Sunday, July 22, 2007

Barron's Summary (PBCT, AKAM, IBM, SXT, KAMN, AMAT)

Barron’s “The Trader” column discusses People’s United Financial (PBCT), whose stock has slid 16% over 3 mo’s. Article suggests that this is good-entry point for many reasons. Its stronghold in Connecticut's moneyed, suburban sprawl is miles from the housing woes of Florida, Nevada and California. "Excellent core deposits and strong funding rates make it a lot less dependent on interest rates," says Anton Schutz, of Burnham Financial Services Funds. Valuation also is attractive, with shares trading at 1.8x BV, or 19.6x forward earnings. Those profits will be further boosted next year after People's absorbs Chittenden, which has 133 branches throughout New England. Stifel Nicolaus says the stock is worth 24.

“The Trader” highlights Akamai (AKAM), whose shares are down 15% since Feb. Recent competitive concerns are valid, but overdone. Rivals like the newly public Limelight (LLNW) offer a viable, cheaper alternative. But Akamai has a vast global network of more than 20K servers that often sit on providers' premises, and offers speedy and guaranteed delivery for which customers willingly pay a premium. That's one reason why clients turn to Akamai. At about 49, Akamai shares trade at 29x forward earnings, still reasonable given its product sweep and early-mover stronghold in this fast-growing mkt. Analysts see profits rising to $1.28 in ‘07 and $1.71 in ‘08. FBR has a price tgt on the stock of 64.

“The Trader” also sees more gains ahead for IBM (IBM), whose shares last week soared to 116, its highest level in 6ys, after Big Blue reported that 2Q earnings. More gains lie ahead. Spending is growing in the US and trailing 12mo signings is up 18%, Sanford C. Bernstein observes. "The 2Q07 showed the best growth in Sam Palmisano's 5y tenure at the helm," Bob Djurdjevic, of Annex Research, wrote. "IBM is likely to sustain its growth for some time to come." What's the stock worth? At this very moment, Bernstein's A.M. Sacconaghi pegs fair value at $125.

Fund manager likes LVS, BBY, BBBY, KSS and VIA.

The shares of Macy’s (M), now about 42, could fetch more than 52 in a takeover. And there's ample room for the current management to improve marketing and cut costs.

Kaydon's (KDN) shares, up smartly this year, could climb another 20% to 155 in the next 12 months, powered by high-margin products in growth markets. The dividend may rise, too.

Buyers have paid rich premiums for stocks recommended by some of Barron’s Roundtable members. The sellers are reinvesting in other favorites, or staying liquid. Roundtable member Mario Gabelli says that Sensient Tech. (SXT) could be bought within a year and Kaman (KAMN) bearing business could draw suitors. For Citigroup (C), John Neff Sees 20-25% upside in a year.

According to the “Plugged In” column, in a research note entitled "Solar Review: The remaking of Applied Materials (AMAT)," Credit Suisse analyst Satya Kumar argues the co has the "makings of a bn-dollar [solar] business." After meeting recently with the co's solar division head, Kumar says he came away "more confident" about Applied's solar prospects, and predicts it will become a $1.5bn business by 2010. The analyst is assuming AMAT will capture about 30% of what he predicts will be a $5bn solar-equipment mkt. Even for a seasoned tech giant that would be a pretty ambitious ramp for a relatively new business. Kumar concedes that today's investors in Applied essentially are buying futures on the co's solar business of tomorrow. "Applied Materials' solar [business] doesn't deserve an exorbitant multiple today, but this comprehensive growth strategy has the potential to drive multiple expansion over time," he says. Kumar argues it is "not unreasonable" to pay 20x earnings for Applied's shares. Today Applied trades for about 16x ‘08 estd earnings.

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