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Thursday’s Upgrades and Downgrades

Here are the recent calls

UPGRADES

Fresenius Medical FMS Stanford Research Sell » Hold
DaVita DVA Stanford Research Sell » Hold
SYMYX Tech SMMX Nollenberger Capital Neutral » Buy
Temple-Inland TIN Lehman Brothers Equal-weight » Overweight
Orexigen Therapeutics OREX JMP Securities Mkt Outperform » Strong Buy
Kaiser Alum KALU Bear Stearns Peer Perform » Outperform
Green Mtn Coffee GMCR Piper Jaffray Market Perform » Outperform
Kinross Gold KGC RBC Capital Mkts Sector Perform » Outperform
General Motors GM Banc of America Sec Sell » Neutral
Charles River CRL UBS Neutral » Buy
Central European Dist CEDC Broadpoint Capital Neutral » Buy

DOWNGRADES

Cree CREE Canaccord Adams Hold » Sell
Gamestop GME Citigroup Buy » Hold
Petrobras Brasileiro PBR Bear Stearns Outperform » Peer Perform
Comp Vale Do Rio RIO JP Morgan Overweight » Neutral
Pepsi Bottling PBG Stifel Nicolaus Buy » Hold
American Financial Realty Trust AFR Stifel Nicolaus Hold » Sell
Ultimate Software ULTI Ferris Baker Watts Buy » Neutral
Capella Education CPLA BMO Capital Markets Outperform » Market Perform
Ceragon CRNT Collins Stewart Buy » Underperform
Dreamworks Animation DWA Pali Research Buy » Neutral
Toronto-Dominion Bank TD CIBC Wrld Mkts Sector Outperform » Sector Perform
Molex MOLX Banc of America Sec Buy » Neutral
Covance CVD Bear Stearns Outperform » Peer Perform
Navteq NVT Banc of America Sec Buy » Neutral
Parker-Hannifin PH UBS Neutral » Sell

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"Fast Money" for Thursday

Thursday’s Picks

Jeff Macke recommended selling KB Homes (KBH). Open $28.72

Karen Finerman preferred BEA Systems (BEAS). Open $13.94

Pete Najarian liked Apple (AAPL) . Open $157.92

Wednesday’s Picks

Jeff Macke liked Johnson & Johnson (JNJ). Open $66.04 Close $66.10 GAIN

Guy Adami recommended Dean Foods (DF). Open $26.41 Close $26.08 LOSS

Karen Finerman preferred Kohl’s (KSS). Open $58.63 Close $60.02 GAIN

Pete Najarian thought PDL BioPharma (PDLI) is going higher. Open $23.24 Close $23.52 GAIN

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 29-19 = 59%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 35-24 = 59%
Pete Najarian= 22-18 = 54%
Tim Seymore= 3-2 = 60%
Karen Finerman= 14-7 = 66%
Stacey Briere-Gilbert= 2-0 = 100%

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Ackman Buying Sears Holding Shares

Good news for Sears Holdings shareholders.

At a charity event in Dallas yesterday William Ackman, the owner of activist hedge fund Pershing Square Capital, told the audience that he owns a 5 million share (3.5%) stake in Sears Holdings Corporation (SHLD) . Unlike Ackman’s large stake in Target (TGT) in which he pushed for a sale of companies the credit card unit, Ackman said was thrilled with the efforts of Sears’ Chairman Eddie Lampert and was looking forward to working with him.

The two have a history as last year, Ackman won a battle against Lampert’s Sears Holdings in the $899 million attempted takeover of Sears Canada. Ackman successfully argued that Sears Canada was worth at least twice what Lampert offered and Lampert was only able to purchase 70% of the company.

Ackman must be planning on being a partner with Lampert. The reason? Lampert at this point must own over 50% of the outstanding shares depending on how much of the $1.5 billion buyback the company completed in the last quarter.

If nothing else, this illustrates the potential in the shares that at $138 a share are vastly undervalued. Sears has been trading in sympathy with both the homebuilders and the financials (Sears is a quazi hedge fund with Lampert’s ability to invest its cash at his discretion) lately and both those sectors have been hit hard. Now that they are rebounding, expect that and the Ackman news to push shares higher.

I have said it before and it bears repeating, if you are buying shares in a company and you have people like Ackman and Lampert buying shares in the open market with you, you have to feel very comfortable with your decision.

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Wednesday’s 52 Week Lows

KG King Pharmaceuticals Inc 11.36
JCI Johnson Controls, Inc 39.39
ISLN Isilon Sys Inc 7.07
IPII Imperial Inds Inc 5.19
HDL Handleman Company 2.69
CLDN Celadon Group Inc 11.02
BYFC Broadway Financial Co … 8.90
BIOF Biofuel Energy Corp 4.81
WSTG Wayside Technology Gr … 12.92
WSOB Watsco 44.40
TMTA Transmeta Corp Del 5.50

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Starbucks Greatest Threat

It really doesn’t matter what management says at this point as their track record in the issue is spotty at best. It isn’t rising coffee, dairy prices or the likely event that 1 billion Chinese tea drinkers will not instantly convert to coffee. It is a red headed guy in a funny suit.

McDonald’s(MCD), after test marketing cappuccinos and iced coffee in various markets, is ready to begin rolling out a makeover of all its U.S. restaurants by 2009 to feature specialty beverages such as coffee drinks, smoothies, energy drinks, and other bottled beverages. It is estimated the move will result in an additional $1 billion in sales for the company.

Selling specialty drinks is the final piece of a vast beverage plan that has taken direct aim at Starbucks (SBUX). In the last few years, the two companies have tried to cut into each other’s core businesses, with Starbucks thus far unsuccessfully adding breakfast sandwiches and McDonald’s selling premium coffee. The strategy has worked for McDonald’s, whose coffee sales have risen 15% since the upgrade last year and has spent the past year testing iced coffee, mochas and cappuccinos in various parts of the country.

In test markets including California, Georgia, Michigan and Texas, specialty coffee has increased customer traffic by 44% a week. Most importantly, the initial tests show the new plan doesn’t require more employees or slow down service. This is again contrary to Starbucks sandwich results in which the additional was fraught with production problems and customer complaints of even further deterioration of service times.

McDonald’s plans to equip 1,500 restaurants to sell the new drinks by the end of 2007, with the rest completed by late 2008. Specialty beverages such as lattes have much higher profit margins than sandwiches. Sales in this new beverage category could rise by 90% in the next five years.

The billion dollars a year in sales are not going to be created out of thin air. They are going to be at the expense of Starbucks and other coffee chains. Obviously it will not be a dollar for dollar offset, but for a company planning to grow 18% a year to have a 13,000 store behemoth selling your products for far more affordable prices, one has to wonder where that growth is going to come from?

One thing is for sure, don’t look to management for a straight answer.

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Wednesday’s Links

Women, Reuters & Blogs, Size Matters, Mississippi

– All females need to read this.

– Just to underscore the growing importance of blogs as major news media looks to lock them up for themselves.

– The case for mega-cap companies today.

– What happens when you stop becoming the preferred area for lawsuits in the country?

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ADP Jobs Report: Perfect

For those hoping for another Fed rate cut but not a recession, today’s ADP Jobs number was just what you wanted.

The report, compiled by forecasting firm Macroeconomic Advisers using ADP’s payroll data covering some 23 million workers, estimates that nonfarm private employment rose 58,000 in September. If government payrolls grew by 22,000 during the month (the monthly average for the year through June), the Labor Department’s Friday report would show a September gain of about 80,000 jobs, the report said. this would be ion par with the 100,000 number economists had expected at the beginning of the month.

That is basically the increase economists expected in August, when payrolls stunned people when they dropped by 4,000 and raised fears of a recession. The September reading “confirms the recent deceleration of employment,” ADP said in its report.

Manufacturing employment dropped by 22,000 jobs, and housing-related sectors took a hit: Construction employment fell by 20,000 and financial-activities sector employment declined by 7,000 as mortgage layoffs continued.

Why is this perfect? Another negative report (job losses) would suggested a recession was either imminent or underway. A “weak” report shows the economy is still growing, albeit at a slower pace. Since inflation is still under control, this sets up a perfect situation for the Fed to lower rates to spur growth. For investors it is good because we now are not so concerned about a recession and earnings collapsing but anticipate a brief pause and then another acceleration as the rate cuts make their way through the system.

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Altria’s PMI Spin: Your Questions Answered.

Here are the answers to many of the questions you may have on the upcoming PMI (Phillip Morris International) spin from Altria (MO).

Q: I own Altria shares. What will I receive as a result of the Spin-off?

A: Altria will distribute one share of PMI common stock for each share of Altria common stock outstanding as of the Record Date for the Distribution.

Q: What is the Record Date for the Distribution, and when will the Distribution occur?

A: The Record Date is , , and ownership is determined as of 5:00 p.m. Eastern Time on that date. Shares of PMI common stock will be distributed on , . We refer to this date as the Distribution Date.


Q: What do I have to do to participate in the Distribution?

A: Nothing. You will receive one share of PMI common stock for each share of Altria common stock held as of the Record Date. You may also participate in the Distribution if you purchase Altria common stock in the “regular way” market and retain your Altria shares through the Distribution Date.

Q: If I sell my shares of Altria common stock before the Distribution Date, will I still be entitled to receive PMI shares in the Distribution?

A: If you sell your shares of Altria common stock prior to or on the Distribution Date, you may also be selling your right to receive shares of PMI common stock. You are encouraged to consult with your financial advisor regarding the specific implications of selling your Altria common stock prior to or on the Distribution Date.

Q: How will the Spin-off affect the number of shares of Altria I currently hold?

A: The number of shares of Altria common stock held by a stockholder will be unchanged. The market value of each Altria share, however, will decline to reflect the impact of the Distribution.

Q: What are the U.S. federal income tax consequences of the Distribution to U.S. stockholders?

A: Altria [has received] a private letter ruling from the Internal Revenue Service and an opinion of counsel that the Distribution of PMI common stock to Altria stockholders will qualify as a tax-free distribution for United States federal income tax purposes. You should, of course, consult your own tax advisor as to the particular consequences of the Distribution to you, including the applicability and effect of any U.S. federal, state and local and foreign tax laws, which may result in the distribution being taxable to you. Altria will provide its U.S. stockholders with information to enable them to compute their tax basis in both Altria and PMI shares. This information will be posted on Altria’s website, www.altria.com/PMIspinoff, promptly following the Distribution Date. Certain United States federal income tax consequences of the Spin-off are described in more detail under “The Distribution—U.S. Federal Income Tax Consequences of the Distribution.”

Q: Is the Distribution tax free to Canadian stockholders?

A: Altria anticipates that the Canadian revenue authority will conclude that the Spin-off is an “eligible distribution” for electing Canadian resident stockholders and thus eligible for tax-deferral. Altria will post the results of the Canadian revenue authority’s determination on its website once such results become available. Absent the tax-deferral, Canadian-resident stockholders would be required to include the distribution of PMI common shares in computing income under the Canadian Tax Act.

The foregoing is for general information purposes and does not constitute tax advice to any Canadian stockholder. Such stockholders should consult their own tax advisors regarding the particular consequences of the Distribution to them, including the applicability and effect of any Canadian federal, provincial and territorial and foreign tax laws and regarding the actions and information necessary to make the required election, in the event that the Canadian revenue authority determines that the Spin-off is an “eligible distribution” for electing Canadian-resident stockholders.

Q: When will I receive my PMI shares? Will I receive a stock certificate for PMI shares distributed as a result of the Spin-off?

A: Registered holders of Altria common stock who are entitled to participate in the Distribution will receive a book-entry account statement reflecting their ownership of PMI common stock. For additional information, registered stockholders in the U.S. should contact Altria’s transfer agent, Computershare Trust Company, at [1-866-538- ] or by e-mail at altria@computershare.com. Stockholders from outside the U.S. and Canada may call [1-781-575- ]. If you would like to receive physical certificates evidencing your PMI shares, please contact PMI’s transfer agent. See “Description of Capital Stock—Transfer Agent and Registrar.”

Q: What if I hold my shares through a broker, bank or other nominee?

A: Altria stockholders who hold their shares through a broker, bank or other nominee will have their brokerage account credited with PMI common stock. For additional information, those stockholders should contact their broker or bank directly. Questions regarding the Distribution can also be directed to our information agent, D.F. King & Co., Inc., at [1-800-290- ].

Q: What if I have stock certificates reflecting my shares of Altria common stock? Should I send them to the transfer agent or to Altria?

A: No, you should not send your stock certificates to the transfer agent or to Altria. You should retain your Altria stock certificates. No certificates representing your shares of PMI common stock will be mailed to you. PMI common stock will be issued as uncertificated shares registered in book-entry form through the direct registration system.

Q: If I was enrolled in an Altria dividend reinvestment plan, will I automatically be enrolled in the PMI dividend reinvestment plan?

A: Yes. If you elected to have your Altria cash dividends applied toward the purchase of additional Altria shares, the PMI shares you receive in the Distribution will be automatically enrolled in the PMI Direct Stock Purchase and Dividend Reinvestment Plan sponsored by Computershare Trust Company (PMI’s transfer agent and registrar), unless you notify Computershare that you do not want to reinvest any PMI cash dividends in additional PMI shares. Contact information for the PMI plan sponsor (Computershare) is provided on page 92 of this Information Statement.


Q: Why is Altria separating PMI from its business?

A: Altria’s Board of Directors and management have determined that the separation will enhance long-term stockholder value by providing the benefits set forth below under the caption “The Distribution—Reasons for the Distribution.”


Q: Why is the separation of the two companies structured as a spin-off?

A: A U.S. tax-free distribution of shares in PMI is the most tax efficient way to separate the companies.


Q: Are there risks to owning PMI common stock?

A: Yes. PMI’s business is subject both to general and specific business risks relating to its operations. In addition, the Spin-off presents risks relating to PMI’s being a separately-traded public company. See “Risk Factors.”


Q: Does PMI plan to pay dividends?

A: Yes. PMI plans to pay a dividend at the initial rate of $ per share per quarter. Dividends are subject to the discretion of PMI’s Board of Directors in accordance with applicable law. See “Dividend and Share Repurchase Policy.”


Q: What will the relationship between Altria and PMI be following the Distribution?

A: After the Distribution, Altria will not own any shares of PMI common stock. However, in connection with the Distribution, we are entering into a number of agreements with Altria that will govern the Spin-off and our future relationship with Altria. See “Relationship with Altria.”


Q: What will Altria own following the Distribution?

A: Altria will own 100% of PM USA and Philip Morris Capital Corporation, as well as its 28.6% economic interest in SABMiller plc.

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Ethanol Glut? I Thought We Couldn’t Make Enough?

Wasn’t the main argument against ethanol “we can’t make enough to replace gas”? So if that is true, how can we have a glut of the stuff?

In 2006 when ethanol was selling on the spot market for $4 a gallon, it was too expensive. Now that it is $1.50 a gallon (almost a full dollar cheaper than gas), it isn’t “economically viable for producers”. Are we just going to change the argument to fit the situation at any given moment?

The price drop has been attributed to too much product on the market (Econ 100). Oversupply is a result of investors pouring money into the sector and new plants springing up across the Midwest (more than 100 in 2007). But thanks to ongoing investments in bringing the product to market, a renewable energy bill that calls for greatly expanding ethanol’s use, and a base price that’s now about 50 cents less than gasoline, experts say ethanol is unlikely to remain in oversupply for long. For big producers like Archer Daniels Midland (ADM) and Verasun (VSE), the current crash in ethanol stock prices may be a opportunity to pick up extra production at rock bottom prices.

“It’s cheap, and you can cheapen the price of gasoline,” said Tom Kloza, an analyst at the Oil Price Information Service. “Everybody is trying to get the logistics worked out so they can have ethanol in their gasoline by 2008.” Gas stations, most of which are independently owned and can make more money on already thin profit margins by using the cheaper ethanol as a blending agent in gasoline. Normal cars can run on a blend of 90 percent gasoline and 10 percent ethanol with no modifications. Using 10% ethanol rather than the 3% currently would save 4 to 10 cents a gallon at todays record high oil prices..

The ethanol industry itself points to the relatively low percentage they have of the current transportation fuels market (3%) as evidence that they have plenty of room to grow. Bob Dinneen, president of the Renewable Fuels Association says, “We’re using 140 billion gallons of gasoline a year, how does 6.5 billion barrels [2007’s projected ethanol production] mean a glut?”

Dinneen says refiners and others who blend gasoline like Exxon (XOM) and Chevron (CVX) are deliberately avoiding using ethanol so they could use more of their product and keep the price of gas high.

Kloza, the analyst from the Oil Price Information Service, said there’s probably some truth to the ethanol industry’s gripes. “If you’re a refiner, you say ‘well, I don’t want to cede 10 percent of my production to ethanol,” he said. They make more money at refineries using the lowest amount of ethanol in gas required by law.

Dinneen said that was the reason to push the federal government to increase the amount of renewable fuel gasoline companies are required to sell. Currently the mandate is 7.5 billion gallons by 2012, a level that’s expected to be reached well before the end of 2008. A proposal that has the support of the president and strong backing in Congress would increase that to 36 billion gallons of renewable fuel by 2030.

Without the gov’t mandate, refiners will not use all the ethanol available and the infrastructure to sell E85 does not exist yet outside the Midwest. Detroit auto makers Ford (F) and GM (GM) have gone on record saying they could produce 1/2 their new vehicles in 2008 as “flex fuel” cars capable on running on up to E85 fuel. But until there are enough stations to make it economical and practical, there is no reason to.

The ethanol is there, the car makers will make cars that will use it, gas stations want it and the US consumer overwhelmingly is demanding it. As long as congress makes the oil companies use it, we all be ok.

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Wednesday’s Upgrades and Downgrades

UPGRADES

Western Refining WNR BMO Capital Markets Underperform » Market Perform
Merix MERX Jefferies & Co Underperform » Hold
ADVENTRX Pharma ANX Dawson James Sell » Speculative Buy
Nextest Systems NEXT Needham & Co Hold » Buy
MRV Comms MRVC Needham & Co Hold » Buy
MKS Instruments MKSI Banc of America Sec Sell » Neutral
Conexant CNXT Roth Capital Sell » Hold
UBS AG UBS JP Morgan Underweight » Neutral
Forest Labs FRX Citigroup Sell » Hold
The Medicines Co MDCO UBS Sell » Buy
Navteq NVT Deutsche Securities Sell » Hold
PDL BioPharma PDLI Wachovia Mkt Perform » Outperform
ProLogis PLD Banc of America Sec Neutral » Buy
AMB Property AMB Banc of America Sec Neutral » Buy

DOWNGRADES

Prospect Energy PSEC Ferris Baker Watts Neutral » Sell
Alon USA Energy ALJ BMO Capital Markets Outperform » Market Perform
ADVENTRX Pharma ANX Fortis Bank Buy » Hold
Navteq NVT JMP Securities Mkt Outperform » Mkt Perform
Navteq NVT AmTech Research Buy » Neutral
Onyx Pharma ONXX Bear Stearns Outperform » Peer Perform
Mobile TeleSystems MBT Bear Stearns Outperform » Peer Perform
Citigroup C Punk, Ziegel & Co Mkt Perform » Sell
FLIR Systems FLIR Needham & Co Buy » Hold
Wrigley WWY Stifel Nicolaus Buy » Hold
Axcan Pharma AXCA CIBC Wrld Mkts Sector Outperform » Sector Perform
Smith Intl SII Calyon Securities Add » Neutral
Natl Oilwell Varco NOV Calyon Securities Buy » Add
XL Capital XL Wachovia Outperform » Mkt Perform
ACE Limited ACE Wachovia Outperform » Mkt Perform
Everest Re RE Wachovia Outperform » Mkt Perform
IDM Pharma IDMI Cantor Fitzgerald Buy » Hold
Biogen Idec BIIB Credit Suisse Neutral » Underperform
Navteq NVT UBS Buy » Neutral
CBS Corp CBS Deutsche Securities Buy » Hold
Syntax-Brillian BRLC Robert W. Baird Outperform » Neutral

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"Fast Money" for Wednesday

Wednesday’s Picks

Jeff Macke liked Johnson & Johnson (JNJ). Open $66.04

Guy Adami recommended Dean Foods (DF). Open $26.41

Karen Finerman preferred Kohl’s (KSS). Open $58.63

Pete Najarian thought PDL BioPharma (PDLI) is going higher. Open $23.24

Tuesday’s Results

Jeff Macke liked Caterpillar (CAT). Open $79.56 Close $79.64 GAIN

Guy Adami said Tesoro (TSO) is a buy. Open $46.77 Close $47.39 GAIN

Karen Finerman preferred YUM! Brands (YUM). Open $34.45 Close $34.27 LOSS

Pete Najarian recommended Terra Industries (TRA). Open $30.50 Close $28.42 LOSS

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 29-18 = 61%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 34-24 = 58%
Pete Najarian= 21-18 = 53%
Tim Seymore= 3-2 = 60%
Karen Finerman= 13-7 = 65%
Stacey Briere-Gilbert= 2-0 = 100%

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Tuesday’s 52 Week Lows

WAYN Wayne Svgs Bancshares … 12.17
WAG Walgreen Co. 39.45
VSE Verasun Energy Corp 10.13
USBE US Bioenergy Corp 7.32
USAK USA Truck Inc 15.10
PH Parker-Hannifin Corpo … 74.28
OPOF Old Point Finl Corp 19.20
OPMR Optimal Group Inc 4.56
CNTY Century Casinos Inc 5.98
CFBK Central Fed Corp 5.00
BIOF Biofuel Energy Corp 5.15
AVR Aventine Renewable Energy 9.65

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Tuesday’s Links

Financial Media, Banks, Blogger Tips, Bad News

– The Mainstream Media likes to bash blogs, but, here is the reason you just cannot take what they say with blind acceptance.

– Chad Brand agrees with me in his post about the Citi warning Monday.

– Here are some tips for bloggers out there.

– This is neither good for business or workers

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Holiday Shopping: Wal-Mart Out of the Gate First

Talk about getting a jump on the other guys. Wal-Mart (WMT) is taking no prisoners this year.

12 weeks before Christmas Wal-Mart got into the game by cutting prices 10% to 50% on its “Top 12 Toys of Christmas,” and signaled more reductions are coming. The move marks the earliest yet start to the holiday price wars. Last year, Wal-Mart announced reductions on more than 100 toys and games in mid-October which was about two weeks earlier than 2005 and came with deeper price cuts.

The cuts will likely put pressure on rivals including privately owned Toys “R” Us and Target (TGT) whose share of the U.S. toy market are about 13% each. Wal-Mart has double that amount and has driven less-efficient competitors out of business in recent years.

A toy is a toy. If you are buying an Elmo doll or a board game for your kids, the place of purchase make zero difference. It is a price decision, plain and simple. We can I get the most for my dollar. What Wal-Mart has done with this move is place themselves at the top of that list in the minds of shoppers. Also, interestingly enough they will capture the Halloween shoppers who will then pick up so Christmas gifts for the kids when they are there.

I was in Wal-Mart yesterday picking up Halloween items and witnessed this very thing. There were several people picking out Halloween items who, when there also picked up an additional item “to put away for Christmas”. These are sales that would not have been realized had Wal-Mart not got off to the early start.

It will be interesting to see how Target responds..

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Altria Spin Documents Filed With SEC- Some Details

Here are some details on the upcoming independent PMI.

Altria’s (MO) subsidiary, Phillip Morris International (PMI) on Thursday took the first regulatory step toward a spinoff of the company’s overseas tobacco business.

PMI filed a Form 10 with the Securities and Exchange Commission, a move expected since Altria’s announcement last month. The cigarette maker said it anticipates making a final decision and announcing the timing of any spinoff at its regularly scheduled board meeting Jan. 30. In it Atria revealed the spin off will be a share for share event meaning that Altria shareholders will receive one share of PMI for each share of Altria they own. I will answer a full Q&A in another post.

Valuation:
In 2006 PMI had net income of $6.1 billion. I use it because 2007 is not yet complete and want to use a hard number. The spin will produce 2.1 billion shares making the initial EPS approximately $3 a share. If we give PMI a 15 multiple (middle of the road) that places the value of it at $91.5 billion dollars and with 2.1 billion shares being distributed that means we get a share price of about $45.

Cash Flow, Dividend and Debt:
Cash flow from operations for the first six months of 2007 was a staggering $4.2 billion. In 2006, PMI paid Atlria $3 billion in dividends. If kept consistent that would equate to $1.42 a share or a yield of 3.1% (assuming the above valuation). in 2006 PMI had a paltry $2.2 billion in long term debt and shareholder equity of $14 billion. If the debt to equity ratio was brought up to 1, bu no means excessive and easily manageable, PMI could easily add an additional $12 billion and change to debt for repurchases and or acquisitions.

A Hidden Tidbit In The Filing:
“We anticipate that our Board of Directors will authorize a share repurchase program based on a prudent balance between our anticipated financial needs and our goal to generate superior returns to our stockholders. Because we are a holding company, our principal sources of funds are from the payment of dividends and repayment of debt from our subsidiaries. Our principal wholly-owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock.”

Letter from CEO Cammilleri:

Dear Altria Stockholder:

As you know,on. ” ” the Board of Directors of Altria Group, Inc. approved the spin-off of Philip Morris International Inc., or PMI, a wholly owned subsidiary of Altria which will be the world’s most profitable publicly traded tobacco company following the spin-off. The spin-off will enable each of Altria’s international and domestic tobacco businesses to focus exclusively on realizing its opportunities and addressing its challenges. Accordingly, we believe the spin-off will build long-term stockholder value.

As a result of the spin-off, each Altria stockholder will receive one share of PMI common stock for each share of Altria common stock held as of 5:00 p.m. Eastern Time on ” ” the record date. The distribution of PMI shares will take place on ” “.

Altria [has received] a private letter ruling from the Internal Revenue Service and an opinion of counsel that the distribution of PMI common stock to Altria stockholders will qualify as a tax-free distribution for United States federal income tax purposes. You should, of course, consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state, local, and foreign tax laws, which may result in the distribution being taxable to you.

If you sell your shares of Altria common stock prior to or on the distribution date, you may also be selling your right to receive shares of PMI common stock. You are encouraged to consult with your financial advisor regarding the specific implications of selling your Altria common stock prior to or on the distribution date.

Following the spin-off, Altria common stock will continue to trade on the New York Stock Exchange under the ticker symbol “MO” and PMI common stock will trade on the New York Stock Exchange under the ticker symbol “ .” You need not take any action to receive your shares of PMI common stock. You do not need to pay any consideration for your shares of PMI common stock or surrender or exchange your shares of Altria common stock.

The attached information statement, which is being mailed to all Altria stockholders, describes the spin-off in detail and contains important information, including financial statements, about PMI.

We look forward to your continued interest and support.

Sincerely,

LOUIS C. CAMILLERI
CHAIRMAN OF THE BOARD