Daily Archives: February 3, 2007

McDonald’s Coffee Better Than Starbucks

Consumer Reports says that McDonald’s (MCD) coffee tastes better than Starbucks (SBUX). Starbucks stockholders better hope not, because McDonald’s is on a roll. While Starbuck has begun serving food, McDonald’s is expanding its coffee menu. It was just a matter of time before the two chains got in each others faces.

It is not that Starbucks is having any trouble selling coffee. It just announced a quarter on steroids. Revenue rose 22% to $2.4 billion, and same store sales were up 6%.

Ditto, McDonald’s. Fourth quarter profits doubled to $1.2 billion on an revenue increase of 11% to $5.6 billion. The company plans to open 800 stores  this year.

Starbucks has stated that its long-term goal is to have 40,000 stores worldwide. McDonald’s is close to that number already. The more each grows, the more they will have to go after the same customers. And, physics tell us that people cannot be two places at once.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: February 3, 2007 – 4:26 pm in Food

Google Renegotiating With MySpace?

TechCrunch writes that Google (GOOG) and News Corp’s (NWS) are in negotiations to expand and perhaps extend their agreement for Google to be sole provider of search services for the huge community site. The deal was worth a guarantee of $900 million to News Corp for a deal though 2010.

What is not clear is whether the deal will improves Google’s advantages in the contract. It may be that Google will begin to put display ads on MySpace. It may be that it could offer other Google services to MySpace users.

The thing that is clear is that an expansion of the deal would hardly be good news for Yahoo! (YHOO), AOL (TWX), or MSN (MSFT), all of whom are trying to get back into the search game after a number of quarters of losing share to Google. Fox Interactive Media, which includes the MySpace traffic, had 135.7 million unique visitors in December, according to Comscore.  This makes it the eighth most visited set of web properties in the world, a real prize. Unless Wikipedia decides to partner with a search engine (the non-profit is building its own search function) an expanded Google/MySpace deal just makes Google’s lead harder to cut.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: February 3, 2007 – 1:14 pm in Internet

Wal-Mart Starts The Year In A Sprint

Wal-Mart January sales were up a breath-taking 2.2%. For most retailers that would be mediocre, but WMT has been having 1% growth months for some time now. Wal-Mart itself said that it would do no better than 1% to 2% in January.

Perhaps now the big retailer can stop firing people and pointing figures. Of course, this could only be a one month trend and the recriminations could begin anew in a few weeks.

Wal-Mart has been remodeling its stores in the hopes of bringing in new customers, but whether that is helping is not known.

WMT stock will probably go up Monday, but that would just be a knee jerk reaction.

It’s just one month.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com. He does not own securities in companies that he writes about.

Posted on: February 3, 2007 – 10:55 am in Retail

Cisco Systems Earnings Preview (CSCO) (2)

Cisco Systems (CSCO-NASDAQ) is set to report earnings next Tuesday.While there are many others, this is the biggie for tech heads.  Thisstock was just maintained a BUY at Goldman Sachs this morning inanticipation that it will beat earnings expectations and a belief thatmanagement is likely to re-affirm positive longer-term trends after theclose next Tuesday (FEB 6).  CSCO used to either just meet or beat by atad, but lately they have been beating by a couple cents on EPS.

The street is looking for expectations of $0.31 EPS and roughly$8.28 Billion in revenues.  If the company offers guidance theexpectation is $0.33 and $8.55 Billion next quarter.

This BUY from Goldman is one of the few recent positive calls alongwith an AmTech Research calling it a Buy.  In roughly the last twoweeks CSCO has been downgraded at many large firms: cut to Hold atCitigroup, cut to Market Perform at JMP Securities, Cut to Neutral atBanc of America, and cut to Neutral at Prudential.

It started the November quarter at roughly $24.00 and it hadrecently hit as high as $28.99, and it is up from a $17.10 low in thelast year.  So the valuation comments were the reasons for thedowngrades and many of the analysts had been left holding the bag backin early 2004 when the stock was sniffing at $30.00.  It’s an entirelydifferent company now after some key acquisitions so we’ll see if itcan get back the mojo it recently lost.

As far as other fallout in direct supplier or tied stocks: NetLogic(NETL) has 60% of its business tied to CSCO and Clestica (CLS) also hashistorically been viewed as the EMS company most tied to CSCOmanufacturing.  Cypress Semi (CY) is also the chip stock with muchCisco exposure on a historical basis. 

One important thing to note in other fallout stocks in sectors isthat Cisco has turned into a bifurcated tech stock.  If Cisco’sbusiness is suddenly deemed bad on an unexpected basis then the falloutin the tech sector could continue because they are deemed one of thebrighter spots in tech now.  If they do well it may not lift the entiresector because they are already thought of as an exception to the ruleright now.

Even though the stock has come back in, this is deemed as valuationcalls from analysts who wanted to lock in some gains.  It isn’t asthough the expectations are really looking for a slowdown.  The averageprice target is still $29.00 to $30.00, so keep in mind that at currentprices there could easily be the belief that the great part of theturnaround has happened and it will have to really show massive upsideto keep everyone from using strength to lock in gains until later inthe year.  My partner here has a scenario that could give it a $34.00 target by the middle of the year if things go right, so we’ll have to see how time goes.  This was also noted as Cramer’s #3 Growth Pick for 2007. Cramer also had Cisco as one of his 5 Tech Exceptions for now.

Stay tuned Tuesday, but be sure to watch the "consensus" estimates.It is very frequent that the First Call, Zacks, Reuters and otherschange their consensus matrix ahead of numbers; so if there is a changeby Tuesday that is what the deal is.  We will send an "options trader"expectation on this after the close on Monday because that willeliminate the weekend-premium you’d have to account for between now andthen.

More factoids on Cisco:

Barron’s Online Tiernan Ray says Cisco Is Also CIBC’s Best In Show.

The Scientific-Atlanta merger is paying off big time according to Motley Fool.

Jon C. Ogg

February 3, 2006

Posted on: February 3, 2007 – 8:00 am in Earnings, Large Cap Stocks, Technology Companies