wall street nuggets

VOLT INFORMATION SCIENCES INC [VOL] up 13.8% closing at $54.17 on 62% increase in net income, $0.86 per share compared to $0.54 per share for the fourth quarter last year. However, net sales were only up 3%. Rather high P/E ratio at 33 based on trailing 12 months.

STAGE STORES INC [SSI] jumped 11.5% closing at $33.05 following (1) updated guidance on 2007 earnings that projects a 20% increase over previous guidance, (2) approval of a $50 million Stock Repurchase Program, and (3) a 3-for-2 stock split to be paid as a stock dividend on January 31, 2007 to all holders of record of the company’s common stock at the close of business on January 18, 2007.

INCYTE CORP [INCY] up 11% closing at $7.06 following the announcement of positive clinical results from its HIV and Diabetes programs at the 25^th JPMorgan Healthcare Conference. This was followed by upgrades by UBS from “Neutral” to “Buy” and by Piper Jaffray from “Market Perform” to “Outperform.”

Long standing White Rabbit, CHEESECAKE FACTORY INC [CAKE] jumped 9.9% closing at $26.99 following an announcement that fourth quarter sales had come in at $360.4 million, representing an 18% increase over a comparable 13-week period in 2005. However, earnings continue to be veiled and there is very little visibility into recent operations given the tardiness of the reporting. Comparable restaurant sales were rather unimpressive, increasing only 0.8%.

ALNYLAM PHARMACEUTICALS [ALNY], a leading RNAi therapeutics company, jumped 8.9% closing at $22.22, following the announcement that it had obtained an exclusive worldwide license to a liposomal delivery formulation technology for the discovery, development and commercialization of RNAi therapeutics from a Canadian pharmaceuticals company, INEX PHARMACEUTICALS CORP [TSX: IEX]. RNAi or RNA Interference is a naturally occurring mechanism within cells for selectively silencing and regulating specific genes, and was recognized as a major break through with the award of the 2006 Nobel Prize for Physiology or Medicine. INEX PHARMACEUTICALS has obtained key patents for the development and commercialization of liposomal and/or lipid nanoparticle formulations that are required for systemic delivery of RNAi therapeutics.

APPLE COMPUTER INC [AAPL] soared 8.3% closing at an all time high of $92.57 on extraordinary volume of almost 120 million shares following the announcement of the revolutionary iPhone device due for release in the summer. While we are find the memory options somewhat disappointing, the carrier option (Cingular) disappointing and the price point on the high side, there is much that is compelling and little doubt that it will sell like hot cakes.

SPRINT NEXTEL CORP [S] dropped 11.2% closing at $17.45 on a huge volume of almost 150 million shares. The drop was probably due primarily to the announced decline of 306,000 post-paid subscribers, despite a slight improvement in the post-paid churn rate at 2.3% for the quarter (high compared to other wireless carriers). The planned headcount reduction of about 5,000 in the first quarter may finally reflect some post-merger synergies as the company transitions to a unified customer care, financial systems, device activation, and billing systems. Downgrades by CIBC World Markets, Deutsche Securities, Credit Suisse and HSBC Securities did not help. There is probably an interesting buying opportunity close to this level. The key is probably whether the iDEN network problems are finally solved. Hopefully, they will start to refine the bizarre content of some of the TV ad campaigns based on feedback.

MILLS CORP [MLS] slid 21.8% closing at $14.82 following the announcement that it had completed its investigation into its historical accounting policies and practices. As a result of the adjustments arising in part from the investigation, the company will be restating its financial statements for 2001-2004 and the first 3 quarters of 2005. The expected impact of the corrections is projected to be between $347 and $352 million. It is also noted that the company could be forced to seek protection under Chapter 11 if the company is unsuccessful in its efforts to pay-off the Senior Term Loan by March 31, 2007. See our earlier post:

“And all should cry, Beware! Beware!”

…

And close your eyes with holy dread,

For he on honey-dew hath fed,

And drunk the milk of Paradise.”

From Kubla Khan, by Samuel Taylor Coleridge.

ESCALA GROUP INC [ESCL] tumbled 41.3% closing at $4.54 on the announcement that the company would be delisted by Nasdaq for failure to file financial statements in a timely fashion. There are now about 22 other Nasdaq White Rabbits for which the gap between the last reported period and today is 284 days! (Look at our White Rabbit list for December and focus on the companies for which the Gap value matches that of ESCALA GROUP [ESCL] and the ticker symbol has 4 characters.)

By the way, yesterday’s comments on DYNAVAX TECHNOLOGIES CORP [DVAX] failed to make an important observation. While the failed test of TOLAMBA™ due to the absence of the disease certainly did not provide any evidence that the treatment was not effective, the wasted year of testing probably delayed the final commercialization of the product by that much and probably provided an opportunity for competitors to bring other treatments to market and gain market share – so of course some negative impact on the stock price should be expected. However, the 30% drop still seems a bit excessive for a non-test.

It was a mixed bag on Tuesday but no really strong moves on the part of any one sector. Overall, the average member of the SigmaInverse Universe was up 0.09% with 51.3% of the members posting positive returns for the day. The extremes were Mining, down 1.3% on average. and Restaurants, up 1.5% on average.

LODGENET ENTERTAINMENT CORP [LNET] (Communication) jumped 15.3% closing at $26.75 on the news that it had entered into a definitive agreement with LIBERTY MEDIA CORP to purchase all of the capital stock of ASCENT ENTERTAINMENT GROUP INC which in turn is the owner of 100% of the capital stock of ON COMMAND CORP for $380 million – in cash and 2.05 million new shares of LNET to be issued. ON COMMAND, like LNET, provides interactive media services to approximately 830,000 hotel rooms in North America and also owns 80% of HOTEL NETWORKS INC, the distributor of ad-supported, satellite-delivered TV programming to approx. 300,000 hotel rooms in the U.S. The closing price was obviously significantly impacted by an arrangement with PAR CAPITAL MANAGEMENT INC which agreed to buy 1 million LNET shares for $23.35 per share, which is conditional on the acquisition of ON COMMAND going forward. No significant opportunities are visible.

Software provider, CHORDIANT SOFTWARE INC [CHRD] (Software) dropped 10.5% to close at $2.91 following the announcement of preliminary results for fiscal 2006 and new guidance for fiscal 2007. For fiscal fourth quarter 2006, ended September 30^th, the company expects a net loss of $8.4 million and a net loss of $16.0 million for the year, on revenues of approximately $97.5 million, representing an increase of approximately 16% over fiscal 2005. The company of course is one of the tardy late filers with the SEC – referred to as the White Rabbits on this blog, with a current gap of 258 days since the last date covered in an official filing. With losses widening, a lack of transparency and restatements of financial statements likely soon, we see little upside potential here. The only apparent good news is that apparently cash and equivalents should be up for the quarter. Likely to become an acquisition target at some point.

SIRF TECHNOLOGY HOLDINGS INC [SIRF] (Electronics & Semi) tumbled 11.5% closing at $26.20 in response to speculation by a Jeffries & Co analyst that TOMTOM NV [TMOAF] may have signed a deal with a privately held competitor (GLOBAL LOCATE) of SIRF for the GPS chipset. While the correction is probably excessive, the current P/E (385 based on trailing 12 months) is absurdly high and cannot be justified by the expected growth of 47%, assuming 2006 revenues are anywhere near the expected $243 million.

Daily Sector Performance Chart

Some persistence in the good news on the earnings front buoyed the market despite a bump in oil prices and the market seems to have the potential for a year end rally before we see any major corrections.  For the day, the average member of the SI Universe posted a gain of 0.59%, with 66% of the members posting a positive return for the day.  Significant sector moves were posted by Mining (down 0.7%), Network Technology (up 2.3%, led by REDBACK NETWORKS [RBAK] and POLYCOM INC [PLCM]) and Railroads (up 2.1%, led by CSX CORP [CSX] and NORFOLK  SOUTHERN CORP [NSC], but they were all gainers for the day).   Airlines surely wanted to fly higher but were held back by the spike in oil.

SIRIUS SATELLITE RADIO INC [SIRI] (Communication) dropped 7.7% closing at $3.85 after the company updated its 2006 subscriber guidance to between 5.9 and 6.1 million, reflecting slower sales since the Thanksgiving weekend than had originally been anticipated. The new guidance, however, does imply total net subscriber additions of approximately 2.6 to 2.8 million for the year, or year-over-year growth of approximately 80% to 85%. We see no near-term opportunity, barring the oft speculated merger with XMSR which continues to appear sub-optimal.

ARQULE INC [ARQL] (Pharmaceutical) up 16.6% closing at $6.40 but not seeing any news.

MOVIE GALLERY INC [MOVI] ramped up aggressively by 14.7% on Tuesday, closing at $3.51, with no encouraging news likely. Curious.

URBAN OUTFITTERS INC [URBN] (Retail Apparel) jumped 7.3% closing at $24.31 with no apparent news and volume up about 60% over the average daily level. Trading pattern looks like some large institutional investor(s) took a major position.

CENTENE CORP [CNC] (Insurance) dropped 9.8% closing at $24.30 following a downgrade by GS from “Neutral” to “Sell,” reflecting the opinion that CENTENE’s medical cost projections are too optimistic based on comparisons with other competitors. Actually, we don’t see that much of a difference in the MCR experienced by CENTENE and WELLCARE GROUP [WCG] in the third quarter, for example (82.5% for Medicaid for WCG and 82.0% for Medicaid and SCHIP for CNC). Looks like a very interesting buying opportunity for CNC.

NASTECH PHARMACEUTICAL CO INC [NSTK] (Pharmaceutical) down 15.6% closing at $16.20 on news that its contract with PROCTER & GAMBLE had been amended and that $15 million expected to be received in 2006 would be deferred to a $5 million payment on the initiation of a Phase 2 study and $10 million on the initiation of a Phase 3 study of the new Parathyroid Hormone Nasal Spray, which is under development for the treatment of osteoporosis. Downgraded by FBR from “Outperform” to “Market Perform.” Looks like a speculative but attractive buying opportunity for NSTK if we are reading the PG comments correctly.

Daily Sector Performance Chart

The week continued on a bullish note with the average stock in the SI Universe gaining 0.31%. Just 53.4% of the members posted a positive return for the day, 42.7% posted a loss and 3.8% were unchanged. The Construction sector was up again 1.9% but couldn’t keep up with the Railroad sector which steamed ahead 2.1%.

FOXHOLLOW TECHNOLOGIES INC [FOXH], which develops innovative technology for removing plaque from arteries, took a beating on Thursday, dropping 19.5% to close at $28.90 after announcing third quarter results and lowering fourth quarter guidance. The third quarter results were actually pretty good, with the company reporting revenues of $53.8 million that were up about 49% over the third quarter of 2005. Earnings were $0.26 per diluted share, compared to a loss of $0.06 per diluted share for the same period last year, and easily topping the consensus estimate of $0.12 per share. On the downside, the company indicated that it expects to lose between $0.05 and $0.09 per share in the fourth quarter on revenues of between $54 and $56 million. This includes a stock-based compensation expense of approximately $3 million and an expected one-time charge of $3.5 million involving the assignment of a facility lease. Excluding the special charges, earnings on a non-GAAP basis are expected to be in the range of $0.15 to $0.19 per share. The stock was downgraded by First Albany from “Buy” to “Neutral” and by Piper Jaffray from “Outperform” to “Market Perform.” This now looks to be a very strong buying opportunity.

JUPITERMEDIA CORP [JUPM] was hammered down almost 36% to close at $5.83, a new 52-week low after announcing third quarter results that failed to meet expectations. Earnings for the third quarter were $0.03 per share compared to earnings of $1.15 from continuing operations in the third quarter of 2005, and well below the consensus estimate of $0.08 per share. Revenues came in at $33.8 million, about 6.3% higher than third quarter revenues in 2005. Long-term debt appears too high and revenue growth potential appears very limited, so we do not see an opportunity at this time.

Mortgage banking company, FIELDSTONE INVESTMENT CORP [FICC], fell 23.1% to close at $5.80 after announcing disappointing third quarter results. Obviously hit hard by the housing downturn, the company reported a third quarter net loss of $45.0 million, or $0.97 per share, compared with a net income of $23.0 million, or $0.47 per share (as restated), in the same period last year. Looking ahead, the company indicated it would be cutting its dividend from $1.60 to $1.80 per share to $1.31 to $1.41 per share, a drop of about 21%. The big factors contributing to the loss, relative to Q2, include a $22.6 million increase in provisions for loan losses which is understandable, but the portfolio derivatives loss of $13.8 million and the increase of $10 million in interest expense should be better explained. We do not see any opportunity here.

ERESEARCHTECHNOLOGY INC [ERES], which provides technology and services to the pharmaceutical, biotech and medical device industries, plummeted 22.6% closing at $6.00, after announcing disappointing third quarter results. The company reported revenues of $22.2 million for the third quarter, compared to $20.9 million for the third quarter of 2005, well below the consensus estimate of $23.5 million. Earnings of $0.05 per share were in line with expectations. However, the company’s guidance for fourth quarter earnings of between $0.02 and $0.04 was well below the consensus estimate of $0.08 per share, and revenue guidance of between $18 and $20.5 million is well below the expected $25.9 million and even below the year ago revenue number of $25.4 million. The stock has been upgraded by Carls & Company from “Above Average” to “Buy,” but we do not see an opportunity.

BMC SOFTWARE INC [BMC] jumped 9.5% closing at $32.94 as it announced a strong second quarter, ended September 30^th, for fiscal 2007. Revenues were up 7% to $387 million over the same period last year – with its Business Service Management (BSM) license bookings up 23%. Earnings for the second quarter were $58 million, or $0.28 per diluted share. Adjusting for amortization of acquired technology, stock-based compensation and one-time tax effects, earnings were $0.37 per diluted share which easily topped the consensus estimate of $0.32 per diluted share. The P/E ratio of 41 strikes us as rather high given the current revenue growth rate of about 18%.

URBAN OUTFITTERS INC [URBN] rocketed up 13.3% closing at $21.53 after announcing a fairly strong third quarter. Earnings for the third quarter were $34.5 million, or $0.21 per diluted share, compared to $0.22 per diluted share for the third quarter of 2005, and topping the consensus estimate of $0.18 per diluted share. Revenue for the third quarter was $308.4 million up 6.8% over the same period last year. Helping matters was an upgrade by Roth Capital from “Hold” to “Buy.” Given the high P/E ratio (30.8) and relatively low growth, we do not see this as a opportunity on the long side.

GOODYEAR TIRE & RUBBER CO [GT] bounced up 15.6% closing at $17.54 after announcing a somewhat deflated third quarter. The company lost $48 million, or $0.27 per share, in the third quarter, largely because of restructuring charges that include the closing of a plant in Tyler, Texas. Discounting special charges, earnings would have been $0.42 per share which easily topped the consensus estimate $0.24 per share. It appears there is some strong cyclicality in this stock that calls for some spectral analysis before passing final judgment.

BRIGHTPOINT INC [CELL], which specializes in the distribution of wireless devices and accessories, surged up 15.9% closing at $13.49 after announcing a swing to profitability in the third quarter. Earnings of $0.17 per share compared to a loss of $0.12 per share for the third quarter of 2005 were in line with the consensus estimate. Revenues for the third quarter were $633.7 million, up 16.3% over the same period last year and topping the consensus estimate. Noting negative free cash flow and the company’s revised downward guidance for the fourth quarter revenue (5% to 7% for sequential growth) and a P/E ratio of 34.3, we do not see a buying opportunity here, despite the new Motorola business.

ESSEX CORP [KEYW], which provides signal processing technology for government intelligence and defense customers, jumped 17.9% closing at $23.55 after it was announced that it had signed a definitive merger agreement with a subsidiary of NORTHROP GRUMMAN CORP. [NOC] according to which the company would be acquired by NORTHROP GRUMMAN for $24 in cash per common share. The deal has been valued at $580 million, which includes the assumption of a very small amount of debt (only about $41 thousand at the end of Q3 in long-term debt). Not sure what the other $60 million covers. The acquisition is not expected to have a positive impact on earnings until 2008. Noting the very low P/E ratio on NOC and it an almost non-existent impact on the price of NOC with the announcement of the acquisition, there does not appear to be any significant opportunity at this point.

Daily Sector Performance Chart

The markets were down on Thursday, probably reacting to the oil price increases which crept back above $61 per barrel and what appeared to be a strange delay in assimilating the impact of the midterm elections on “big pharma.” Thursday saw a median loss of about 3% in the “big pharma” group. From our perspective, the election reaction is creating an interesting opportunity because the long-term secular trends are so compelling (aging baby boomers popping more pills) and even if the Democrats are able to bring about some needed change, the industry should easily be able to preserve profits by spending a little less on lobbying.

Across the entire SI Universe of 3,558 stocks, the average loss was 0.75%, with only 28.2% of the members posting positive returns for the day. The outlier sectors today were: Alternative Energy (up 1.3% in response to the higher oil prices), Mining (up 1.4%), Oil & Gas Production (up 0.7%) and Scientific and Tech Instr. (down 2.2%).

Troubled home builder, TECHNICAL OLYMPIC USA INC [TOA] tumbled 35.1% closing at $7.00. It has lost 70% of its value since it opened at $23 per share on May 9, 2006. The latest drop was precipitated by a demand for payment under certain limited guarantees provided by TOA in the financing of a joint venture involving the construction of 3,500 to 4,000 homes a year. In addition, the company’s balance sheet is pretty grim. While the current ratio is a respectable 5.8, it is carrying almost $2.1 billion in inventory and given the current housing situation in Florida, the outlook is bleak. As of the end of the second quarter, there was only $53 million in cash and cash equivalents with current liabilities of $367.6 million. The company also had approximately $1.3 billion in long-term debt at the end of June. On top of it all, despite Mr. Greenspan’s assessment that the housing downturn is over, my estimate is that we still have a long way to go before the bottom is reached. And while many home builders are probably in a good position to survive, my assessment would be that TOA is not likely to be one of the survivors.

HOMEBANC CORP [HMB] dropped 19.3% closing at $3.90, a new 52-week low, after announcing third quarter results and indicating that it would cease operating as a Real Estate Investment Trust (REIT) next year. Third quarter results included a loss of $0.04 per share compared with a loss of $0.01 per share for the third quarter 2005. This was actually a penny better than the consensus estimate of a loss of $0.05 per share. However, the stock was also downgrade by AG Edwards from “Buy” to “Hold.” The move to de-REIT should help the company preserve shareholder equity, allowing it to significantly reduce the dividend yield. The aggressive selling by those insisting on the high dividend yields is apparently creating a very attractive buying window.

ANTHRACITE CAPITAL INC [AHR] was another REIT on the ropes, dropping 17.9% to close at $11.50 after announcing third quarter results. The company reported third quarter earnings of $0.22 per share compared to earnings of $0.28 per share for the third quarter of 2005, which was well below the consensus estimate of $0.30 per share. The stock was downgraded by Friedman Billings from “Outperform” to “Market Perform.” Given the focus on commercial mortgage-backed securities both in the U.S. and international, we see this as a very good opportunity although one should probably wait until the price stabilizes around $10.50.

CROCS INC [CROX] snapped up 7.2% closing at $44.25 as shorts were forced to cover. Too much hype on this one. Be careful.

The nation’s second-largest ethanol producer, VERASUN ENERGY CORP [VSE] surged up 7.7% closing at $18.71 after reporting significant growth in both revenues and earnings for the third quarter. The company reported total revenues of $147.5 million, up 159% over the third quarter of 2005. Net income was $32 million compared to a loss of $205 thousand for the third quarter of 2005. Given the company’s decision to diversify into biodiesel and the swing to profitability, this looks like a very attractive buying opportunity, despite the downgrade by BB&T Capital Markets from “Buy” to “Hold.”

NEUROCRINE BIOSCIENCES [NBIX] jumped 8.5% closing at $8.39 on an upgrade by Robert W. Baird from “Underperform” to “Neutral,” based on some anticipated gains from other products in the pipeline - specifically its GnRH antagonists for the treatment of endometriosis. However, since the company indicated it was only expecting top line results from a Phase II clinical trial in the fourth quarter, I will stand by my previous assertion that some belt-tightening might be prudent for the sake of survival.

INSIGHT ENTERPRISES INC [NSIT], a provider of IT products and services, rose 9.7% closing at $22.37, despite news that it would be delaying its 10-Q for the third quarter pending the results of an ongoing investigation into its stock option awards history. Third quarter revenue of $918.6 million was in line with the consensus estimate of $918.59 million. The press release claims last year’s revenue was $823.6 million for a growth rate of 11.5% year-over-year. There is no 10-Q or 10-K that I can find with this number although the company did revise some annual numbers including Software Spectrum in a recent 8-K. The actual revenue reported last year was $844,049,000, and we can find no amendment to this filing, so the actual growth rate would appear to be 8.8%. Not feeling there is much reliability in these numbers (even the top line), I would exercise extreme caution.

Online provider of wireless products and services, INPHONIC INC [INPC], shot up 21.5% closing at $10.98 after announcing improved third quarter results. Third quarter revenue was $102.2 million compared to $92 millon for the same period last year, and topping the consensus estimate of $101.13 million. The company announced a loss from continuing operations for the third quarter of $4.9 million or $0.13 per share. Excluding special charges, the loss would have been $0.03 per share which is a significant improvement over the loss of $0.14 per share for the same period last year. Adjusted earnings before taxes (EBT) of $0.16 per share was also reported for the quarter. The company’s guidance for the fourth quarter is for revenue to be in the range of $115 to $125 million, which is slightly better than the current consensus estimate of $118.04 million. Also helping was an upgrade by Deutsche Securities from “Hold” to “Kaufen.”

Daily Sector Performance Chart

The average gain in the SI universe today was a modest 0.14% with very little change in the micro-stocks on Tuesday. Just 50.6% of the stocks posted positive gains for the day versus 46.4% posting losses. The big sector moves for the day were Alternative Energy (up 2.5%) and Mining (down 1.3%).  It will be interesting to see whether the election results have any big impact on the markets tomorrow.  With the possible exception of the Pharmaceuticals, it does seem very unlikely that there will be much of an impact in the short-term.

ADOLOR CORP [ADLR] could not avoid the pain and anguish of the dreaded FDA “approvable” letter, dropping 44.8% to close at $7.69. The company’s leading New Drug Application (NDA) for Entereg® has been seriously delayed due to the FDA’s request for additional safety studies. The drug is designed to treat both the slow return of gut function that sometimes results from GI or other surgeries as well as opioid-induced bowel dysfunction, resulting from the chronic use of opioid analgesics. While the safety study on Entereg submitted by GlaxoSmithKline in late September 2006 indicated an increase in the reported incidence of serious cardiovascular adverse effects in patients receiving the drug relative to placebo, the increase was not statistically significant, so the FDA is withholding final approval pending 12-month safety data, including an analysis of serious cardiovascular events. We are definitely in the tail of the distribution on daily returns here and it there is likely a very strong buying opportunity UNLESS the company is unable to survive the delays implied by the “approval” letter. In this case, the company has a little over $200 million in cash and short-term investments and a burn rate of about $17 million per quarter for the first 9 months. The company is generating about $5 million per quarter in contract revenue, so with some belt-tightening, survival should be possible. Unfortunately, there does not appear to be much else in the pipeline.

OVERSTOCK.COM INC [OSTK] was crushed, ending down 17.9% to close at $14.59, a new 52-week low, after reporting dismal third quarter results. Revenue for the third quarter was $158.7 million, down 6% compared to the third quarter 2005. The company reported a net loss of $24.5 million or $1.19 per share compared to a net loss of $12.4 million or $0.66 per share for the same period last year. Looking at the online traffic pattern (below), it appears that the steady decline through 2006 has finally stopped, but actually by this time last year the end-of-year seasonal surge had already begun, and yet we see no evidence of a fourth quarter pop on the radar yet! The company appears to have its act together this year in terms of handling traffic and doing a better job of inventory management. It also would appear to be achieving more brand recognition. However, it still seems to be seriously misfiring in targeting and conversion. Perhaps its outsourcing of these functions might lead to better execution, but so far there is no evidence of progress on this front!

ARRIS GROUP INC [ARRS], which provides communications products and services to cable system operators and telecommunications provides, slipped 9.5% closing at $11.49 after announcing that it would be offering $225 million of convertible senior notes due 2026 through a public offering. The proceeds of the offering appear to be intended to fund future acquisitions, although nothing specific is mentioned. Not knowing the target, but assuming future dilution seems likely, we are reluctant to view this as a buying opportunity at this time. Note also that the company appears to have considerable risk associated with customer concentration, having 68.3% of its revenue from four customers (Comcast, Libert Media Intl., Cox Communications, and Time-Warner Cable) in the third quarter.

PALM INC [PALM] slipped 7.6% closing at $14.24 following the announcement that NTP INC had filed yet another patent infringement suit. If it weren’t for the fact that PALM appears to have its hands full with competing with the new Pearl, we would say this a great buying opportunity for PALM since it appears from this vantage point that the patents claimed by NTP are likely to be invalid.

XM SATELLITE RADIO HOLDINGS INC [XMSR] rocketed up 15.6% closing at $13.17 as it beat expectations by posting an $84 million loss for the third quarter, down 36% from the loss posted in the third quarter last year. Revenue was up 57% year-over-year, coming in at $240 million and it ended the quarter with 7.185 million subscribers. The company’s new guidance for subscribers by the end of the year is between 7.7 and 7.9 million!!! I find this once again very disappointing, as the new guidance range slips closer to the bottom end of the previous guidance (7.7 to 8.2 million).

TRAFFIC.COM INC [TRFC] took the fast lane shooting up 20.3% to close at $7.40 on the news that it had entered into an agreement with NAVTEQ [NVT] to be acquired for $179 million ($47 million in cash and the remainder in stock). Given the TRFC financials, it appears it will be a very long time before this deal is accretive to NVT earnings and I would not consider NVT to be a buying opportunity at this time, despite some obvious strengths on other fronts.

OUTBACK STEAKHOUSE INC [OSI] was up a bloomin’ 22.6% closing at $39.75 on the news that it had agreed to a buyout by a private equity group for about $3 billion. The group involved Bain Capital Partners LLC and Catterton Partners, in addition to company founders. The deal involves a buyout price of about $40 per share plus the assumption of about $185 million in debt.

SWIFT TRANSPORTATION CO INC [SWFT] soared 24.1% closing at $29.84 after a press release was issued indicating it had received a letter from Jerry Moyes, the company’s largest shareholder, a current director, and CEO, proposing to acquire all of the company’s outstanding stock in an all-cash transaction at a price of $29.00 per share. More confirmation that the landscape is littered with nuggets… With so many of these buyouts coming from people who obviously know the real value of the company’s, there can be little doubt that significant value opportunities are available in the market today.

FOUR SEASONS HOTEL [FS] jumped 29.2% closing at $82.50 on the news that it had received an offer for $3.7 billion ($82 per share) from a private equity group that includes Isadore Sharp, the hotelier’s chairman and CEO.

KOS PHARMACEUTICALS INC [KOSP] kicked up 53.8% closing at $77.06 on the news that ABBOT LABS [ABT] had agreed to pay $78 per share in cash in a deal valued at about $3.7 billion. KOSP is a pharmaceutical company specializing in the treatment of chronic cardiovascular, metabolic and respiratory diseases. Its major product is Niaspan® which is taken to raise HDL (good cholesterol) levels.

Daily Sector Performance Chart

All sectors were in positive territory for the day, with the average member of the SI Universe posting a gain of 1.2% and significant gains across all size ranges - large to micro-caps.  About 77% of the members in the SI Universe posted positive returns for the day.  The outliers were Restaurants (up 2.6% on average) and Travel (up 2.7% on average).

TREX CO INC [TWP] was decked, dropping 20.9% to close at $20.90 after announcing third quarter results that fell short of expectations and revising downward its guidance for 2006. Earnings for the third quarter came in at $4.6 million or $0.31 per diluted share, compared to $0.35 per diluted share for the same period last year and well below the consensus estimate of $0.36 per diluted share. The revised guidance for 2006 was for full-year net sales to be in the range of approximately $320 to $330 million, which is well below the current consensus estimate of $348.15 million. P/E ratio is too high to see a buying opportunity yet.

INTERDIGITAL COMMUNICATIONS CORP [IDCC] tumbled 15.7% closing at $30.13 after announcing strong third quarter results. Earnings for the third quarter were $21.7 million or $0.40 per diluted share, which easily topped the consensus estimate of $0.36 and were up 264% over the same period last year. Revenue for the third quarter was $67.2 million, up 38% over the same period last year, and certainly in line with the consensus estimate of $67.82 million. Given the rather high P/E, and lack of revenue growth, there does not appear to be a strong opportunity here yet. The guidance for the fourth quarter calls for operating costs, excluding patent arbitration or litigation costs to grow by 7% to 12%, sequentially. The company does not usually provide revenue guidance until it has received and reviewed royalty reports. Another wild card is the filing yesterday with the Intl. Chamber of Commerce (ICC) by SAMSUNG, seeking to have the ICC establish new retroactive royalty rates based on the NOKIA ruling from June 2005, and thus avoiding complying with the September 2006 Arbitration Award of $134 million to IDCC. To the non-expert, it appears SAMSUNG is unlikely to succeed here and there is relatively little risk for IDCC. I am inclined to view this as a very strong buying opportunity.

PAPA JOHNS INTERNATIONAL INC [PZZA] plunged 11.9% closing at $32.33 after reporting third quarter earnings of $0.40 per share, up 29% from third quarter earnings of $0.31 in 2005. While quarterly same store sales were up 4.5%, the same store sales for the four weeks ended October 22, 2006, were down 1.8%. The company also announced that December 2006 will be the last month that it reports monthly domestic comparable (same-store) sales results. The monthly comps are of course very volatile and few observers recall the previous year’s weather patterns and events well enough to extract a meaningful signal from the data. Starting in 2007, the company will report domestic comparable (same-store) sales results on a quarterly basis, matching the reporting methodology of the competition. Our assessment is that Wednesday’s drop created a strong buying opportunity, and we are very impressed with expansion on the international front – especially in Korea and China.

Clothing brand licenser, ICONIX BRAND GROUP INC [ICON], dropped 11.8% closing at $16.44 following a series of announcements. Third quarter earnings of $0.18 per share beat the consensus estimate of $0.16 per share. Licensing revenue for the quarter increased to $22.1 million, compared to $9.2 million for the same period last year. The company also announced that it would be offering approximately $150 million additional shares of common stock to be used primarily in the repayment of indebtedness incurred with the acquisition of MOSSIMO INC and the pending acquisition of the Ocean Park brand. Given the lack of major movement of CHEROKEE INC [CHKE] regarding the news of the termination fee paid by ICON as a result of the MOSSIMO INC purchase, it appears unlikely that this event had any material impact on ICON.

CVS CORP [CVS] dropped 7.4% closing at $29.06 following the announcement of the acquisition of (merger with) pharmacy benefits manager CAREMARK RX INC [CMX], with an exchange ratio of 1.67 shares of CVS for each share of CMX. With no premium being offered to CAREMARK, there would appear to be a high probability that this acquisition/merger will not go forward.

HUDSON HIGHLAND GROUP [HHGP] surged ahead 28.2% closing at $14.99 and ADMINISTAFF INC [ASF] rose a remarkable 14,4% closing at $39.40 due to strong quarterly results. HHGP reported earnings from continuing operations of $4.0 million or $0.16 per share, compared with $0.00 per share for the same period last year. The consensus estimate had been only $0.05 per share. ASF reported earnings of $0.43 per share, compared to $0.26 per share for the same period last year, easily beating the consensus estimate of $0.39 per share. Note, however, that KFORCE INC [KFRC] was down 11.16%, BARRETT BUSINESS SERVICES INC [BBSI] was down 4.2%, MPS GROUP INC [MPS] was down 3.7% and ON ASSIGNMENT INC [ASGN] was down 3.5%, so the sector was not up uniformly. I believe that the HHGP and ASF surges are assuming the “soft landing” scenario, which seems very unlikely at this time.

The Daily Sector Performance Chart

With generally grim economic news, the average loss in the SI universe for November 1st, was -2.82%, with only 19% of the members posting positive returns for the day. The Tobacco sector was the only contrarian, posting a positive return of 2.4% on average for the day.