Summaries of Our Recent
Research Findings

February 28, 2008
Ariba (NASDAQ: ARBA - $9.50) Company Update: BUY
Ariba continues to dominate the procurement and sourcing market. With annual sales exceeding $300 million, Ariba has a market share more than three times that of its closest competitor, who, as best we can tell, is privately-held Emptoris of Burlington, Massachusetts. We believe that Ariba is in the eighth inning of a transition from selling primarily perpetual licenses to software subscriptions. Its recent acquisition of Procuri will enable it to cover its flank in the subscription sourcing area, and better maintain prices in the future. In addition, over the last several years has developed a very nice niche in sourcing services that allow manufacturing and services companies to assess the price, delivery and value add of their suppliers. We believe this helps differentiate Ariba in the eyes of its customers. Our sense is that the shares are under-valued relative to other leading players in the enterprise software sector that maintain a high market share in a valuable niche. Accordingly, we maintain our BUY rating on the stock.

 
February 22, 2008
Scholastic (NASDAQ: SCHL - $36.75) Rating Change: HOLD to SELL
Scholastic, with annual sales exceeding $2.4 billion and a market capitalization of $1.4 billion, publishes children’s books and educational materials. The New York City-based company is also a leading developer of K-12 educational technology products. A number of concerns, some new, some longstanding, lead us to downgrade the stock from HOLD to SELL, including: volatility in the children’s publishing division in absence of the Harry Potter series; lack of clarity into divestiture of the continuities business; struggling sales of educational technology products; and a weak balance sheet.

January 29, 2008
VMware (NYSE: VMW - $83.00): Downgrade from HOLD to SELL
Though VMware faces little current competition in the burgeoning virtualization market, Microsoft is moving quickly to develop its products and strategy; its massive customer base and deep pockets will make it a dangerous future competitor in technology, price, and marketing. While VMware’s longer term growth prospects are good, we expect the company to experience a declining rate of growth over the foreseeable future. As a recently-minted IPO, VMware is trading well in excess of 100 times our new EPS estimate of $0.68 for 2008, and about 80 times our 2009 EPS projections. Accordingly, we are reducing our rating on VMware from HOLD to SELL.

 
January 17, 2008
Career Education (NASDAQ: CECO -- $20.63): Rating Change from SELL to HOLD
Career Education, a for-profit, postsecondary school operator based in Hoffman Estates, IL, generated about $1.7 billion in revenues in the 12-month period ended 9/30/07, and has a market cap of around $1.8 billion. Since downgrading the stock from HOLD to SELL on Nov. 6, 2007 at a price of $35.20 per share, the stock has declined by 41 percent. Due to this decline and the removal of a negative overhang on the stock, we are changing our rating on Career Education from SELL to HOLD. However, we continue to be concerned by several issues.

January 9, 2008
Audible (NASDAQ: ADBL—- $8.40): BUY Rating Reaffirmed
With annual sales exceeding $100 million, and a market cap of only $215 million, Audible (NASDAQ: ADBL - $8.60) is the dominant provider of spoken audio content, primarily books and news services purchased over the internet. With a nearly $1 billion annual addressable market in the US alone, Audible is well-positioned to capture share as the market shifts from audio cassettes and CD-ROMs to downloadable books for the Apple iPod, and other mobile PDAs.

Audible maintains a preferred relationship with Apple, through which Audible’s books are purchased through the Apple iTunes online music stores. Sales through the Apple iTunes channel accounted for 29 percent of revenue in the most recent quarter, consistent with the last several quarters. Amazon.com also provides a solid distribution channel for Audible’s products, and may account for something like 20 percent of Audible’s total revenue. These relationships position the company solidly in the event of future industry consolidation. At a recent share price of $8.60, Audible trades at 1.1 times our calendar 2008 revenue forecast of $131 million, when its $71 million in cash is removed from the equation. Attaching a 2.5 revenue multiple to that sales forecast and adding back the $71 million cash on Audible’s balance sheet yields a price target of $16.00 per share—the price at which we believe the company could be acquired. Thus, we reiterate our BUY rating and $16.00 per share price target.

October 19, 2007
Suntech Power Holdings (NYSE: STP -- $46.68): Rating Change – HOLD to BUY
Suntech Power Holdings, a company based in the Jiangsu Province of the People’s Republic of China, makes solar power products, and has trailing 12 month sales of $945 million, and a market cap of $7.5 billion. We believe the company has solid financial standing as the third largest solar product manufacturer in the world. Suntech is also the largest solar company in China, which features a fast-growing market for solar products. Based on these and other factors described in this report, we upgrade our rating on Suntech from HOLD to BUY.