SEC Investor - Tuesday, October 09, 2007 - The Insider's Guide to SEC Filings

Wednesday, October 10, 2007

Costco Weathers the Credit/Subprime Storm (COST)

Costco Wholesale Corporation (NDAQ:COST) shares rallied more than ten percent today after the company announced stronger-than-expected fourth quarter earnings in a 8K filing with the SEC. Shareholders were cautious going into this quarters earnings after a disappointing hiccup in August; however, it appears that the bulk retailer has fully recovered this quarter.

Costco announced a 4.7% increase in net income from 75 cents per share last year to 83 cents per share this year. Meanwhile, this quarter's same-store sales - a key measure in retailing - rose five percent. The largest gain was seen internationally where the company saw a nine percent gain.

Interestingly, the latest quarter's results also included an eight cent charge reflecting a change from monthly membership revenues to daily membership revenues used for accounting purposes. This makes the jump in revenue even more impressive.

Costco's success took many investors by surprise given last quarter's dismal 2% same-store sales and the losses reported by many others in the industry including Target stores. The company has also surprised analysts in terms of same-store sales in May, June and July.

In the end, Costco continues to outperform despite a troubling economic environment. Whether or not this continues remains to be seen, but this is definitely a stock worth watching!

Related Companies
Wal-Mart Stores Inc. (WMT)
Target Corporation (TGT)
Cost-U-Less Inc. (CULS)

10/10/2007 5:32:52 PM UTC

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Cadbury to Spin-Offs Drinks Business (CSG)

Cadbury Schweppes (NYSE:CSG) announced today that it plans to spin-off its beverages group into a new company and abandon its efforts to auction the business off amid credit market concerns. The American beverages unit will become the world's third largest softdrink company with Dr. Pepper and 7-UP among its brands.

"While the board continues to be committed to the principle of maximizing share owner value, it does not believe current market conditions will facilitate an acceptable sale process in the foreseeable future. Accordingly, our focus is now on demerging our Americas Beverages business," said the company in a statement.

The move to spin-off comes after the company rejected a large offer from an investor consortium including Blackstone, Lion Capital and KKR because the firms wanted the seller to help with financing. Another consortium consisting of Bain Capital , TGP and Thomas Lee also failed at their attempts to purchase the drinks business from Cadbury.

Morgan Stanley and Goldman Sachs advised Cadbury to separate the business segments after evaluating the other offers. Given the fact that spin-offs tend to outperform the larger market during their first two years and the fact that this spin-off will create a major competitor in the softdrinks business - this stock is definitely one worth watching!

Related Companies
The Coca-Cola Company (KO)
The Hershey Company (HSY)
PepsiCo Inc. (PEP)

10/10/2007 3:55:45 PM UTC

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VMWare Parties Like Its 1999! (VMW)

VMWare Inc. (NYSE:VMW) shares closed above $100/share on Tuesday marking a new milestone in its short life as a public company. There is little doubt that the company is the leader in virtualization but many investors are concerned about the company's low float, which can exaggerate its price moves - in both directions!

The VMWare IPO shares several similarities with companies that went public during the dot-com boom. First, they kept the stock at a low float in order to spur large price movements and attract investors. Secondly, they were in a sector that was pumped up by cheerleaders who continued to talk up the stocks until the end. And finally, there was obviously a large valuation assigned to companies that simply couldn't be justified once growth slows.

VMWare is currently trading with a P/E of 156x, which would require it to grow substantially in order to be justified. According to Jon Ogg at 247WallSt, "The stock is trading anywhere from 3-times to 5-times the sales of the entire virtualization market industry-wide to 2010." Clearly, the stock is trading at a lofty valuation and a low float is helping to keep shorts away.

It is also interesting to note that EMC Corporation (NYSE:EMC) doesn't appear to share the enthusiam exhibited by VMWare shareholders. After all, the company owns 86% of VMWare and current valuations put the company's EV at $33.45 billion compared to EMC's EV of $45.7 billion. EMC shares only saw a 50% run-up following the spin-off announcement.

In the end, analysts will eventually be forced to bail on this stock but it could take awhile before reality kicks in. VMWare is definitely in a hot market, but the company's current valuation surpasses that of the industry itself. Despite any reasonable growth estimates, it is impossible to keep running. Combined, these factors make VMW a stock worth watching!

Related Companies
Ninetowns Internet (NINE)
Formula Systems (FORTY)
QuadraMed Corporation (QD)

10/10/2007 3:31:28 PM UTC

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Tuesday, October 09, 2007

Ackman Becomes Active in Borders Group (BGP)

Pershing Square's Bill Ackman changed his status in Borders Group (NYSE:BGP) from passive to active, according to a Schedule 13D filing with the SEC today. The stock surged over 3 percent in response as investors hope the famous activist investor will work to unlock value for shareholders.

Bill Ackman reportedly discussed corporate governance issues with board members upon request by Borders representatives. The activist investor also reported a slight increase in his stake in the company, but noted that he does not believe the discussions will constitute an attempt to change or influence control of the company.

Ackman is well known for his activist involvement in Wendy's, McDonalds, and Target, in which he worked to unlock value through spin-offs and other strategic transactions. The activist is famous for his occasionally harsh letters to management and board members expressing dissatisfaction.

Pershing Square now owns 6.9 million shares, or 11.7 percent, of the company compared to 6.8 million shares, or 11.6 percent of the company, reported in March. Clearly, the hedge fund has confidence in the company but has not yet decided to take a fully activist stance - opting to let management continue as they have in the past. Combined, these factors make BGP a stock worth watching!

Related Companies
Hastings Entertainment (HAST)
Amazon.com Inc. (AMZN)
Barnes & Noble Inc. (BKS)

10/9/2007 5:11:38 PM UTC

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LDK Makes a Quick 180 (LDK)

LDK Solar (NYSE:LDK) shares rose $3.95, or 10.53%, to $41.45 today after the solar wafer maker raised its revenue forecast and reiterated that it saw no problems in its inventory reporting. Investors jumped on the news sending shares up as much as 23 percent during today's session.

The news comes after LDK's stock plunged 45 percent off its 52-week high of $76.75 over the past four trading days due to a former executive that said the company had problems with its silicon inventories. The former financial controller had reportedly left the company over a dispute regarding the company's inventory controls, which sent shares in a downward spiral.

LDK now boosted its third quarter revenue outlook to a range of $140 million to $150 million from its earlier estimates of $115 million to $125 million. Preliminary data showed that it had exceeded its original forecasts and shipped about 75 megawatts of solar wafers during the third quarter, beating analyst estimates by a significant margin.

"As we previously indicated, we believe that there is no merit in the allegations made about our inventory accounting practices, our business operations are normal and we continue making shipments to fulfill our customers' orders," Chief Executive Xiaofeng Peng said in a statement.

In the end, this is great news for shareholders but we will have to wait until LDK files its financials to get a good look at the inventory numbers. Sales numbers like these should mean that the company won't have to writedown any inventory assuming that they had too much when the controller left. And if there are no problems, this stock still has a lot of upside. Combined, these factors make LDK a stock worth watching!

Related Companies
United Microelectronics (UMC)
Photon Dynamics (PHTN)
Catalyst Semiconductors (CATS)

10/9/2007 2:50:53 PM UTC

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Monday, October 08, 2007

Sprint Nextel Weights Its Options (S)

Sprint Nextel (NYSE:S) is being pressured to field shareholder questions about the future strategic and operational direction of the telecom provider following Ralph Whitman's growing impatience with CEO Gary Forsee. Many analysts are now looking at a wide range of strategic options that the company could consider to unlock value and narrow its focus.

Sprint Nextel continues to work on integrating issues from its $35 billion 2005 merger while focusing on building a new generation broadband network that has proven to be a significant cash drain to date. The so-called WiMax project is not expected to contribute to the company's profitability for several years and has many investors questioning management's moves.

Sprint does have some strategic options that it could consider, according to those familiar with the situation. The company could put its long-distance division up for sale, which serves large corporate and government clients. However, the company would then have to factor in the fact that they use some of the fiber networks to carry wireless traffic. This sale could generate $4.8 billion in after-tax proceeds.

Other suggest that the company should abandon its new venture and sell the 2.5 Ghz spectrum license that Sprint has reserved for WiMax. Such a deal could net the company $3.4 billion after-tax while eliminating further cash burn. However, the company argued that this project is critical to the success of the company in the future and will begin to gain momentum in 2009.

In the end, Sprint investors may have to remain patient for now as the company works to improve its WiMax project and streamline other businesses. Whether or not the company will shop any of its divisions remains to be seen; however, it is definitely a situation worth watching!

Related Companies
Verizon Communications (VZ)
Alltel Corporation (AT)
Cincinnati Bell Inc. (CBB)

10/8/2007 6:26:56 PM UTC

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CGI Demands HealthSpring Repurchase (HS)

A large HealthSpring Inc. (NYSE:HS) shareholder expressed its belief that the healthcare company should undergo a share repurchase to unlock value, according to a Schedule 13D/A filing with the SEC. Shareholders are hoping that the hedge fund can force management to take action and help the company's fledging stock price.

The Clinton Group, which owns 4.9 percent of the company, indicated their belief that HealthSpring should take on additional debt or investigate a range of other options to ramp up their share repurchase program. Moreover, despite the hedge funds reduction in its position in the company, it still continues to support the management team.

"Despite (i) the strong Q2 financial performance and the surpassing of analyst expectations, (ii) the increase in 2007 EPS guidance, (iii) positive legislative developments and (iv) the completion of the accretive acquisition of Leon Medical Centers Health Plans, Inc., HealthSpring stock continues to languish at a valuation below its peers," said the hedge fund in a letter to the board.

The hedge fund then reiterated its belief that the company has additional debt capacity to repurchase shares to unlock this value, and that management should either (i) investigate upsizing its pending debt raise or adding another tranche to execute a Dutch Auction repurchase of the Issuer's shares or (ii) employ its unrestricted parent cash and $100 mm undrawn revolver to aggressively execute open market purchases of the stock.

In the end, any actions taken by HealthSpring could go a long way to unlock value in a company that is clearly undervalued. Combined, these factors make HS a stock that is definitely worth watching!

Related Companies
Humana Inc. (HUM)
Aetna Inc. (AET)
WellPoint Inc. (WLP)

10/8/2007 4:28:10 PM UTC

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Vonage Still Faces Uphill Battle (VG, S)

Vonage (NYSE:VG) shares jumped $0.47, or 40.88%, to $1.62 after the company announced that it settled its patent dispute with Sprint Nextel (NYSE:S) in a press release. The deal will include a $35 million payment for past use, $40 million for future use, and a $5 million prepayment for services.

"We are pleased to resolve our dispute with Sprint and enter into a productive future relationship," said Sharon O'Leary, General Counsel for Vonage. "We believe this deal is good news for Vonage, our customers and our shareholders. It allows us to put this litigation behind us and continue to focus on our core business by removing the uncertainty of legal reviews and long term court action."

Vonage shares have been suffering ever since a Kansas jury handed down a verdict on September 25th finding that the company had infringed on six Sprint patents. Many shareholders and analysts were concerned that the company would not be able to fight the legal battle and be forced into bankruptcy. Shares are now trading close to the levels they were before the verdict was announced.

Vonage still faces an uphill legal battle with Verizon Communications (NYSE:VZ), however, which was awarded $58 million in damages in March plus 5.5 percent royalties on future revenues after finding that the company violated three Verizon patents. Vonage executives vowed to fight this ruling but the company may be forced into another large settlement.

In the end, this is good news for shareholders but Vonage still faces an uphill battle. Not only do more legal battles remain on the horizon, but the company must also face the problem it had before all of this started - convincing people to switch to VOIP phone services. Despite all of tihs, VG is definitely a company worth watching!

Related Companies
Verizon Communications Inc. (VZ)
AT&T Inc. (T)
Qwest Communications International Inc. (Q)

10/8/2007 2:34:27 PM UTC

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Friday, October 05, 2007

Yahoo Shares Worth $39 (YHOO)

Yahoo Inc. (NDAQ:YHOO) would be worth far more to shareholders if it underwent a breakup or outsources its web search functionality to Google, according to an analyst note issued today. Shareholders supported the analysis with shares jumping over 2 percent in today's action.

Jeffrey Lindsay, an analyst at Sanford C. Berstein, said Yahoo's shares could be valued as high as $38.65 per shares compared to its current price of $27 per share if it underwent a breakup into three units. The Display Advertising Unit - using DoubleClick's valuation - could be worth $25.5 billion. The Search Unit - using Google and Ask.com valuations - could be worth $15.6 billion. And finally, its Subscriptions business - using Match.com and RealNetworks valuations - could be worth $1.3 billion.

Lindsay also offered a second analysis of what would happen if Yahoo outsouced its search business to Google. The projections showed search revenues rising 28% in 2008 bringing total revenues up 16% over current projections. Meanwhile, the search company could cut 25% of its staff, which would drop its expenses by 17%. In the end, this would improve operating income by 205% over current Wall Street estimates.

"It appears that Yahoo will not take bold measures to right the ship," he wrote in a research report. "We believe that Yahoo still has a potentially high intrinsic value. We believe, however, that to stop the inevitable slide into irrelevance the management team must consider more radical actions and strategies."

In the end, Yahoo's management is unlikely to take either action in favor of organicly growing the company. Unfortunately, the company's main display advertising business appears to be fledging amid troubles capitalizing on its ad networks. Meanwhile, its search business continues to be second to Google. Maybe shareholders should vote Lindsay as director of the board...

Related Companies
Google Inc. (GOOG)
Microsoft Corporation (MSFT)
Baidu.com Inc. (BIDU)

10/5/2007 3:04:54 PM UTC

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Just How Much is Cablevision Worth (CVC)

A large Cablevision Systems Corporation (NYSE:CVC) shareholder may exercise his rights to have the value of his shares appraised in connection with the cable company's proposed buyout deal, according to a Schedule 13D/A filing with the SEC.

Mario Gabelli, who owns an 8.3% stake in the company, said he is carefully considering the buyout offer that he believes is too low. Many shareholders and analysts are carefully watching his moves as his stake may be a key voting block in during the company's upcoming proxy.

"Part of us says take the money and run because of what the world's going through with regard to the [lending market] crisis," said Gabelli in an interview with The New Post. "But it could be worth $65 to $70 a share in five years."

The Dolan family, which controls Cablevision, has proposed to take the company private in a deal worth $10.6 billion - or $36.26 per share. The company's shareholders will vote on the deal on October 24th, while the transaction has already been approved by Cablevision's board.

In the end, a buyout is probably the best option for shareholder given the troubles in the credit market and risks over the next five years. However, whether the transaction gets consummated remains to be seen. We could possibly see a higher buyout price if the appraisal puts a significantly increased valuation on the company. Combined, these factors make this stock one worth watching!

Related Companies
DIRECTTV Group, Inc. (DTV)
EchoStar Communications (DISH)
Verizon Communications (VZ)

10/5/2007 2:45:20 PM UTC

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