March 26, 2007 BARRON'S 45 852077 852094 O’Leary Enter …online.wsj.com › public ›...

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SHARES OF WORLD WRESTLING ENTERTAINMENThave been smacked down 13.4% in the past 10 months, to15.60, as some of the company’s television superstars,including “The Rock,” have defected to Hollywood.But better days could lie ahead for the Stamford,Conn., provider of wrestling-related products and en-tertainment (ticker: WWE), especially if it wins sev-eral lawsuits filed in recent years against licensees italleges have illegally acquired the rights to its nameand franchise.

Though World Wrestling has mentioned thesesuits—against videogame-software publisher THQI(THQI) and a joint venture controlled by THQI andtoy maker Jakks Pacific (JAKK)—in its regulatoryfilings, you won’t hear much about them on the compa-ny’s quarterly conference calls. That’s all the more

reason for investors to turn to Nick Rodelli, an ana-lyst at the Center for Financial Research and Analy-sis and head of the forensic-accounting firm’s newLegal Edge research service. Rodelli, who joinedCFRA last fall, specializes in dissecting legal “events”likely to influence companies’ earnings and shares.

“Litigation has always been out there, but in thewake of Sarbanes-Oxley, legal issues have becomemore prevalent,” says Rodelli, 34, a former corporatelitigator, Securities and Exchange Commission lawyerand legal analyst for a hedge fund. “More often thannot, the shares of companies with outstanding legalissues are mispriced because they fail to reflect thepotential negative or positive impact of recurring is-sues. Awareness of mispricing can be the differencebetween profit and loss for an investor.”

For World Wrestling, which derived almost afourth of its 2006 revenue from licensing, a win incourt “could provide a significant, recurring boost tofinancial results, specifically a 14% to 22% increase inearnings before interest and taxes.

An indication that things are moving in the rightdirection for the plaintiff could come within a fewmonths if the company succeeds in defeating a pend-ing motion to dismiss its federal racketeering suitagainst the THQI-Jakks joint venture. “Such anevent may provide the catalyst for investors to be-gin reassessing World Wrestling’s earnings power,based on expectations of a higher royalty-incomestream from WWE-branded videogame sales,”Rodelli observes.

CFRAwas founded in 1994 by Howard Schilit, a formeraccounting professor at American University, andquickly attracted a faithful following on Wall Street byspotlighting questionable accounting and bookkeepingpractices at publicly traded corporations.

Short sellers, in particular, came to rely on thefirm’s research, which helped expose problems at NewCentury Financial (NEWC), Delphi (DFG), KrispyKreme Doughnuts (KKD) and Shuffle Master(SHFL), among others. In an admiring profile twoyears ago, Barron’s called CFRA “one of the trueleaders in forensic accounting” (“Super Sleuths,” Feb.28, 2005).

The legal issues affecting corporations have multi-plied in recent years, in part because of greater regu-lation, more attention to corporate governance andthe growing importance of technology in numerousbusinesses. Yet the risks and opportunities inherent inlegal decisions are even less understood by equityanalysts and investors than accounting issues.

“We try to provide a real-time perspective on

Rodelli joined the Center forFinancial Research and Analysisin 2006, and heads its newLegal Edge research service.

by Neil A. Martin

World Wrestling, AmericanExpress and Qualcomm couldbe helped by court cases.MasterCard and Sherwin-Williams could be hurt.

Chris

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Long Arm of the Law

The Bottom Line

The shares of companies with outstanding legal issues often are mispriced.Enter Michael Rodelli, who helps investors separate opportunity from risk.

28 B A R R O N ' S March 26, 2007

Angelo MoziloCountrywide Financial, CEOsince ’98

Why: Mortgage Master

Mortgage lending may lookeasy, but as many a trou-

bled subprime lender can now at-test, it’s not easy to do it well.

Mozilo co-founded Country-wide in 1969 and eventuallymade it America’s biggest writerof home loans. In the process,Countrywide also became one ofthe top loan providers to peoplewith damaged credit.

Now, Wall Street is understand-ably concerned, given the wreck-age in the $1 trillion subprime mar-ket. Countrywide shares havefallen to 36 from a 2006 peak of44. But Mozilo, 68, argues hissubprime exposure is manage-able, and there’s good reason tobelieve him: He’s a straight talker with a strong grasp of hismarkets. Since 2000, he boosted his share of the mortgagemarket to 16% from 6%, diversified deeply into non-mort-gage financial businesses, and grew profits by a factor of five.

His pay—about $23 million in 2005—is hardly subprime.It’s arguably too high. Then again, his investors aren’t doingtoo shabbily: The stock is up four-fold in seven years. —A.B.

Franck RiboudGroup Danone, CEO since ’96

Why: Leading regional dairy to glo-bal heights

Whoever thought you couldmake a mint out of milk

and cookies? That’s just what Ri-boud has done for his sharehold-ers.

Riboud, who took the reinsover a decade ago, has trans-formed France’s Danone from a re-gional purveyor of dairy productsand biscuits to a food and bever-ages powerhouse, with globallyrecognized brands like Evian bot-tled water and Dannon yogurt.

Danone under Riboud has con-sistently led its peers in sales,with internally generated growthin the high single digits. That hasgiven the company’s shares aleading price-to-earnings ratioand an almost permanent buyout premium.

Riboud and his team consistently lead the pack in innova-tion. That has been evident in their strong push in recent yearsof ingredients like “probiotics,” which include micro-organismsthat are claimed to enhance health. What’s indisputable is thestock’s performance on his watch: a total return of nearly400%, roughly 50% better than France’s main index. –V.J.R.

Michael O’LearyRyanair Holdings, CEO since ’94.

Why: Brings a breath of fresh airto Europe’s travel industry

It has long been predicted thatRyanair, which invented the no-

frills industry in Europe, wouldeventually succumb to competi-tors or run out of growth. It’s notabout to happen. Just lastmonth, the Dublin-based carriersharply raised its profit guidancefor the year ending this month toŒ390 million—a gain of 29% fromthe previous year.

Shareholders can thankO’Leary. As a combative, no-holds-barred defender of free markets,he tangles with governments, reg-ulators, rivals and unions withequal brio. His latest plans: a bigexpansion in Germany and theopening of 16 new routes. By2012, he intends to double the airline’s total traffic from thisyear’s projected 42.5 million people. He already has more pas-sengers than any other airline in Europe.

Ryanair’s stock has returned more than 1,000% over thepast 10 years. And the company now is considering a Œ300 mil-lion distribution in the form of either a special dividend or ashare buyback. It’s not the luck of the Irish. —V.J.R.

Peter RoseExpeditors International, CEOsince ’88

Why: Putting a new freight com-pany on the map

Founded in 1981 with just$300,000 in seed money, Expe-

ditors International has becomean enormous but little-known suc-cess story in freight transporta-tion, with sales last year of $4.6billion and a market value ofnearly $10 billion

Rose, one of the original inves-tors, is a maverick with a sharptongue. As rivals grapple withmerger integrations, he focuseson internal growth. “Why shouldwe buy what we can kill,” he re-portedly has said. He also has littleuse for talking to analysts: “Wedon’t work for Wall Street—thecompany isn’t for sale.”

But the Street likes Expeditors anyway: The stock, which hasclimbed from a split adjusted 20 cents to $43 in Rose’s tenure,trades at a lofty 34 times estimated 2007 net.

Expeditors’ specialty is global logistics, not hauling freight. Itarranges for air and ocean freight transportation for shippers andtracks cargo every step of the way. Rose calls it a “travel agent forfreight.” For investors, it’s been a ticket to riches. —A.B.

Rupert MurdochNews Corp., CEO since ’53

Why: The old lion gets wired

Always controversial, Mur-doch has survived long

enough in the white-hot, competi-tive world of global media to sud-denly become respectable.

His company’s Fox broadcastnetwork, a conglomerate he puttogether in the face of muchderision, is now garnering topad dollars by virtue of hitshows like American Idol and24. Fox News controls the cable-news universe. At the start ithad to pay for its cable carriagebut no more. Cable companiesnow have to pay up for thisdominant outlet. The Fox moviestudio is also thriving from newreleases and DVD sales.

And no media boss has donebetter negotiating the change from print to cable and the In-ternet. His purchase of MySpace, the social network with 160million users, is starting to pay off. And last week, News Corp.and NBC Universal teamed up to start a video Website likeGoogle’s YouTube.

Murdoch is above all tenacious, surviving a near-deathliquidity crisis in the early ‘90s to emerge, in a word, tri-umphant. –J.R.L.

Steven RothVornado Realty, CEO since ’80

Why: He may take Manhattan

The normally low-profile Rothgrabbed headlines in January

when Vornado made a failed11th-hour bid to buy Equity Of-fice Properties, the giant officeREIT that eventually went to Black-stone Group. Roth showed cus-tomary financial restraint in back-ing out when he felt the price forEOP got too high.

Sound judgment has come inhandy for Roth during two de-cades of building one of Manhat-tan’s biggest commercial real-es-tate empires. Vornado is now oneof the most powerful companiesin the hot sector of real-estate in-vestment trusts.

Reflecting Roth’s value orienta-tion, Vornado’s Manhattan prop-erties are concentrated around Penn Station, one of the leastdesirable parts of Midtown. Roth is betting on a transforma-tion of the area, which includes Madison Square Garden.

Roth wishes he had bought more properties in recentyears, given the price run-ups. With Vornado sitting on a siz-able cash pile, it may only be a matter of time before he findsa big deal to like. –A.B.

CFC / NYSE

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Annualized Price ChangeOne Year 11.2%While CEO 15.3%S&P 500 5.7%2007 P/E 8.55-Yr. Profit Growth 21.0%

Annualized Price ChangeOne Year 28.9%While CEO 15.1%S&P 500 7.2%2007 P/E 29.35-Yr. Profit Growth 19.2%

Annualized Price ChangeOne Year 50.4%While CEO 28.9%S&P 500 13.7%2007 P/E 24.05-Yr. Profit Growth 22.1%

Annualized Price ChangeOne Year 23.4%While CEO 16.0%S&P 500 9.1%2007 P/E 22.15-Yr. Profit Growth 13.6%

Annualized Price ChangeOne Year 15.3%While CEO 27.7%S&P 500 11.8%2007 P/E 35.55-Yr. Profit Growth 20.0%

Annualized Price ChangeOne Year 42.9%While CEO 24.1%S&P 500 10.7%2007 P/E 23.35-Yr. Profit Growth 9.0%

March 26, 2007 B A R R O N ' S 45