Tuesday, November 30, 2010

FinancialEdge: Santa's Financial Naughty List For 2010

It looks like it is time once again for St. Nick to tally up the good and bad for the year. While there are some financial folks who belong on the "nice" list (maybe the billionaires who publicly pledged to make sizable bequests?), there is no doubt that the "naughty" list on Wall Street is always quite a bit longer. (For more holiday related reading, check out Top Holiday Budget Busters.)

Then again, maybe the naughty boys and girls on this list should take some cheer from their inclusion - because of their own actions, commodities like lumps of coal are worth more than they have been in a while!

While the European sovereign debt crisis undoubtedly stretches back to 2008 (if not earlier), it really heated up early in 2010. Greece was already something of a basket case, but the news kept getting worse, culminating in an international bailout in early May. Amidst all the worries about whether Greece would single-handedly sink a major bank or two, worries began to bubble up that Spain and Portugal would soon be in similar straits. Although Spain and Portugal seem relatively stable for now, Ireland brings the year to a close with its own prolonged financial difficulties and bailout.

There is no shortage of names that can go down on Santa's black list for this one. National governments lied to each other and their citizens about the state of their economies, and then gorged on cheap external debt to fund public largess. Of course, the banks who bought the debt also bought the lie(s) or assumed that they could pass the buck on to the public in the form of bailouts if things went south. Last and not least, some of the citizens of these countries themselves should earn a spot on the list for protesting and demonstrating against their governments for daring to actually try to put themselves on a paying, solvent basis and cutting some of these debt-fueled freebies. (For more, check out How Countries Deal With Debt.)

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A Long-Awaited Move From ABB

The idea that Swiss industrial giant ABB (NYSE: ABB) is making an acquisition is about as surprising as Thursday following Wednesday. ABB has been openly on the hunt for acquisitions for a few years now, and most of the surprises about the company's M&A activities have centered on deals that slipped away from the company. On Tuesday, though, ABB announced it had agreed to acquire Baldor Electric (NYSE: BEZ) in an all-cash deal.

The Deal
ABB is paying $63.50 in cash for each Baldor share, a 41% premium to Monday's closing price and a total deal value of $4.2 billion. That is quite an impressive end to a recovery run in Baldor's stock that began back in March 2009 at a price below $11 a share. In fact, Baldor's shares had risen about 55% year-to-date, so ABB is certainly not stepping in and buying an asset that has been ignored by Wall Street. Moreover, at about 14 times trailing EBITDA, ABB certainly does not seem to be underpaying for this company.

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Cardinal Puts Some Cash To Work

Large piles of cash seem to tempt people into making bad decisions. At the corporate level, large cash balances often attract so-called "activist investors" looking for quick paydays or to embolden management into ill-timed buybacks or illogical acquisitions. That does not seem to be a problem with Cardinal Health (NYSE:CAH), though, as this large medical distributor has used almost $2 billion of its cash on hand to make a pair of acquisitions that seem to make a lot of sense. 

Kinray and Independent Pharmacies
Almost two weeks ago, Cardinal announced the acquisition of privately-held Kinray Inc for $1.3 billion in cash. A pharmaceutical distributor focused mostly on New York City and the Northeast U.S., Kinray will enhance Cardinal's exposure to independent pharmacies. While major chain pharmacies like Walgreen (NYSE:WAG) and CVS Caremark (NYSE: CVS) are a huge part of Cardinal's revenue base, the company makes a lot more money (on a margin basis) serving smaller customers, so expanding that customer base should be pretty accretive for Cardinal.

Buying Further into China ...
On Monday, Cardinal announced its latest deal - paying $470 million in cash (and assuming $60 million in debt) to acquire Zuellig Pharma China. Part of Zuellig Pharma (which in turn is part of the even larger Zuellig Group), Zuelling Pharma China is one of the largest distributors of pharmaceuticals and medical devices and supplies in China. Serving over 123,000 independent pharmacies and 49,000 provider locations, this Zuellig buy certainly enhances Cardinal's scale in what is almost sure to be a major market for medical distribution for some time to come. (For more, see Top Factors That Drive Investment In China.)

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Monday, November 29, 2010

Changes Are On The Way

I am somewhere between hoping and planning (I'd say "ploping" but that has a much different sound to it...) to make some extensive changes to this blog between Christmas and New Year's. I'm thinking of adding a few cosmetic changes (a tool bar, for instance), as well as adding some content - perhaps my current portfolio and a "top ideas" list as well as a bit more info on me and my approach.

I would love to hear from any and all who read this if there are things that they would like to see. If you want to see more original content (that is, things not on Investopedia), let me know. If you would like to see more on foreign equities, let me know. More book reviews, no book reviews, more "macro-level" analysis ... let me know.

I might run this post once a week between now and Christmas. Feel free to either leave ideas in the comments section or email me directly at "tuonela >dot< fool >dot< gmail >dot< com".

Thanks in advance for any suggestions, requests, advice, or complaints!


Is It Just Me?

Is it just me, or did this Black Friday seem a bit more flash and sizzle than real substance?

Around here (Raleigh-Durham, NC), the malls did not look all that crowded. Moreover, the sales did not seem all that interesting or special. Sure, there was the usual wide array of electronics and clothing, but moreso than in most years, I just did not see much of anything that I wanted to buy. In fact, I think I bought exactly two things that were on sale because of the holiday - the rest of it was simply pulling the trigger on things I have wanted for a while and would have put sooner or later anyway.

Apparently the statistics back me up - traffic and spending were up some, but not a lot. Wonder if this means the economy is worse than it looks or if people are getting a bit more savvy and thrifty.

Friday, November 26, 2010

Holiday Spending 2010 vs. 2009

Economic data flows into the market nearly every day, but there is something about the holiday season that brings a bit more focus to the analysis. Perhaps it is because it dovetails with the end of the year and that is a natural time to step back and assess. Alternatively, it could be a function of the fact that despite the myriad beliefs and practices in North America around this time of year, people seem to unite around a common love of shopping and gift exchange. (For additional reading, also check out Be A Holiday Saver, Not A Scrooge)

Now might be a good time, then, to consider the holiday seasons of 2010 and 2009, and what that might say about the broader economy. 

Retail Sales Are Getting Better … Slowly … Maybe 
According to the National Retail Federation, this holiday should be a little bit better than last year. The organization expects its members to see a 2.3% rise in spending over the holiday season. Interestingly, a similar survey suggests a traffic increase of about 3% over Black Friday. Now, there is certainly no reason to make too much of that discrepancy (they cover different time periods, after all), but it would be an interesting phenomenon all the same if there are more shoppers in the store, but still an overall pullback in how much people spending. 

What is even more interesting, though, is the difference in other polls. A recent Gallup poll indicated that consumers were predicting that they would spend about 12% more than they did last year - or, rather, their predictions in November 2010 regarding what they think they will spend on Christmas is 12% higher than the predictions made in November 2009. Likewise, although most people expected to spend the same as the prior year, the number of people who said they would spend less was nearly three times higher than the number who said they would spend more. On the flip side, yet another survey from the NRF suggested that average spending may climb 1% this year - a level that would still be a bit below 2008 and well below 2007. (For related reading, see Using Consumer Spending As A Market Indicator.)

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A Primer On Investing In The Tech Industry

The technology sector is an inescapably huge investment opportunity for both corporate America and Wall Street. It is the largest single segment of the market, eclipsing all others (including the financial sector and the industrials sector). More than anything, technology companies are associated with innovation and invention. Investors expect considerable expenditures on R&D by technology companies, but also a steady stream of progress and innovative new products and services.

The Importance of the Tech Industry
These products and services are then disseminated throughout the economy; there is no sector of the modern economy that technology does not touch and that does not rely upon the technology sector to improve quality, productivity, and/or profitability. (Sector funds can provide maximum exposure to financial industry stocks, but this benefit is a double-edged sword. Check out Financial Funds Provide Diversity ... And Risk.)

Tech is also notable for its rampant competition and rapid obsolescence cycles. Although the examples have been used so often they have become cliché, it is nevertheless still a fact that computers used to occupy entire rooms, 640K of RAM was perfectly adequate for a personal computer, and cell phones were heavy bricks the size of shoes. With that constant drive to adapt and overcome competitors with new products, no company can rest easy for long in the tech sector. (Find out why some companies thrive while others flounder in Economic Moats: A Successful Company's Best Defense.)

Please click the link for the full primer:

Thursday, November 25, 2010

Should Investors Put Hormel On The Table?

Hormel (NYSE:HRL) is an odd company. On one hand, it is difficult to find sustained success investing in large North American food companies, particularly those that are very vulnerable to commodity prices. On the other hand, Hormel does what so very few protein-focused food companies ever manage to do - the company has successfully diversified itself into a wide range of products and produces an ROIC that stands out within the industry and actually exceeds that of the average S&P 500 company. 

A Quarter with Some Gristle
Hormel ended its fiscal year with a good news/bad news type of quarter. Top line reported growth of 23% certainly captures an investor's eye relatively easily. Backing that up, volume growth of 14% is quite good, and the 9% improvement in mix and pricing is not bad either. While this quarter did have an extra week in it, that is just a 7.7% tailwind, so clearly the company has some real growth even on a stricter apples-to-apples basis. 

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Is Brocade Weaving A Winning Tale?

These are Dickensian times for the networking space; perhaps not the best of times for players like F5 (Nasdaq: FFIV), Meru (Nasdaq: MERU) and Aruba (Nasdaq: ARUN), but very strong all the same. On the other side of the ledger, a poor spending outlook at the federal government level led Cisco (Nasdaq: CSCO) to lower its guidance and now the same seems to be true for Brocade (Nasdaq: BRCD). Making matters worse, this quarter highlights that Brocade is still not able to deliver the sort of consistency that a lot of the Street really seems to crave right now. 

An Okay End to the YearIt is often wise to be wary of companies that boast of relatively meaningless accomplishments and the title of this quarter's earnings press release included mention of "all-time record revenue". Despite that yellow flag, revenue did grow more than 5% from the year-ago level, and better than 9% on a sequential basis.

Unfortunately for investors, Brocade is one of the many tech companies that muddies its financial reports with GAAP and non-GAAP reporting. On a non-GAAP basis, gross margins improved nicely on a sequential basis, as did operating margin - though the later was down on an annual comparison. At the bottom line, earnings were weaker whichever way an analyst wants to look - down 27% by GAAP math or 10% by non-GAAP calculations.

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Happy Thanksgiving Everyone

Hope everyone can enjoy the holiday with good food and the people they love.

Wednesday, November 24, 2010

Cheap Stocks Can Be Deceiving

One of the unifying traits of investors is that almost everyone wants to find a "cheap" stock to buy. Sure, there are momentum investors and chartists who never pay attention to valuation or price, but the bulk of the investing public wants to feel like it is buying a bargain. What not all investors realize, though, is that not all kinds of "cheap" are equal. The how and why of a stock's cheapness can have major repercussions on portfolio performance.

The Unknown
Many "cheap" stocks are cheap simply because they are virtually unknown. Oftentimes, these are stocks with no analyst coverage. Without that support, nobody with a broad platform is out there to sing the praises of the company. Likewise (and contrary to what investors may believe and what institutional investors and their ad agencies will say), professionals do not necessarily spend their days looking for undiscovered gems and buried treasure.

In fact, many institutions will not even consider investing in a company without a minimum number of analysts covering the stock. Without that institutional support, it can be difficult to produce the necessary buying pressure to move a stock upward.

Unknown stocks can be a godsend for patient value investors; there are often numerous excellent companies out there trading at great prices. On the flip side, it can take a very long time for that value to come to light and it can be a severe trial of an investor's patience. Moreover, some of these stocks also fall into the "unbuyable" bucket, and that can make the wait even longer. (For additional information, take a look at Find Hidden Stock Gems That Analysts Ignore.)

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Everything Has Caught Up To Analog Devices

It was not all that long ago when Analog Devices (NYSE:ADI) looked like a relatively undervalued play in the chip sector and good candidate for more conservative investors wanting tech exposure. When I last wrote on Analog in mid-August, I was positive on the stock and shares have jumped about five points (nearly 20%) since then. While a lot of the easy short-term money may already be in the bank, there are still solid reasons for investors to keep a careful eye on this name. 

As Expected, A Solid Quarter
Analog delivered yet another solid quarter to close out its fiscal year. Revenue jumped 35% from the year-ago level, and rose 7% on a sequential basis. Growth was led once again by strong results in communications, where revenue rose 19% sequentially on the back of demand in applications like base stations (likely good news as well for Powerwave (Nasdaq:PWAV)). Auto sales were also strong, with a 12% sequential improvement, while industrial and consumer were up 3% and 2% respectively.

To continue on:

Medtronic Worth The Wait

While technology and industrial companies enjoy a resurgence in growth and high commodity prices draw investors to the materials sector, the health care sector is something of a no-man's land these days. As Medtronic's (NYSE:MDT) latest earnings report highlights, there is a decided lack of growth in the sector and that has led many investors to cash out and chase faster prey. Although there is nothing to suggest a quick turnaround is on the way, patient value investors may nevertheless want to nibble on some of the leaders in expectation of an eventual turnaround. 

Another Mediocre Quarter
Perhaps the most positive thing that can be said about Medtronic's fiscal second quarter is that it likely will not disappoint anybody to any significant degree. Revenue (net of currency) was weak, climbing just 2%, but that is all that many analysts had in their models. Though the quarter was stagnant on the whole, there were pockets of strength. Diabetes and the company's defibrillator business (Physio-Control) both saw double-digit revenue growth, and surgical technologies and cardiovascular were both up in the high single digits. The company's two largest businesses, though, were both weak as cardiac rhythm management and spine were both down about 1%. (For more, see A Checklist For Successful Medical Technology Investment.)

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Quick Note On Postings

Hey all,

I expect the posting schedule will be a little light for the rest of the week and into Monday. Although I have some pieces in the editing process at Investopedia, those will probably all go up tomorrow (maybe Friday too). And since I hope to have a relaxing and lazy holiday, I am not planning on much (if any) "original" content.

But I'll be back at it again on Monday.


HP Is Cheap - But Does Anybody Care?

Free of the drama of former CEO Hurd's resignation and successful in grabbing 3Par away from Dell (Nasdaq: DELL), it is back to business for Hewlett-Packard (NYSE: HPQ) and its new CEO, Leo Apotheker. Although the valuation on HP shares seems very undemanding, and there is widespread analyst support for the stock, time will tell if investors buy the story and are willing to buy the stock. 

The Quarter That Was 
HP ended its fiscal year with a decent quarter. Revenue rose 8% and slightly exceeded the average analyst estimate. Within the top line, PCs were weak as expected (personal systems revenue was up 4%), while printing (up 8%), servers (up 25%) and services (up 0.4%) were better than generally expected. Software revenue increased 1%, but is far and away the smallest of the company's five major business units.

Profits also came in better than analyst expectations. GAAP net earnings rose 5%, while adjusted earnings were up about 11% and earnings per share exceeded even the high end of the analyst range. Within that, gross margin rose over a full point from last year, while non-GAAP operating margin improved a bit.

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A User's Guide For Warrants

This is a bit different than my regular writing - more of an educational piece, really. 

Warrants are a little bit like a living memory of a long-past era of finance. Although relatively uncommon and out of favor in the United States, warrants have remained more popular in some areas of the world such as Hong Kong. However, they do still appear in the U.S. markets, and investors should know how to assess and value them. (For a background reading, see Warrants: A High-Return Investment Tool.)

What Is a Warrant?
In simple terms, a warrant is an option issued by a company that gives the holder the right to buy stock from the company at a specified price within a certain designated time period. Generally speaking, warrants are issued by the company whose stock underlies the warrant and when an investor exercises a warrant, he or she buys stock from the company and those proceeds are a source of capital for the firm.

Like an option, a warrant does not represent actual ownership in the stock of the company; it is simply the right (but not the obligation) to buy shares at a certain price in the future. Warrants typically have a much longer life than a call option - it is unusual for a warrant to be issued with less than a two-year term, and time periods of five to 10 years are not rare. In fact, some warrants are perpetual.

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Netflix Moves The Goalposts ... Again

It is hard not to love a company that sees the biggest threat(s) to its business model, and then embraces them. By no means did Netflix (Nasdaq:NFLX) invent the notion of streaming movies and TV to consumers, but it looks as though this company is fully embracing the idea and taking a forceful step towards not only be relevant, but continuing to be a leader in its market. 

Here We Go Again
The idea of Netflix doing something new in terms of delivering entertainment to customers is nothing new. It is an unofficial rule of business and investment writing that every mention of Netflix longer than two paragraphs includes mention of the fact that the company's direct-to-consumer mail DVD rental business basically killed Blockbuster and Movie Gallery. Now, with Coinstar's (Nasdaq:CSTR) Red Box kiosks offering legitimate competition for physical DVDs and Hulu an emerging player in online and streaming content, Netflix is more fully embracing streaming content. 

Please click the link for the full piece:

The Nuance Story Is Not All That Subtle

Speech technology has long been an area of hope, excitement and anticipation - both for the gee-whiz sci-fi aspects of it, as well as the practical and pragmatic business advantages. For Nuance Communications (Nasdaq:NUAN), though, it is not about the gee-whiz, it is about a real business, a real opportunity, and a real responsibility to execute on its potential for the benefit of its shareholders.

The Quarter that Was
Revenue rose nearly 18% for the company's fiscal fourth quarter, no matter whether investors look to the GAAP or non-GAAP figure. On a non-GAAP basis, sequential growth was also a quite healthy 11%. Within the numbers, there was a quite a bit of good news. Enterprise revenue (which includes call centers, as well as customers like Vodafone (NYSE: VOD) and Comcast (Nasdaq:CMCSA)) was the weak spot, with a 5% drop in revenue, but healthcare was up 19%, mobile/consumer was up more than 34%, and imaging was up more than 43%. 

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Tuesday, November 23, 2010

FinancialEdge: Who Stands To Benefit From QE2?

The markets have been all atwitter from the very first mention of the next round of quantitative easing via the Fed. As with any government (or in the case of the Fed, quasi-government) program, there will be winners, losers and unintended consequences. (For a closer look at QE, also check out Quantitative Easing: What's In A Name?)

All told, the Fed expects to inject $600 billion into the system, primarily by having the Federal Reserve Bank of New York acquire Treasury securities from primary dealers like Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and Bank of America's (NYSE:BAC) Merrill Lynch. Although the precise details of the program may change as time goes on, the systematic purchases will likely have the most impact on the medium area of the yield curve.

The idea here is that the Fed says it wants to fight deflation and produce something on the order of 2% inflation. It is an open question as to where exactly the Fed is seeing deflation. True, housing prices are still dropping, but food prices are higher, gas prices are higher, electricity prices are flat-to-higher and so on. Nevertheless, a $600 billion program comes to almost 7% of the latest M2 money supply reading, so it will clearly have some impact on the economy and markets.

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Novell's Weird Public Journey Ends

What a long strange trip it has been for Novell (Nasdaq:NOVL). Once a major player (the major player) in network and enterprise operating systems, this software company saw larger rivals chew away its dominance, and management responded with a series of odd, questionable and sometimes flat-out bad acquisitions that never really seemed to work. With the company long in play, management has announced the sale of the company to a private equity group, bringing at least a temporary end to its odd journey as a public company. 

The Deal
Novell announced Monday morning that the board had accepted an offer from Attachmate Corporation to sell itself for $6.10 per share in a $2.2 billion all-cash deal. Attachmate is an investment group owned by Francisco Partners, Golden Gate Capital, and Thoma Bravo and already owns other software businesses like Attachmate and NetIQ, which sell products like terminal emulation and system/security management software to the corporate market.

Attachmate's deal is a mixed blessing for Novell's shareholders. Some may remember the glory days when Novell's stock traded above $30, though the stock has struggled to break $10 for the past decade. Novell did get a buyout bid of $5.75 back in March of 2010 and the stock has been in play ever since; accordingly, the 9% premium to Friday's close may not seem all that impressive. While management pointed out that this still presents a 28% premium to the pre-deal-chatter price, that is still a mixed blessing - not bad relative performance against large software companies like IBM (NYSE:IBM), Oracle (Nasdaq:ORCL), or Microsoft (Nasdaq:MSFT), but unimpressive against more dynamic names like Red Hat (NYSE:RHT) or the cloud computing darlings like Salesforce.com (NYSE:CRM) or VMWare (NYSE:VMW). 

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Black Christmas For PC Chips?

It is good practice for investors to cast their information nets as wide as possible to monitor their holdings and make better investment decisions. To that point, although Dell (Nasdaq: DELL) did not have a bad recent quarter, some semiconductor investors may not be so happy with some of the details. Reading tea leaves like this is hardly a perfect science, but there were a few scattered details that could become a problem. 

PC, Or Not PC?
In many respects, Dell had a solid quarter. Margins were particularly strong and the company produced solid operating leverage. Looking through to what drives chip demand, though, the picture gets a little bit murky. Overall, desktop sales rose 21% annually but fell 6% sequentially and notebook ("mobility") sales were up 16% and 3% for those same respective periods. Moreover, stripping ASP growth out of the equation makes the unit growth a little more concerning.

On top of all that, management's comment that the "refresh cycle is in full bloom" is a little odd, given that sequential guidance for the fourth quarter was not that great. Again, this is
not about Dell's performance - the issue is whether or not there is still solid PC and notebook demand sufficient to power the chip stocks that supply the market. (For more, see 4 Cheap, High-Quality Stocks.) 

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Monday, November 22, 2010

Still Good Weather In Aruba

With the normal fall chill in the air in most parts of the country, Aruba seems like an increasingly pleasant destination. Tech investors seem to share that feeling, as Aruba Networks (Nasdaq:ARUN) has been an incredible performer over the past year. With this WLAN supplier having nearly tripled from its lows, it is fair to wonder how much gas is left in the tank. 

No Real Slowdown ... Yet
Aruba posted strong results for the fiscal first quarter, but analysts had been calling for precisely that. Revenue rose 44% on a year-over-year comparison and 8% sequentially. That is a little less growth momentum than in the prior quarter (where the top line grew 45% annually and 12% sequentially) but not significantly less. 

Below the top line, performance was once again good but not all that much better than expected. Gross profit rose 49% and gross margin did expand to 72%. That is above the company's target range and a function of new products as well as a higher mix of software. At the bottom line, on a non-GAAP basis, earnings more than tripled from the year-ago level.

The Road AheadAs Aruba is the No.2 player in WLAN (wireless networking for companies and large organizations), the spread of smartphones and tablets has to be a positive sign. When Research In Motion's (Nasdaq:RIMM) Blackberries started getting traction, there was a need for corporations to adjust their network and security needs to facilitate the technology. Now whether the device comes from Apple (Nasdaq:AAPL), Samsung, or Motorola (NYSE:MOT) and whether or not it runs Google's (Nasdaq:GOOG) operating system, there is the opportunity (and need) to access much more of the company network in an effective and secure way.

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Salesforce.com And A Valuation In The Clouds

Say this much for Salesforce.com (NYSE:CRM) - they make life hard on the value crowd by posting excellent growth. With a great third quarter and organic growth that much larger companies like SAP (NYSE:SAP), Microsoft (Nasdaq:MSFT), Oracle (Nasdaq:ORCL) and IBM (NYSE:IBM) could only hope to get, Salesforce.com keeps the argument alive that it can grow into a dominant software player and grow into its rich valuation. 

The Quarter That Was
By any reasonable standard, this was a hot quarter for Salesforce.com. Reported revenue rose 30% from last year's level. Likewise, deferred revenue and billings were strong. Deferred revenue rose 27% from last year, while billings climbed 35% annually.Although not necessarily revenue metrics, the company did experience good renewals and lower churn. Looking further, the company's Chatter feature is now with 70% of its customer base in less than six months, while the Service Cloud has about 20% adoption so far. 

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Apply Patience To Applied Materials

Technology investors are not always the most patient lot on Wall Street, and it is certainly true that a buy-and-hold approach towards sectors like semiconductors will produce some pretty nasty year-to-year volatility. That said, patient investors might want to think about swimming against the current on Applied Materials (Nasdaq:AMAT). Investors have certainly cooled on some parts of the chip sector and Applied's iffy guidance to start the next year will not help matters, but there could be real value here for more patient buyers.

A Solid End To The Fiscal Year
While guidance will probably emerge as the dominant theme from Applied Material's report, the fiscal fourth quarter was actually pretty solid. Revenue rose almost 15% sequentially and jumped 89% from last year's level, easily beating both the average analyst guess and the highest published estimate. Sales were led once again by the Silicon Systems Group, but the sequential growth came from every other business unit but SSG.

Profitability was also substantially better than in the year-ago period. Adjusted gross margin rose six full points from the year-ago period and even more on a sequential basis. Operating profit (again, adjusted) was likewise strong - more than doubling on a sequential basis.

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Friday, November 19, 2010

Allegheny Becomes Broader Still

Give credit where it is due - Allegheny Technologies (NYSE:ATI) is not messing around when it comes to its plans to diversify away from stainless steel products and become a more diversified player in advanced alloys and technologically sophisticated components. The latest move is the acquisition of Ladish (Nasdaq:LDSH), a small company that has focused on forged and cast-metal components for the aerospace and defense industry.

The Deal
Allegheny is paying a total con
sideration of $48 per share to Ladish, consisting of $24 per share in cash and slightly less than 0.46 shares of stock for each share of Ladish. That is a total deal value of about $778 million (prior to the post-announcement moves in the stocks) or slightly more than 14 times Ladish's trailing EBITDA. For Ladish shareholders, it also represents more than a 63% premium to the prior night's closing price, but a roughly 17% discount to the company's all-time high back in mid-October of 2007.

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Can Suntech Break Through The Clouds

Although there are plenty of arguments and controversies about whether solar energy can stand on its own two feet, without government subsidies and inducements, there is no credible debate that the industry is real and growing. In addition to the sizable First Solar (Nasdaq:FSLR), there is a host of billion-dollar babies like Suntech Power (NYSE:STP), JA Solar (Nasdaq:JASO), Trina Solar (NYSE:TSL), and Yingli (NYSE:YGE) all vying for commercial superiority and Wall Street favor.

With this latest earnings report from Suntech, however, it may be time to wonder whether this significant player is making the best moves for the long-term interests of its shareholders.

A Partly Cloudy Third Quarter 

On one hand, Suntech clearly had a solid third quarter - revenue jumped 57% from last year, and 19% on a sequential basis. Although that number was reasonably well ahead of the average analyst estimate, it was nevertheless below the highest numbers in the range. Suntech's top line also highlights one of the primary challenges of this sector - shipments over 25% sequentially (and more than doubled from the year-ago level), but ASPs continue to head lower with some dispatch. That leaves all of these companies on a very challenging course - if they cannot continue to post strong shipment growth and keep production costs in check, they will find themselves on a gigantic hamster wheel. (For more, see Spotlight On The Solar Industry.)

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MELA Sciences' New Device - Will It Be Approved?

On Thursday, would-be medical device manufacturer MELA Sciences (Nasdaq:MELA) got its day in front of an FDA advisory panel. Despite an unrestrained barrage from the FDA regarding the utility, safety and efficacy of the company's investigational device, MelaFind, the panel nevertheless gave an equivocal vote on the device. In the final tally, the panel voted that the device was safe and effective, and very narrowly voted that its potential benefits outweighed the risks. 

Will The Panel Sway a Skeptical FDA? 
Here again is the time and place for the boilerplate notice that although the FDA often does follow the advice of its panels, it is not obligated to do so and has in the past issued decisions contrary to the panel's vote. This seems to be an example of another case where that is likely.

I have worked in the medical device industry as a securities analyst and consultant for nearly 15 years, and I have never seen the FDA object to a device with as much rigor as they directed toward the MelaFind. There have certainly been debates and disagreements in the past; panels for medical device makers like Cyberonics (Nasdaq:CYBX) and Therasense (now part of Abbott Labs (NYSE:ABT)) featured some intense disagreements and pointed barbs, but nothing quite like this.

The link below leads to the full article:

Thursday, November 18, 2010

Abercrombie & Fitch Back On Track

If there is a Teflon-coated retailer, there are strong arguments that Abercrombie & Fitch (NYSE:ANF) is the one. ANF routinely gets roasted for its highly sexualized advertising, its past problems with human resources (allegedly putting only the more attractive employees on the selling floor) and its somewhat questionable management stewardship.

And yet, its core teen-to-college market keeps coming back in droves. True, the company had a serious valley in same-store sales throughout much of 2009, but a quick look at the other A-type teen retailers Aeropostale (NYSE:ARO) and American Eagle Outfitters (NYSE:AEO) shows that ANF's experience was not entirely unique. Now that the economy is picking up a bit, it seems that the customers are more than happy to come back to ANF for its premium-priced wares. 

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Jacobs Still Looking To Build That Ladder

It is really no surprise that large engineering and construction companies are reporting uninspiring trailing growth these days. Refineries, highways, and manufacturing plants do not get built overnight and the panic that spread through the markets in 2008 held up a lot of contracts because of economic and funding concerns. The question for companies like Jacobs Engineering (NYSE:JEC), then, is how quickly business can get back to normal. 

A Sluggish End to a Tough Year
Jacobs ended its fiscal 2010 with something of a whimper. Revenue for the fourth quarter was down 8% on a year-over-year basis, while full-year revenue fell about 14% on a reported basis. That quarterly number was also about 8% shy of the average analyst guess, though, so there could be some risk of modest downward revisions (and all the attendant negative near-term momentum that can produce). 

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Limited Love For Life Sciences

Oh, how times have changed. Back in the very late 1990s, as the Nasdaq bubble was filling up ahead of the final pop, life sciences IPOs basked in a frenzy of investor attention. Many lousy (or at least seriously under-developed) companies debuted to eye-popping valuations and saw strong follow-on interest in the market. 

Nowadays, it is a decidedly different market. Whether in spite of Illumina's (Nasdaq:ILMN) ongoing commercial success, or perhaps because of it, investor enthusiasm for new science mousetraps is decidedly more muted. Two recent IPOs, Pacific Biosciences (Nasdaq:PACB) and Complete Genomics (Nasdaq:GNOM), have debuted to something less than rampant applause, while Rules-Based Medicine has recently decided to postpone its public offering.

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Wednesday, November 17, 2010

Human Genome Takes A Big Step Forward

One small step for an FDA advisory panel, one leap forward for biotech company Human Genome Sciences (Nasdaq:HGSI). 

Late Tuesday, an FDA advisory panel voted by the surprisingly wide margin of 13-2 to recommend approval of HGSI's Benlysta for the treatment of lupus. This drug, which top-tier pharmaceutical company GlaxoSmithKline (NYSE:GSK) has been developing under license from HGSI, would represent the first new lupus drug in more than 50 years - a potentially big step forward for the treatment of a disease that is life-altering (and life-threatening) but still not well-understood by doctors or scientists. (For more, see Measuring The Medicine Makers.)

A More Compassionate Panel? 
Benlysta's progress toward approval was not smooth or worry-free for HGSI investors. The FDA spooked the market a bit a few days ago when the agency released its pre-panel meeting assessment of the lupus drug candidate. Although these reviews are supposed to be tough, critical, and generally negative, it did focus on what it called "mild" efficacy and the fact that the drug does not seem to benefit African Americans much at all.

Nevertheless, the panel seemed to acknowledge that mild efficacy is still efficacy and that the impact of the drug varied with each patient. In other words, it may be significantly effective for some patients, and the side-effects did not outweigh that potential benefit.

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Caterpillar Now A Miner Major

At least one major global corporation is making a very large, very public bet that growth in commodity exploration and extraction is here to stay. Caterpillar (NYSE:CAT) announced a large deal on Monday whereby it is buying mining equipment maker Bucyrus (Nasdaq:BUCY) for $8.6 billion in cash. With this deal, Caterpillar will now get upwards of 20% of its revenue from the mining category and will become the only player in the world that touches every major category of mining equipment. 

The Proposed Deal
By the terms of the deal, Caterpillar will pay $92 per share in cash to the holders of Bucyrus stock. That is a net price tag of $7.6 billion and a 32% premium to Fridays' closing price. This is a robust price for Bucryus by almost any standard. Not only is this is 22% premium to the 2008 boom-time high in the stock, but it values Bucyrus at a trailing EV/EBITDA of over 15, a future EV/EBITDA of nearly 12 and more than double the 2011 revenue estimate for the company. To put this in context, 8 to 10 times EBITDA is generally considered to be a quite healthy forward multiple for this type of company.

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EMC Buys More Storage Space

EMC (NYSE:EMC) is making one thing abundantly clear - if it has to do with enterprise storage, they are going to have a piece of it. From the first Symmetrix back in 1990, to the latest in software/hardware hybrid, EMC has always been at or near the edge of what is possible with large-scale storage. Now the company is buying Isilon Partners (Nasdaq:ISLN) in what may prove to be a stronger foothold in the next major type of corporate data storage technology. 

The Deal
EMC is paying $33.85 a share in cash for Isilon, a deal that represents a 29% premium for Isilon shareholders and a nearly $2.3 billion bill for EMC. With a termination fee of $100 million attached to the deal, though, it is not unthinkable that other bidders could come into the game.

What EMC Is Getting
Isilon is a very small company in data storage - trailing revenue of less than $200 million, compared to EMC's $16.2 billion - but a very promising one all the same. Isilon specializes in highly-scalable, clustered storage systems that store very large continuous files, and has been involved in this scale-out network attached storage market virtually from the beginning. This market exists because unstructured data is not easily handled by traditional systems, but companies involved in life sciences (sequencing data), media (movies) and energy (seismic data) find they need a better way of handling these huge files. (For related reading, see Xyratex An Interesting Data Storage Play.)

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Alnylam Takes Another Hit

The trouble with being a trailblazer is that whenever there are brambles or gopher holes along the way, you're the first to blunder into them. Alnylam (Nasdaq: ALNY) is unquestionably one of the pioneers of RNAi drug technology, but this is a technology that is far from ready for primetime. While RNAi might very well take its place alongside Amgen's (Nasdaq: AMGN) recombinant proteins or Roche's (Nasdaq: RHHBY) monoclonal antibodies and became a major therapy class, it may also go the way of antisense or gene therapy – a promising theoretical approach that produces little in the way of marketable drugs.

The latest blow to Alnylam comes from Roche's decision to cut costs by firing part of its research staff and curtailing some development programs, including RNAi research. Alnylam and Roche signed a development deal over three years ago, a deal that was originally advertised as a $1 billion alliance – assuming, of course, that preclinical programs developed to full fruition. 

Now, though, there is a real risk that those product milestones and royalties never come and the deal is instead just the $331 million upfront payment and 2M share investment.That would take out a sizable chunk of Alnylam's potential revenue over the next few years (development milestones) and substantially bump up the dilution that investors can expect (since the company will have to raise the money from the markets instead of getting its from Roche's development progress).

This follows Novartis's (NYSE: NVS) decision a little while ago to not expand its product development agreement with Alnylam and end its research collaboration. That, then, is two major partners and two globally-respected top-tier drug companies that have decided that they do not need to rush forward in RNAi development.

This is not the end of the line for Alnylam by any stretch. First, the company has an exceptional amount of cash on the balance sheet today. Moreover, Roche has not stated that they are abandoning RNAi research for good. While they are ending RNAi research in Germany and Wisconsin, those programs could be moved to other locations and resumed at a later date. Moreover, if Alnylam can get a few compounds into Phase 2 testing and show strong clinical efficacy, it would not be at all surprising to see companies try to jump back into the space.

Now, Alnylam's stock...

Clearly, I was way too eager to get into this name when I bought a few months ago. You would think I would have learned my lesson with Isis (Nasdaq: ISIS) quite a few years ago, but I look at Alnylam (and early stage biotech in general) as my substitute for gambling or playing the lottery. Relatively few of these plays will ever pay off, but the ones that do will pay off well and I find that these investments stimulate my intellectual curiosity and feed my inner life sciences geek.

Moreover, I still do actually believe that Alnylam can be a leader in RNAi technology and that RNAi-based treatments can be a major new category of pharmaceutical compounds in the next decade. The company has over $5 nearly $9 a share in cash on the balance sheet (or about $7.50 on a fully diluted basis). Granted, that cash is going to get whittled away by ongoing R&D demands, but paying a little more than 2x 1.25x cash for potentially blockbuster technology is not ridiculous from a valuation perspective.

Alnylam's stock is almost certain to take another beating today, and there's no obvious near-term catalyst. As with most biotechs, the odds are that any incremental news will be negative not positive. Still, for those with a strong stomach, a lot of patience, and a long-term horizon, this is one of the most interesting biotech names today. 

Disclosure: I own shares of Alnylam

Update: I mistakenly went with just the cash and short-term securities on the balance sheet in the original posting, excluding the securities categorized as long-term investment assets. I was in a rush and I apologize for the sloppy error. ss

Tuesday, November 16, 2010

Kohl's Keeps It Simple

The retailing industry constantly recycles itself, as once-popular stores lose touch with their shoppers and fade away and newer entrants more in tune with customers rise to the fore. Kohl's (NYSE:KSS) is hardly a newcomer, but the company is showing that it has the mettle to last in the cutthroat world of broad-line apparel retailing.   

A So-So Quarter
Kohl's may be winning the war, but the company does not win every battle. For the third quarter, the company delivered total sales growth of a bit more than 4% on the back of 1.8% comp-store sales growth. That 1.8% is below the company's 2 to 4% target, but perhaps not so much so to be a long-term worry. Interestingly, it appears that traffic stayed pretty strong, but the average ticket declined - a positive outcome in the sense that it means shoppers keep showing up at Kohl's, even if they are spending less.

Profitability was a bit more of a concern. Gross margin did rise 50 basis points, but the company lost all of that and more on the SG&A line, leading to a 50-basis point decline in operating margin. Kohl's also reported a 5.9% increase in inventory; a figure that bears monitoring for the next quarter or two. 

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FDA Locked And Loaded For MELA Sciences

The FDA has been playing a rough game of "Whack-A-Mole" lately, smacking down would-be drugs in the fields of obesity, diabetes and psychiatry, and hitting the stocks of companies like VIVUS (Nasdaq:VVUS), Arena Pharmaceuticals (Nasdaq:ARNA) and Alexza (Nasdaq:ALXA). With a very aggressive pre-panel meeting review, investors are now extremely nervous that the agency is about to do the same to MELA Sciences (Nasdaq:MELA) and MelaFind, the company's would-be testing device for melanoma (a very serious type of skin cancer). 

A Consummate Binary Event
For investors who are not familiar with the term "binary event", the FDA's ultimate decision on MelaFind is a very good working definition. While large medical device companies like Stryker (NYSE:SYK) or Medtronic (NYSE:MDT) need FDA cooperation to thrive, it is more of a matter of survival for MELA Sciences.

If the agency grants approval, the company will be able to enter a large field with no other comparable competitive device option. If the agency refuses to allow MELA to market this device, the company has nothing else in its bag and will effectively be a zombie company. In other words, the stock will go up a lot if the FDA approves MelaFind, or down a lot if MelaFind is rejected. Not surprisingly, then, there has been a huge amount of stock shorting interest and option activity going into Thursday's panel meeting.

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A123 Causing Investors' Patience To Flicker

Just because investors say that they expect and accept that there will be volatility and setbacks with emerging technologies and the companies behind them, that does not mean that they will not punish offending stocks anyway. As A123 Systems (Nasdaq:AONE) announces another disappointing quarter and some commercial setbacks, investors appear ready to take the stock out to the woodshed one more time.

A Challenging Quarter
Although A123 met the consensus estimate for revenue this quarter (up about 11% to $26 million), it seems unlikely that anybody will care about that number. The company is still a pre-commercial company for all intents and purposes, so it is not a relevant figure.

What is more relevant is the company's report of a higher gross loss - sales rose about $2.6 million, but the gross loss worsened by $1.2 million to a loss of $3.1 million. The company had some yield issues and that led to higher expenses, but it brings to mind the old joke, "we lose money on every sale, but we'll make up for it with volume".

More seriously, the setback will feed the bears who are betting on the idea that A123 cannot profitably scale up its manufacturing process to meet the demand that investors are counting on in the future. While it can just as easily be argued that all new technologies have kinks in the initial production phases and that it is better for a company to work them out before getting large orders, the market is likely to take a "show me" attitude in the meantime. 

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Monday, November 15, 2010

Cisco's Head Cold Isn't A Tech Plague

Not all bellweathers are created equal. True, Cisco (Nasdaq:CSCO) is an incredibly significant player in networking equipment and software, but the product and customer overlaps are never perfect across any sector. What that means for investors is that Cisco's near-term business issues may not be a sign of doom for the sector, and nimble investors may want to keep an eye out for stocks that get cut down unnecessarily. 

Cisco's Bad News
Cisco reported decent fiscal first quarter results (sales up more than 19%; operating income up 14%) but guidance was very problematic. It looks like Cisco is seeing low-to-mid single-digit growth in its second quarter (the calendar fourth quarter) and may post less than double-digit growth for the full fiscal year. Perhaps not too surprising, the biggest sources of weakness for Cisco are public (government) customers and European customers - two market segments where debt burdens and weak spending budgets are major issues. In fact, state governments' orders plunged 48% on a quarter-over-quarter basis.

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IGT Needs A Visit From Lady Luck

Who knows how many fortunes can be attributed to International Game Technology (NYSE:IGT). Not only has IGT produced thousands of jackpot winners from its slot machines and progressive jackpot systems at casinos around the world, but IGT stock had two notable runs as a classic growth stock. IGT's stock market success came as a wave of casino-building and strong market share fueled an impressive earnings run. 

The last few years have not been so kind, though, as lady luck has moved on to favor rivals WMS (NYSE:WMS) and Bally Technologies (NYSE:BYI). Is IGT a rebound in the making or is it destined to spend its days recounting past glories?

A Quarter Lacking Encouragement 

Nothing in the company's fiscal fourth quarter report jumps out as a sign of imminent recovery. Revenue was down 3%, as both the product and gaming segments struggled. Product revenue dropped 1% on a 3% decline in shipments, with international sales growth helping to mitigate the damage of ongoing declines in the North American business. Gaming revenue was down even more (5%), as the installed base dropped 7% and customers migrated to lower-end machines. (For related reading, see Casino Stats: Why Gamblers Rarely Win.)  

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Petrobras Stuck In The Middle

At first glance, these should be great days for Brazil's energy giant Petrobras (NYSE: PBR). Not only are oil prices heading higher, but Petrobras has privileged access to some of the largest oil fields known today. Unfortunately for PBR investors, there is a great deal of skepticism regarding management's capabilities, and this quarter will not help ease those concerns. 

A Quarter That Does Not Hold Up
At first glance, it would seem that Petrobras had a solid third quarter. After all, net income was up 17% from last year. While revenue was up 14% from last year and up 2% sequentially, EBITDA was up 1% and down 1% for the same respective time periods. A lot of that seemingly strong net income number was fueled by a currency benefit, making it a low-quality beat.

Moreover, some worrying details were in the numbers. Production was up just 1% from last year (and down 1% sequentially), and although this was not a surprise (management discussed this earlier), it marks another entry in this management's history of over-promising and under-delivering on production growth guidance. Even more concerning, though, was the 8% increase in domestic lifting costs (up 1% from the Q2). In other words, the company is not pumping as much as it should, and it's costing more to do it.

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Sunday, November 14, 2010

Archipelago Learning - Not All For-Profit Education Is The Same

These are grim days for the for-profit education sector. The government has painted a bullseye on the hind ends of companies like Apollo Group (Nasdaq: APOL), DeVry (NYSE: DV) and Career Education (Nasdaq: CECO), ostensibly for poor student loan repayment rates and generally over-promising the benefits of post-secondary education (though many public/private universities have similar problems...).

Investors may want to broaden their horizons and take a look at Archipelago Learning (Nasdaq: ARCL). Although sometimes grouped in with those for-profit educators, Archipelago's business model is completely different, and comparing this company to that industry just makes no sense. Archipelago is in the business of selling online subscription-based educational content to K-12 schools, helping those schools educate their students better and achieve higher test scores.  

A Quarter Worth Studying
For the third quarter, Archipelago reported a 46% jump in revenue to just over $15 million, so this is very clearly still a very small company. Scrubbing out the boost provided by the mid-summer acquisition of Education City, growth was more on the order of 27%. Going a step further, the company also reports invoiced sales; this is not at all uncommon with subscription-based models where there is a time gap between recognizing a "sale" and getting the money. By this metric, sales were up 37% for the quarter and 19% ex-Education City. (For more, see Pay Back Time In For-Profit Education.)

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Looking Glass Reveals Better Results At Disney

Give Disney (NYSE: DIS) credit. One way or another, the company will get eyeballs on its content. In addition to owning one of the four major broadcast networks (ABC) and the preeminent sports network (ESPN), the media and entertainment giant operates other cable channels, runs a host of resorts and parks, and constantly pushes new content out through movies and products. In other words, unless somebody lives in North Korea or a mineshaft, they will see Disney and probably see it often. (For more, see Walt Disney's Valuable Content.)

A Goofy Quarter
Disney may be ubiquitous, but that does not mean that growth comes easy. Revenue was down 1% in the company's fiscal fourth quarter. Reported network revenue was down 7%, and park/resort revenue was down 1%, while entertainment and products were up 6% and 13%, respectively. To give Disney a bit more credit, though, it is important to remember that results can be lumpy - overall second-half revenue was up a more encouraging 7%. 

What made this quarter "goofy" was a host of charges and adjustments; normal in the course of business for a company like Disney (where writing down the value of content is a cost of doing business), but nevertheless confusing to some investors who do not live and breathe accounting arcana. To that end, adjusted segment operating income was up 1%, with the network and park/resort business lagging and entertainment and products doing well.

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Friday, November 12, 2010

Covidien - Better Than People Seem To Think

By and large, if an investor finds a dollar bill selling for close to 50 cents on Wall Street, it is a safe bet that it really is not a dollar bill after all. But every once in a while there are good values hiding in plain sight, and diversified medical products company Covidien (NYSE:COV) might be one of those. 

A Respectable Quarter in a Tough Market
Nobody expected a break-out quarter from Covidien, and the company did not produce one. Nevertheless, constant-currency revenue growth of 4% and organic growth of about 1.5% was nevertheless a bit better than expectation. Devices did well, up 10% on strength in markets like oximetry while the newly-acquired ev3 business seems to be fitting in well. The specialty pharmaceutical and imaging business was weak (as expected), with sales down 11% overall and down 15% in specialty pharmaceuticals. Medical supply sales were up 1%, but this is a relatively non-influential business for Covidien. (For more, see A Checklist Of Successful Medical Technology Investment.)

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Is Rockwell's Growth Automatic?

With companies in a wide range of industries coming out of recession-induced hibernation, major players in industrial automation and process controls are seeing strong recoveries. The latest in that line is Rockwell Automation (NYSE:ROK), which ended its fiscal year with very strong performance and reasonably encouraging guidance for the next 12 months. 

A Strong End to the Year
Rockwell reported overall revenue growth of 26% in its fiscal fourth quarter, and 7% sequential growth. Growth was relatively balanced across the two major segments - the architecture/software business saw 36% year-on-year growth and 4% sequential growth, while the control products and solutions segment posted 20% and 9% growth on an annual and sequential basis, respectively. Growth appeared to be broad-based across sectors, as food/beverage, pharmaceuticals and light machinery all did well and major automakers like Ford (NYSE:F) and General Motors resumed spending. 

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Middleby Making The Right Kind of Smoke

Given that Middleby (Nasdaq:MIDD) is in the business of making commercial food service equipment, it is generally not good news for words like "smoking" or "on fire" to be attached to the company. Still, the company is making a rather impressive recovery from the worst of the recession and the nadir in restaurant equipment spending. 

A Solid Third Quarter
Middleby reported that revenue rose more than 15% as reported, and nearly 12% on an organic basis. That was basically in line with estimates, though Middleby is not a particularly widely followed stock. Profitability was a bit soft; gross margin dropped about 50 basis points on higher steel costs, and operating income rose 14% despite close to $1 million in expenses tied to severance and reduction programs. 

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Thursday, November 11, 2010

Qiagen Hopes To Ride MDx

Sometimes being the best does not make a stock a success. Qiagen (Nasdaq: QGEN) is an acknowledged leader in sample prep in both clinical and research applications, and it has built a solid franchise in clinical diagnostics. None of that makes the company immune to economic reality, though, and weaker patient visit counts have sapped some of its strength.

Another Sluggish Healthcare Quarter
Reporting on a medical technology company having sluggish performance is getting a bit old hat, but it is nevertheless true. Qiagen saw revenue rise almost 6% (about 8% organically when excluding swine flu-related business), with weak results in academia offset by strength in the molecular diagnostics (MDx) business. Profitability was more of a mixed outcome, however. Gross margin declined more than a full point, while operating income fell about 5% and operating margin dropped more than 300 basis points. If there is good news in this result, it is that the company bumped up its R&D spending by about 16%. 

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Wednesday, November 10, 2010

McDermott's New Life

For McDermott (NYSE: MDR), it is now all about energy. With the completion of the Babcock and Wilcox (NYSE: BWC) spinoff at the end of July, McDermott is now an EPCI (engineering, procurement, construction, installation) company with a laser focus on the upstream energy market. In particular, the new company focuses on offshore projects in the Middle East and Asia. If Apache (NYSE: APA), Chevron (NYSE: CVX) or OMV want to build a new offshore installation (whether a production rig, subsea field or floating production system), they hire a company like McDermott to build it. 

The First New Quarter In The Books
On the surface, this third quarter was not an auspicious beginning. Revenue dropped 28%, and operating income fell about 14%, though net income from continuing operations was actually up an encouraging 39%. Although there was weak order flow for the quarter, and the company's backlog declined on a sequential and year-over-year basis, McDermott has booked $1.2 billion in new orders for October.

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