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January 28, 2008 Issue Posted January 17, 2008, 5:00PM EST

Inside Wall Street

New York Times: A New Read

Wall Street has had a thumbs-down on the storied New York Times Co. (NYT) (NYT) as if it were stopping the presses for good. With four analysts now rating it a sell and five neutral, its stock has been in a tailspin, sliding from 53 in 2002 to 15.39 on Jan. 16, 2008. But some investors sniff a bargain, convinced that a turnaround is due in 2008. "It beat revenue forecasts in the last quarter, distinguishing itself from its troubled peers," says James Peters of Standard & Poor's (MHP), one of just three analysts who rate the stock a buy. He believes Times Co. will do better than other pure-play peers exposed to cyclical and secular challenges in the print publishing industry, in part because of the company's "above-average revenues and revenue growth" aided by its fast-growing Internet operations. Times' strong franchise has enabled it to become a popular source of information online. It is among the top 10 most widely read publications on the Net, producing 11% of total Times revenues, vs. about 7% at its peers, says Peters. He also expects higher revenue from circulation sales, following a price increase that took effect in the third quarter. New print outsourcing contracts, plus lease revenues from the company's new headquarters, will help top-line growth, says Peters. He is encouraged by the cost-cutting moves the publisher made in 2007, and management's plans to reduce annual costs by an additional $230 million by 2009. Times Co., which has a dividend yield of 5.75%, owns The International Herald Tribune, The Boston Globe, 14 other dailies, a radio station, and search engine About.com. Peters sees the stock rebounding to 23 in a year.

Paul Sutherland, president of Utopia Funds, which owns shares, says the Times is one of the few remaining diversified global news-gathering companies and should rebound regardless of how the economy is faring. Edward Atorino, a veteran media analyst now with investment firm Benchmark, has upgraded the stock to a buy because of its "attractive valuation and prospects for a turnaround." Its flagship paper, which he says "occupies a premium position in the market," has put in place new revenue-boosting initiatives, including the expansion of capacity to use more color ads, and has added more special magazines to its newspapers and online. The stock is cheap, says Atorino, trading at 11 times his 2008 earnings estimate of $1.35 a share.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

The Skinny on Smart Balance

From an upstart in the crowded healthy foods market, Smart Balance (SMBL) (SMBL) has become a fast-growing consumer company with annual sales growth of 35%. Sales have been driven by its "naturally trans-fat-free margarine" that uses a proprietary vegetable oil blend, says Jon Andersen of William Blair, which has done banking for the company. In the past three years the number of U.S. households using Smart Balance's products doubled, says Andersen, who sees profits of 23 cents a share in 2008 and 38 cents in 2009, up from 2007's estimated 19 cents. He projects Smart Balance's three-year annual sales and earnings growth at more than 30%.

Analysts are impressed with Smart Balance's seasoned management. Before joining Smart Balance, CEO Stephen Hughes helped spearhead the rise of such top food brands as Healthy Choice, Tropicana, and Silk. "That gives us confidence about the company's long-term growth prospects," says Robert Atchison of investment fund Adage Capital Partners, which has accumulated a 10% stake in Smart Balance. He sees the stock, now at 9.78, doubling, to 20, in two years.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

Why the Street Is Keen on Keryx

Tiny biotechs with no product yet on the market don't usually command Wall Street's attention. But Keryx Biopharmaceuticals (KERX) (KERX) has won buy recommendations from 11 analysts, and no sell rating. Why?

Keryx's leading drug, Sulonex, is in Phase III clinical trials for the treatment of diabetic kidney disease. An independent review panel found no issue with its safety or efficacy, "which means it won't be derailed by any such issues in clinical trials," says Navdeep Jaikaria of Rodman & Renshaw (RODM), who rates Keryx "outperform," with a 12-month price target of 20. The stock has declined from 13 in January, 2007, to 7.51. The $1 billion potential of Sulonex, says Jaikaria, makes it an attractive acquisition target. Cory Kasimov of JPMorgan Chase (JPM), who also rates Keryx (a client) overweight, expects favorable data when results of current Phase III trials are announced in March. He says the treatment of diabetic kidney disease "offers a large, untapped market opportunity" for Keryx, in part because roughly 40% of diabetics, he notes, suffer from nephropathy, a progressive kidney disease.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—By Gene Marcial

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