CME, more on TSRA, ILMN, market

First some thoughts on TSRA again -- turns out I have overestimated the revenues but underestimated the margins -- still a net negative adjustment to my 2010 EPS estimates. Ok, so I knew that Cowen was using $3 in post litigation EPS but couldn't figure out how they got there other than assuming a lot of revenues. Turns out they were assuming flat op ex and the incremental revenues which drives much higher margins.

After reading a few different notes I would say the incremental revenues on the first set of actions is estimated to be about $100 mill in annualized revenues -- basically about $280-$290 mill run rate for total annuity revenues for 2008. Add in another $20 mill with the next DRAM related litigation and the $37 mill or so in services revenues and you get the total of about $337-$347. Add in some annual unit growth and the optics biz and by 2010 they should be earning.....about $500 million in revenues. I expect that their EPS would be somewhere between $3.60 and $4 plus they will likely have as much as $10 a share in cash by then. Figure the stock is in the low $80's -- pretty darn good from here but not quite as good as I said before.

CME -- have to hand it to the Citigroup analyst. When the news of a competing futures exchange came out he, like all the others, said no big deal; but unlike all the others, he went out and did some research. He talked to actual traders and other big wigs in the futures markets and realized this was a bigger deal than people thought. First of the year he gave his conclusions -- stock was still in the high 600's. One of his points was that the new exchange's goal wasn't just to lower prices for trading but to break the CME's vertical integration -- meaning split their exchange from their clearing operation. If you sold on his comments you missed a 30% decline in the stock. Who says street research isn't any good!

This is the crown jewel for CME -- this is the reason their operating margins are 60% instead of 20% or 25%. IF they have to get rid of their clearing operation then the stock will collapse even more than it has so far.

I have read their response and I have read some other people's comments and come to the conclusion that its a threat and it should be taken seriously and monitored but it will take either an act of congress or an antitrust action to carry this out. That's a little bigger deal than floating some ideas in a routine letter to the Treasury. We shall see. The funniest line is the part about how the new competing exchange endorsed the DOJ's letter -- no kidding -- more likely the other way around. The DOJ endorsed the competing exchanges ideas.

have to cover the rest later.