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2/10/2010 9:39:15 AM Eastern Time

Bring on the Horses (Final Edition)
By Charles Payne, CEO & Principal Analyst

…airlines aren't charging much for tickets these days but they are more than making it up once they have you captive. Like the free website with a captive audience they have to monetize the work by charging for things. Delta (DAL), United (UAUA), and Continental (CAL) implemented a bag check-in fee increase on February 1. These fees are for first and second bags. US Air (LCC) increased its first bag fee to $23.00 from $20.00 and second bag fee to $32.00 from $30.00. Remember last year when airlines initially began hiking fees as a response to soaring jet fuel costs? Well, those costs have come back down to earth but this bag thing was such a hit it generated $2.0 billion in the third quarter. I get it that dishonesty is the way of the business world but this takes insulting intelligence to another level.

Yesterday, American Airlines announced that it was charging $8.00 for blue fleece blankets and inflatable neck pillows. When I was a kid we used to get a pack of stuff including a deck of cards, a wing pin, cologne (I think Aqua Velva was the favorite), a few post cards, and other items that made it feel like swag for the regular passenger. Airline stocks are moving higher but have a million miles to go to get back to the 1990s run. I don't think that it will happen with dishonest gimmicks.

Long Idea: TIFFANY & CO (TIF) @ $40.79
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Trading Parameters
Entry Price	Entry Limit	Stop Loss	Trading Target	Target	Long-term Target	Options
$40.79	see comments	$34.00	N/A	$55	N/A	N/A
Options Trade Parameters
Type	Option Symbol	Entry Price	Strike Price	Expiration Date
Call	TIT100821C00	$3.60	$40.00	8/20/2010

BACKGROUND: Tiffany & Co., through its subsidiaries, engages in the design, manufacture, and retail of fine jewelry. Its jewelry products include gemstone jewelry and gemstone band rings, diamond rings and wedding bands for brides and grooms, and non-gemstone, gold, or platinum jewelry, as well as sterling silver jewelry. The company also offers TIFFANY & CO. brand merchandise, including timepieces and clocks; sterling silver merchandise, such as flatware, hollowware, trophies, key holders, picture frames, and desk accessories; stainless steel flatware; crystal, glass, china, and other table ware; custom engraved stationery; writing instruments; and eyewear and fashion accessories. In addition, it offers fragrance products under TIFFANY, PURE TIFFANY, and TIFFANY FOR MEN brands. The company serves customers through catalogs, retail sales, business-to-business direct selling operations, and wholesale distribution in the United States and internationally. The company also sells its products through TIFFANY & CO. stores, as well as through department store boutiques in Japan. As of January 31, 2008, Tiffany & Co. operated approximately 206 retail stores worldwide. The company was founded in 1837 and is based in New York, New York.

SKINNY: We continue to like the long-term fundamental outlook for Tiffany & Co., and with the stock off about 15% from its 52-week high (less than the pullback from the 52-week high for other retail stocks) the risk reward is enticing. Our $55.00 price target is modeled on a PE multiple of 21.0x our FY10 P/S base case of $2.55 (consensus: $2.39). The valuation premium relative to the broad market and others in the retail sector is indicative of Tiffany's unmatched brand equity amongst jewelers, strong market share position, and opportunity to expand earnings above consensus forecasts as a result of prior cost cuts and rebounding sales. The high-end jeweler's holiday sales results (November/December periods) showcased improvement across all geographies compared to the inflection point in the business, which was arguably in 3Q09. Moreover, the company raised its FY09 earnings per share outlook, as we expected to be the case, on stronger than planned sales. Now that the holiday quarter confirms that Tiffany is benefiting from a resumption of activity in the high-end consumer set one must cast their gaze forward. In that context, Tiffany has several catalysts in place to drive future upside to consensus earnings in 2010, ultimately in support of a higher equity valuation. We point to (1) shrinking jewelry marketplace that will shift high-end consumer dollars to leading brands, (2) strengthening in the fundamentals of the wealthy class following a year of luxury goods aversion, (3) targeted international new unit growth, and (4) favorable comparable store sales comparisons. As an aside debate, we wonder at what point Tiffany decides to toss in the towel with respect to its Japan operations (19% of annual sales). Japan has historically not been kind to Tiffany despite changes in assortment and strategy, and is now contending with deflationary forces that caps pricing power. Needless to say any paring of the store base or complete exit would be a positive. We recommend a mental stop-loss at $34.00.

Analyst Coverage
HSBC Securities Upgraded to Overweight	Oppenheimer Downgraded to Perform	Wells Fargo Initiated to Outperform