in the first quarter and may not survive. The price jump also implies that the bid caught shareholders off-guard and came in higher than expected.

The agreement stipulates that Loan Star lend Accredited $49 million so it can pay down outstanding debt to one creditor and leave the company with $15 million in liquidity. Meanwhile, Loan Star would also deposit $295 million into an escrow that would be paid out to Accredited shareholders once the deal closes.

In the end, this is good news for Accredited shareholders who have been bracing for the worst case scenario. Clearly, the company was on the brink of bankruptcy before it was saved by Lone Star and at a price that isn't so bad. Combined, these factors make LEND a stock worth watching!

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Activist hedge fund Breeden Capital disclosed a 7.7 percent stake in Zale Corporation (NYSE:ZLC) saying it held discussions with the company's management, according to a Schedule 13D filing with the SEC. Shareholders are hoping that the fund - headed by former SEC chief Richard Breeden - can help unlock value for shareholders.

"Discussions to date have related primarily to the business, financial performance, operations, strategic plans and disclosure practices of the Company," said Richard Breeden. "As a result of [our] ongoing review and evaluation of the business, they may also communicate with the board of directors and/or other shareholders from time to time with respect to operational, strategic, financial or governance matters, or otherwise encourage actions that [we] believe in their discretion will enhance shareholder value."

Breeden has had success during his past pushes for changes in companies like Applebees (NDAQ:APPB) and H&R Block (NYSE:HRB) and many are hoping he can do the same here. Shares in the company jumped almost 4% today on the news as shareholder eagerly anticipate the activists involvement. After all, shares in Zale have fallen almost 20% over the past year amid falling same-store-sales numbers and earnings.

In the end, investors will have to wait to see what becomes of this situation. Clearly, with such a large stake built up, Breeden will do what it takes to unlock value and improve shareholder value. Combined, these factors make ZLC a stock worth watching!

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Indian Hotels Company purchased a strategic 10% stake in Orient-Express Hotels (NYSE:OEH) for $211.28 million in the open market, according to a Schedule 13D filing with the SEC. Shareholders are hoping that this move may spark a bidding war for the prized hotel chain.

"We have always recognized Orient-Express for its admirable range of ultra luxury hotels and resorts distinguished for their uniqueness and standards of excellence," said Vice Chairman Krishna Kumar. "A possible association between our two companies would bring unique competitive advantages to both companies."

Indian Hotels believes that a combination of the two companies would result in a geographically balanced presence with synergies in several complementary destinations. Moreover, Orient-Express would have a strong ally in the rapidly growing Indian market along with synergies in areas of marketing and strategic sourcing.

The company responded today in an 8-K filing, saying, "You should be aware that the Board of Directors of Orient-Express Hotels, after deliberation, does not wish to pursue the proposals mentioned in your letter. Accordingly, any meeting with you as shareholder would not include those proposals as topics for discussion."

Despite this, rumors are surfacing that many other large players like billionaire brothers David and Simon Reuben along with private equity firms like Quinlan Private and Starwood Capital may be building up stakes to mount competing bids. This could eventually spark a bidding war for a hostile takeover, which is not unheard of in the markets.

In the end, this is definitely a stock worth watching as the hotel chains assets aer clearly in demand. Whether or not anything comes of this stake remains to be seen, but it will be interesting to see what comes of the company's meeting with Indian Hotels.

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IKON Office Solutions (NYSE:IKN) may face some problems with activist investor Warren Lichtenstein's Steel Partners who believes the company's shares continue to trade well below intrinsic value, according to a Schedule 13D/A filing with the SEC. Shareholders are hoping that the activist investor can work to correct this gap in valuation and unlock value.

"As you know, I believe that the IKON shares continue to trade at a significant discount to their intrinsic value and I have made several recommendations on ways to unlock the value of the shares, including by way of a self tender or outright sale of the Company," said Lichtenstein. "I was excited for the opportunity to explore with you in further detail my recapitalization proposal in light of other strategic alternatives you indicated are currently available to IKON."

IKON recently backed down, however, by withdrawing its support for a required confidentiality agreement to proceed with the plans. It is uncertain as to whether this was due to some developments that prevented them from entering into such an agreement or simply a rejection of the hedge fund's proposals. Regardless, Steel Partners fired back by nominating its own John Quicke to the board of directors to head the exploration of strategic alternatives.

"As you know, Steel Partners is one of IKON's largest shareholders and Steel's position in the Company represents one of its largest investments in a domestic public company," said Lichtenstein. "I would like to reiterate that we are committed, long-term shareholders whose priority is to work with the Board - not against it - in doing what is best for all shareholders."

In the end, IKON is one of Steel Partner's largest holdings and with 10.2% of the company under his control it is likely that he will obtain a board seat. The success of this campaign remains to be seen, but if he is able to obtain a seat it will likely mean substantial returns for shareholders. This makes IKN a stock worth watching!

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BEA Systems, Inc. (NDAQ:BEAS) are trading up $0.54, or 4.27%, since news broke late Friday that billionaire financier Carl Icahn purchased an 8.53% stake in the company. The famous shareholder activist believes that a sale of the company is the best way to unlock value for shareholders, according to a Schedule 13D filing with the SEC.

"[We] believe that a strategic acquirer could utilize greater resources and market presence than the [company] to advantage the [company's] innovative technology and thereby profit from higher revenue growth and the elimination of duplicative costs," said Icahn. "[We] believe consolidation in the technology industry is leading to increased competition that may place independent software vendors at a competitive disadvantage."

Some people are questioning this move given the fact that BEAS hasn't fared all that bad. The company continues to see acceptable top and bottom line growth along with an average earnings surprise of 7.8%, which means it is beating analyst expectations in many cases. However, a look below the surface gives investors hints as to the real problems with the company.

BEAS currently trades at 33.81x earnings, which is somewhat overvalued given the industry and its historical EPS growth rates. This is particularly a problem given the fact that the company's strong recent revenue growth resulted in a low EPS growth rate, which suggested that competition may be on the rise. A problem like this can be solved in the short-term with cost cutting, but will definitely cut into profitability and cash flows in the future.

"In light of these beliefs, [we] believe that a sale of the [company] to a strategic acquirer will maximize the price of the shares," continued Icahn. "[We] intend to seek to meet with management of the [company] to discuss the potential for such a transaction, as well as the [company's] business and operations generally."

In the end, BEAS is certainly facing a problem when it comes to its valuation and future prospects. Whether or not Icahn will successfully force a sale of the company remains to be seen, but BEAS is definitely a stock to watch!

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CSK Auto Corporation's (NYSE:CAO) turnaround plan isn't good enough to please one of its largest shareholders who still insists that the company explore a possible sale to unlock shareholder value, according to a Schedule 13D/A filing with the SEC.

Karsch Capital, who controls 9.32% of the company, said they are encouraged by the company's strategic review aimed at improving profitability and restoring topline growth, but still believe that the board should demonstrate a genuine commitment to enhancing shareholder value by concurrently conducting a thorough review of strategic alternatives that could include a sale.

"We continue to believe that a turnaround at CSK Auto should be very achievable because of the tremendous opportunity to improve the Company's severely depressed operating margins," said fund manager Michael Karsch. "[However] given the Board's poor track record overseeing CSK Auto, we remain skeptical about the Company's ability to achieve a successful turnaround."

CSK's current turnaround plans call for a $34 million reduction in pre-tax costs in fiscal 2008, which should improve EBITDA by over 20%. If successful, this would greatly enhance shareholder value. However, the company's plans remain vague amid poor board oversight. As a result, Karsch called for more detailed information on the turnaround plans as well as an evaluation of strategic alternatives.

The activist hedge fund added, "We will continue to monitor the activities of the Company and the Board very closely and will continue to carefully consider all options that could maximize the value of our significant investment in CSK Auto, including engaging in a proxy contest to replace some or all members of the Board of Directors."

In the end, shareholders are hoping to receive more information on the proposed turnaround that will help them evaluate the viability of such a plan. Meanwhile, Karsch is keeping careful watch over the company to make sure that shareholder are protected in case the turnaround falls through. Combined, these factors make CAO a stock worth watching!

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Merrill Lynch (NYSE:MER) analysts and shareholders will be carefully watching earnings after the financial services company announced that it had adjusted the value of securities backed by subprime mortgages and other assets amid the poor credit market, according to an 8-K filing with the SEC. Many are predicting that this could put a drag on the company's earnings and further depress the stock.

"Credit market conditions have continued to remain challenging in the third quarter, and the firm, as part of its regular accounting processes, has made requisite fair value valuation adjustments as appropriate to certain of these exposures, which are reflected in our third quarter to date results," the company said in a statement. "Given current market conditions, significant risk remains that could adversely impact these exposures and results of operations."

Interestingly, the announcement comes after a series of insider purchases in not only Merrill Lynch but other large financial institutions that have felt the wrath of subprime and credit worries. Some say that this is a signal that the stocks are close to bottoming out and the problems will eventually work themselves out with or without a Fed rate cut. Whether this is true or not remains to be seen, but MER is a stock worth watching through its earnings announcement!

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A large shareholder revealed an incraesed stake in Lenox Group (NYSE:LNX) today ahead of the company's long-anticipated annual meeting, according to a Schedule 13D/A filing with the SEC. The move follows the company's ongoing review of strategic alternatives and a series of insider purchases made in August. Shareholders are closely watching this situation as insides and hedge funds are starting to take large positions in the company.

The Clinton Group upped its stake in the giftware retailer from 10.9% earlier this year to 15.4% today. The activist hedge fund also reiterated its concern over previous management and the board's performance in guiding the company. Specifically, the Clinton Group urged the company to consult the company before making any material changes to the company.

These changes included: (1) modification of the company's engagement of Carl Marks Advisory Group, (2) offers of employment for senior management positions, (3) capital structure and financing issues, and (4) any strategic transactions potentially being contemplated by the company. Essentially, the Clinton Group wants to make sure that everything is kosher during the process of exploring strategic alternatives.

The activist hedge fund also offered to help facilitate the company's turnaround and exploration of strategic alternatives by providing three director candidates for shareholder consideration. The increase stake announced today gives the hedge fund much more sway in any election process. Whether its directors will be elected remains to be seen, but this is definitely a stock worth watching!

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