WSJ : Fiat's Move Risks Sticker Shock

Fiat's Move Risks Sticker Shock

A possible new first for Italian engineering: making shares of Fiat suddenly look more expensive.

Under Chief Executive Sergio Marchionne's new plan, Fiat and its Chrysler Group subsidiary will combine into a Netherlands-based holding company, with a U.K. tax domicile and a New York stock listing. Each leg of the structure will confer a benefit for the new Fiat Chrysler Automobiles. The Netherlands has more relaxed board requirements than many other countries. The U.K. offers lower tax rates. And the U.S. has deep capital markets with low borrowing costs.

But along with moving its primary listing to the U.S., Fiat Chrysler might also move its financial reporting to U.S. generally accepted accounting principles, known as GAAP.

This isn't required; the company could also remain on international financial reporting standards, or IFRS. But if the goal is better access to U.S. stock and bond investors, a switch may make sense. On a recent conference call, Mr. Marchionne said the company will "provide U.S. GAAP reconciliation, even if we stick to IFRS as the primary reporting standard."

Unlike international standards, under U.S. accounting companies aren't allowed to capitalize research and development spending. The latter lets a company move some research and development spending from the profit-and-loss statement to the balance sheet. ISI Group analysts reckon that in 2013 R&D capitalization boosted combined earnings before interest and taxes at Fiat and Chrysler by about 60%.

Fundamentally, switching to U.S. accounting would change nothing for Fiat Chrysler. Its cash flow would be the same regardless of which convention it adopts. But its valuation might look less flattering to a stock market that doesn't always stick religiously to the fundamentals.

Fiat's stock trades at about 9.8 times last year's earnings, in the same neighborhood as Ford Motor's F +1.20% price/earnings ratio of 9.3 times and Volkswagen's VOW3.XE +0.72% 9.1 times. But ISI estimates that under U.S. accounting, the company would have actually lost about $50 million in 2013, rather than posting net income of about $1.2 billion at current exchange rates.

Switching accounting might make sense with the stock adopting New York as its home. But it would also offer investors a peek under Fiat Chrysler's hood that makes the price on the windshield look like less of a deal.

Special Situations: SODA ($38.35 TGT $50, long term target $75-80)

Special Situations/Value: SODASTREAM INTL. (SODA)

trade action flash - if you missed Green Mountain, buy SODA
GMCR US: US$38.35; initial target: US$50 - potential long-term target $75-$80.

We recommend buying Sodastream. SODA is a manufacturer of home beverage carbonation appliances. Their machines allow customers to do their own carbonated soft drinks out of plain water - almost as good as the alchemists' quests of making gold out of base metals.
The company IPOed in November 2010 at $20.00. It subsequently raised additional capital at $43.50 in April 2011. The shares peaked first at close to $80 in summer 2011 to then collapse to $30 in 2012. The shares then peaked again at about $75 again in the summer 2013, before collapsing again to the current level. In particular the stock was down more than 25% on January 13 when it announced sharply reduced earnings. However it was up yesterday by over 7% when Green Mountain Coffee Roasters (GMCR) announced a JV deal with Coca Cola for developing competing soda machines. In addition, Coca Cola is to take a 10% stake in GMCR for $1.25bn ($75/sh), sending the shares well above $100. We had been successfully recommending GMCR back in October 2012 when the shares traded at about $23 (and issued a sell in May 2013 with the shares trading at 80. They then corrected down to 60 before the recent surge). Sodastream is a mini version of Green Mountain, with a similar business model, and maybe the same growth. Sodastream, which has been targeted by short-sellers (the short interest in mid January exceeded 50% of the float), just as Green Mountain (they must feel sore), is significantly cheaper than Green Mountain, whether now, or when Green Mountain was at the same stage of development. Although it is significantly less profitable than Green Mountain, Sodastream has essentially the same margins as Green Mountain when Green Mountain was of similar size. It is therefore likely that Sodastream will be able to grow its profitability along with scale. However, in the short-term, the Green Mountain-Coke news may entice Pepsi to form a similar venture with Sodastream and/or take a stake or even buy the company outright. We note that last June, there were rumors of a Sodastream buyout by Pepsi or Coke. These speculations died down and the company started to disappoint explaining the stock's collapse. In terms of valuations, the stock appears undervalued in absolute terms. The company is expected to almost triple its ebitda between 2013 and 2016 while sales could increase by more than 50%. This would signify the beginning of significant margin expansion. If the company managed to increase its operating margins to 15% by 2016, an ev/sales multiple of about 2.0 could be justified, translating into a $75-$80 stock price.
FULL REPORT ATTACHED

>>> Aria : Credit Suisse reiterates Neutral rating, price target raised to $8 fr

Ariad Pharmaceuticals Inc Credit Suisse reiterates Neutral rating, price target raised to $8 from $5
- Firms new post-relaunch survey suggests that physicians view Iclusig as an essential drug for CML patients with T315I or other mutations, or for patients that have failed multiple agents. That said, doctors have become more cautious on the adverse event profile for the drug following the marketing suspension.
- While use is certainly going to be more restricted than initial expectations, firms findings make them incrementally more positive relative to their ber bearish view after FDA removed Iclusig from the market.

(RTR) LEG Immobilien eyes capital increase for larger acquisitions

LEG Immobilien eyes capital increase for larger acquisitions

Feb 7 (Reuters) - German property group LEG Immobilien is confident that the stock market would easily absorb any capital increase to fund a large acquisition of residential real estate.
"We can also fund larger acquisitions through a capital increase," Chief Financial Officer Eckhard Schultz told journalists late on Thursday.
He said the benign share price reaction to the placement of a 28.65 percent stake by the private equity arm of Goldman Sachs at the end of last month showed there was "readiness to provide capital to this business model".
The group would also look to buy asset outside its main market of North Rhine-Westphalia, Germany's most populous regional state. (Reporting by Matthias Inverardi; Writing by Ludwig Burger; Editing by Christoph Steitz)

>>> US Gapping down

Gapping down

In reaction to disappointing earnings/guidance: FWM -19.1% (also announces Chief Executive Officer Herbert Ruetsch will retire; William Sanford, President of co, will assume the role of Interim Chief Executive Officer; downgraded by several analysts), MCZ -17.2%, ELON -15.6% (light volume), EGOV -12.4%, EXXI -11.3%, PXLW -11%, ACET -9.7%, OPEN -9.2% (also acquires Ness Computing for $17.2 mln in cash), ECHO -8%, LNKD -7.8%, NCR -7.1%, IMI -5.5% (thinly traded), HITT -5.2%, STKL -4.9%, (light volume), WYN -3.3%, KIRK -2.8% (light volume), IMPV -2.5%, CI -2%, VRSN -0.8% (also downgraded to Sell from Neutral at Citigroup).

Select financial related names showing weakness: CS -1.5% (downgraded to Neutral from Outperform at Macquarie), LYG -1.3%, DB -1.2%, BCS -0.6%.

A few oil/gas related names showing early weakness: BP -1.1%, TOT -0.6%, SNP -0.4%.

Other news: LPHI -9.4% (following late drop in the underlying stock attributed to appeals court ruling ), CLVS -4.8% (still checking), RNDY -2% (prices public offering of 8,844,339 shares of its common stock at $7.00 per share (co is offering 2,948,113 shares, and certain selling stockholders are offering 5,896,226 shares), AU -1.7% (still checking), GMCR -1.4% (modestly pulling back), SUNE-1.1% (late pullback that was attributed to cautious newsletter mention), SHPG -1.1% (announces results from two Phase 3 studies for Vyvanse (lisdexamfetamine dimesylate) Capsules as an adjunctive treatment for adults with Major Depressive Disorder: Vyvanse did not meet the primary efficacy endpoint in either study).

Analyst comments: AOL -2% (downgraded to Neutral from Buy at BofA/Merrill), IRBT -1.8% (downgraded to Underweight from Neutral at JPMorgan), SBAC -0.5% (downgraded to Neutral from Buy at Citigroup)