Monday, April 03, 2006

Dec. 2005 Stock Updates: Part I

12-13-05. Coinstar (CSTR-$23.90)/ $25.91/ (8.41)%
SHORT. “Hold Your Quarters.” Our opinion has not changed. Coinstar still remains vulnerable due to distributor concentrations, for coin and entertainment services agreements with Wal-Mart, Inc. and the Kroger Company still account for approximately 25.3% and 10.5% of consolidated revenue.

12-14-05. Hemosense (HEM-$7.65)/ $5.25/
SHORT. The INRatio [self-testing] System (for managing patients on warfarin therapy) is the Company’s only product. The majority of PT/INR testing has historically been—and continues to be—performed by large hospitals or commercial laboratories.

Hemosense does not have a proprietary sales and marketing team in place to achieve commercial success. Three distributors, Quality Assured Services, Medline, and Cardinal Health, accounted for approximately 24%, 19%, and 13%, respectively, of total revenue in FY ’05.

12-15-05. Books-A-Million (BAMM-$9.05)/ $11.51/ (27.18)%
SHORT. Two initial concerns: balance sheet and conflicting interests of insiders [related party transactions].

Directors declared an increase in the Company’s quarterly cash dividend, up 60% to $0.08 per common share.

The Company has not yet filed its 10-K with the SEC. However, with an earning’s retention ratio of 74% in FY ’05, the 10Q Detective notes that the sustainable growth rate of 2.58% last year was less than the actual growth rate in sales of 6.3 percent. What does that mean? If sustainable growth is less than actual growth over a protracted period, BAMM will not be able to sustain paying both the dividend and “funding” future sales growth without improving operating efficiencies or increasing the debt level.

12-16-05. J.M. Smucker (SJM-$44.26)/ $39.70 / (10.30)%
Shareholders going hungry. The annual "Fall Bake" season—holiday baking by us neophytes—was a bust. The Company reported unexpected declines in both sales and profit in its 3Q:06. Cisco-branded and other consumer oils and baking business sales were impacted by some key customers reducing inventories.

Gross margin declined 120 basis points, primarily due to the volume decrease in the consumer oils and baking business area, increased trade merchandising expenses, and higher commodity and freight costs.

We did warn our readers, however, back in December that it would take “steady top-line growth and improving margins [to] provide the necessary catalyst for an upward move in Smucker's common stock. Until investors witness the latter, [continue to] snack on the 2.7% dividend yield ($1.06 dividend) and a Crustable sandwich!”

12-19-05. H&R Block (HRB-$24.22)/ $21.65/ 10.61%
SHORT. Citing a slow start to the tax season & a tough mortgage market, HRB cut its EPS outlook—as we predicted would happen! CLOSE-OUT.

12-20-05. Indevus Pharm. (IDEV-$4.54)/ $6.20/ 36.56%
BUY. IDEV announced last week that enrollment has been completed in the Company's second Phase III trial for SANCTURA XR (the once-daily formulation of SANCTURA, which is currently marketed for overactive bladder).

The second of the two Phase III trials is fully enrolled with over 560 patients and the Company anticipates reporting results in July of 2006. Both Phase III trials are 12-week, double-blind, placebo-controlled studies, evaluating the effect of SANCTURA XR in reducing frequency, urgency, and incontinence episodes in patients with overactive bladder. Consistent with previous guidance, the Company expects to file a New Drug Application with the U.S. Food and Drug Administration by the end of the calendar year.

Outlook boosts visibility. Strong BUY.

12-21-05. Brookdale (BKD-$31.00)/ $37.75/ (21.77)%
SHORT. Priced at approximately 69 times FY ’07 earnings of $0.55 per share, the stock valuation remains vulnerable to a negative EPS call.

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