Let’s take a look at analysts’ morning notes
FAMILY DOLLAR (FDO):
- DEUTSCHE BANK: Buy. While a formal proposal was not submitted, Trian plans to speak with the company’s board and with other shareholders and potential equity and/or debt financing sources. At the upper end of the proposed range, the deal would value the company at 9.7 times our FY11 EBITDA estimate and 8.8 times our FY12 EBITDA estimate.
- UBS: Buy it. Share repositioning and strong sales growth led FDO to reach a high of $51.81 in early December but the market was underwhelmed by F1Q earnings in January, causing the stock to retreat to $42-$44 perhaps creating a buying opportunity for Trian. Today’s event raises the question as to whether Trian’s bid will be encouraged by FDO management and/or whether this development will prompt others to look seriously at FDO. We note that WMT is worried by dollar stores and is contemplating a small store strategy but pharmacy is believed to be critical to that plan which FDO doesn’t offer and DG could potentially offer significant synergies but debt load may be a barrier.
- DEUTSCHE BANK: Stabilizing. Management believes in share gain from Avonex. Based on the restructuring of Avonex’s sales force and recent unit trends, management believes share loss has stabilised. In fact, Biogen believes it can increase its share this year. If BIIB can stabilise Avonex share loss, we see theoretical valuation at $72.
- BARCLAYS: The stock may have reached its top. We believe gross margins may be at or close to peak given component prices and Application Service Providers could become less favourable. We continue to believe Dell needs to make acquisitions, particular in software. EPS estimates rise primarily due to higher gross margins but we believe it may be difficult to grow EPS.
SIRIUS XM RADIO (SIRI):
- MORGAN STANLEY: Bullish. We continue to see upside to consensus estimates and initial management guidance for 2011 as auto sales recover, driving continued growth in SIRI’s net additions. Further, we believe SIRI remains on a path to generate $1 billion of FCF by 2015 and begin returning capital to shareholders in 2012-13.
TIFFANY & CO. (TIF):
- MORGAN STANLEY: Stock has major pricing power. If inflation is the name of the game in 2011, then TIF is a stock to own. Compared to other retailers, TIF can more easily pass along higher input costs to consumers, given lower purchase frequency and pricing knowledge. Following our meetings with Mark Aaron, president of Investor Relations, we are more confident TIF can offset cost pressures and preserve its gross margin rate. As investors come to share this view, we think they will reward TIF for i ts industry-leading 13-15% annual EPS growth, driving the stock price higher.
GAP INC. (GPS):
- CITI: Eddie Lampert won’t help that much. His new 5.8% stake does not erase our concerns about Gap’s leverage to rising input costs over 2011/2012, but it does raise prospects for a more transformative way to unlock value, and we think that puts a floor on the stock here. His intentions for GPS are not known, it’s long been our view that the company’s current growth and restructuring initiatives are both too small in scope to drive significant value. 4Q10, to be reported next week, should demonstrate that the company has some levers to drive cost reductions. GPS will likely have challenges passing along higher input costs in 2011 and we’re assuming a -200 bps reduction in gross margin for the year. Gap’s balance sheet gives it flexibility to retire more shares and its recent consolidation of outlets into the brands could make a division spin easier.
MARRIOTT INTERNATIONAL (MAR):
- CITI: Spinoff makes strategic and financial sense. Separation should reduce earnings volatility, accounting complexity and capital intensity at MAR. The new timeshare company will need to find an appropriate investor base and be properly valued by the public market. There are still a lot of unknowns that will be disclosed when MAR files Form 10’s in 2Q. The biggest are capital structure and franchise fees paid by the new company to MAR. For now, we assume no corporate debt is allocated to spin-off, and about $20 million of franchise fees.
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