Daily Archives: July 18, 2007

Devon Energy Forms MLP To Pay Down Debt (DVN, SGLP)

Devon Energy (NYSE:DVN) shares traded up more than 4% after announcing that it will form a master limited partnership (MLP) in the third quarter of 2007 by issuing partnership units in the company’s U.S. midstream and onshore marketing assets. The chief asset is Devon’s gathering and pipeline system around the Barnett Shale natural gas play near Ft. Worth, Texas. All told, DVN owns midstream assets including 2,700 miles of pipeline, two gas processing plants with a total capacity of 680 MMcf/d, and an NGL fractionater with a capacity of 15,000 b/d.

Devon’s Fiscal 2006 margin from its marketing and midstream operations totalled $448 million, essentially flat with FY2005. It expects the margins to be roughly the same in 2007, from revenue of $1.71B – $2.1B, and expenses of $1.31B – $1.67.

This is pretty small beer, as pipeline MLPs go. But investors seem to like them because an MLP’s tax advantage: income is not taxed at the corporate level, only the individual partner pays income tax. Current shareholders also get a nice present from the sale of partnership units.

Still, the company directors and officers are the ones who really score.  Devon will retain ownership of its new MLP’s general partner (GP) and a majority stake in it. The GP typically gets a 2% distribution and, on top of that, what are called "incentive distributions" that could equal as much as 50% of the MLP’s income. All that will be spelled out in the registration documents that Devon files with the SEC later this quarter.

In its announcement, Devon said it would use a "significant portion" of the proceeds from the sale of partnership units to pay down the parent company’s debt and to repurchase shares of DVN’s common stock. It’s pretty easy to see why company officers and directors like MLPs, and even company shareholders get a nice one-time dividend.

But why do other investors buy in? The tax benefit is surely attractive, and MLPs do offer guaranteed returns because pipelines are subject to federal and state rate regulation.  Unitholders often pay dearly for these benefits and the secondary supply of shares or units is somewhat limited, so anyone wanting in on new MLP usually tries to get in early.  If you don’t believe it, take a look at how well SemGroup Energy Partners, L.P. (NASDAQ:SGLP) did in its trading debut today.

Paul Ausick
July 18, 2007

Posted on: July 18, 2007 – 6:45 pm in IPOs, Oil & Gas, ,

Cramer Digs Siemens As Europe’s GE Equivalent (SI, GE)

On tonight’s MAD MONEY on CNBC, Jim Cramer continued his stock pick series for "Investing in Europe."  Tonight his pick is from Germany: Siemens AG (NYSE:SI/ADR).  He likes the conglomerate that participates in 9 sectors: medical, manufacturing, parts, emerging tech, communications, and everything else under the sun.  He thinks this was one of his $80+ to $120, because it went from under $80.00 to over $140.00.  He considers this as Europe’s version of General Electric (NYSE:GE).  This also lets them win projects that other companies cannot handle.

Here is the problem with this call, Siemens is a great company but it’s valuations look higher than most of the other large conglomerates. Its market cap is $131 Billion on a currency adjusted basis.  Part of the 100% rise in ADR’s is because of the weak dollar, but even in Euros this stock is up more than 60% over the last year.

Cramer has his "Stock Picks from the EU" series this week.  He’s picking diversified payers with large market caps, and these have been big performers.   His ADR pick on Tuesday was ABB Ltd. (NYSE:ABB) and Philips Electronics (NYSE:PHG)  was his pick from Monday.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 18, 2007 – 6:06 pm in Conglomerates, Cramer, , , ,

PC Sales Rebounding: HP (HPQ) And Dell (DELL) Hold Lead

According to Gartner Group, PC sales rose 12.1% in the second quarter to hit 61.1 million units. The research firm had previously predicted growth of 10.6%. Laptop sales were particularly strong.

Hewlett-Packard (HPQ) was first in market share at 18.2% followed by Dell (DELL) at 15%.

Lenovo was next at 8%, followed by Acer at 7.2% and Toshiba at 3.9%.

Gartner explained the improvement in units by saying “The PC market experienced a boost from better than expected sales in the United States, Asia/Pacific and Latin America.”

Posted on: July 18, 2007 – 4:21 pm in PC Companies, ,

Juniper (JNPR): Nothing Special

Juniper (JNPR) repoted net revenues for the second quarter of 2007 were $664.9 million, compared with $567.5 million for the second quarter of 2006, an increase of 17 percent. Net income on a GAAP basis for the second quarter of 2007 was $86.2 million or $0.15 per share.

First Call estimates for the Q had been  $0.20 EPS and $649.6 million in revenues.

The company had taken an impairment charge in the quarter a year ago, With this taken out, non-GAAP operating income for the quarter was $136 million compared to $128 million in the quarter a year ago.

Shares, which have been trading near their 52-week high, were up .7% after hours.

Douglas A. McIntyre

Posted on: July 18, 2007 – 3:30 pm in Earnings,

eBay Guidance Deemed Conservative? (EBAY)

eBay Inc. (NASDAQ:EBAY) posted earnings of $0.34 non-GAAP EPS on $1.83 Billion in revenues, compared to estimates from First Call of $0.32 EPS & $1.78 Billion revenues. The company also gave us guidance, and based on the reaction Wall Street is deeming this as somewhat conservative: Q3 non-GAAP EPS $0.31 to $0.33 on revenues of $1.775 Billion to $1.825 billion; Fiscal 2007 non-GAAP EPS $1.34 to $1.38 and revenues $7.3 to $7.45 Billion. 

ESTIMATES: First Call estimates $0.32 EPS and $1.79 Billion revenues.  Fiscal 2007 estimates are $1.34 EPS & $7.4 Billion in revenues.  If the company gives a 2008 internal business plan, the street has $1.58 EPS and $8.7 Billion, and that translates to a forward 18% EPS growth and 17.5% revenue growth.

The company purchased approximately 10 million shares of its common stock at a total cost of approximately $344 million during the quarter out of its authorized stock repurchase program of up to $2 billion by January 2009.  eBay’s users posted a total of 559 million listings in Q2-07, 6% lower than the 596 million listings posted in Q2-06; Gross Merchandise Volume (GMV) of $14.46 billion in Q2-07, representing a 12% year-over-year increase from the $12.90 billion reported in Q2-06.  The company also noted that Skype continues to grow rapidly and posted another quarter of profitability.

eBay shares are up less than 1% at $34.35 after a few minutes of after-hours trading, although shares were up more than 2% briefly.  We’ll have to see how the "valuation calls" work out tomorrow morning.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 18, 2007 – 3:29 pm in Earnings, Internet,

IBM (IBM): Happy Days Are Here Again

IBM (IBM) hit a 52-week high during the day at $111.88. The stock is up 50% over the last year. Strong earnings sent it up another 1.6% after hours.

Diluted earnings for the second-quarter 2007 were $1.50 per share, excluding this gain, an increase of 15 percent year over year. Total revenues for the second quarter of 2007 of $23.8 billion increased 9 percent. Software revenue at $4.8 billion, grew faster that the rest of the company with a 13% increase year-over-year. The segment has an 85% gross margin compared to 42% for the entire company.

Revenue from the company’s server group rose only 2% to $5.1 billion.

Wall St. had expected IBM to report a 13% rise in earnings to $1.47 a share on a 5% revenue increase to $23.07 billion for the second quarter, according to a survey by Thomson Financial.

Douglas A. McIntyre

Posted on: July 18, 2007 – 3:17 pm in Earnings,

CEO’s Who Need to Go: John Mackey of Whole Foods (WFMI, OATS, KR)

Calling for a CEO to leave a company or to be fired is not an easy task, and many market pundits demand a management change far too soon and far too frequently.  After reviewing all the data, one final outcome is becoming more and more clear: John Mackey of Whole Foods (NASDAQ:WFMI)needs to step down.  If he doesn’t resign completely, he needs to at least turn over his CEO badge pending the SEC investigation and internal review.  This would allow him to remain as non-executive Chairman, would allow him to remain somewhat in control, and would send a better message to shareholders.

First and foremost, this anonymous message board posting issue is not the sole reason.  But it certainly is the final reason.  ‘Rahodeb’ was his online alias, but it might as well have ‘toidiel’ and there is the full 1394 or however many posts it really was.  When this story first broke last week Mackey’s position as an ‘effective leader’ was questionable.  Now it is probably set.  Online stock message boards are no place for officers of public companies to make anonymous commentary, particularly when criticizing competitors or trying to pump their own public company.

Read More »

Posted on: July 18, 2007 – 2:59 pm in Food, Management Change, SEC, , ,

Cramer’s SanDisk Call (SNDK, INTC)

On today’s STOP TRADING segment on CNBC, Jim Cramer took notice of SanDisk Corp. (NASDAQ:SNDK) ahead of earnings today. Estimates are $0.15 EPS and almost $793 million in revenues.  SanDisk is one Cramer said is particularly interesting after a JP Morgan upgrade ahead of earnings and he also noted that Intel (NASDAQ:INTC) indicated in its conference call flash memory will win over hard drives is a huge win long-term for SanDisk.

This may be true if the performance can ramp more and more and the cost can compress drastically.  Currently, these flash drives do not compete on a dollar to dollar basis for the technology.  Moore’s Law probably will continue to prevail that basically states that computing power doubles every 24 months for the same cost.  Even if that is the case, this won’t be the technology norm for a few years out and if you like SanDisk you better better like it based on the current flash market rather than for what may be the case a few years out.  That’s my take at any rate.  SanDisk shares are up roughly 30% in the last 90 days, and it would be the understatement of the year to say that it can be volatile after earnings.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 18, 2007 – 2:18 pm in Cramer, Earnings, Semiconductor, ,

A Sirius (SIRI) Sucker Rally?

Since June 21, Sirius (SIRI) shares are up 13%. There is no significant news about the company. Its merger with XM (XMSR) still looks iffy.

The company will announce earnings at the end of July. There is some speculation that subscriber growth could be a little better than expected, but earnings probably won’t be.

The issues of company debt and a needs for additional cash may still exist.

in other words, there may be more pressure down than up over the next few weeks.

Douglas A. McIntyre

Posted on: July 18, 2007 – 10:53 am in Consumer Electronics, ,

What To Expect From Juniper Networks Q2 2007 (JNPR)

Juniper Networks, Inc. (NASDAQ:JNPR) is set to report earnings atfer the close.  First Call estimates on last look were $0.20 EPS and $649.6 million in revenues.  Over the last four earnings reports, Juniper has not made any upside surprise to EPS estimates.  That makes it hard to get to excited with shares up almost 100% from its 52-week lows.  The good news is that it makes for a contrarian’s dream.  If the company offers formal guidance, the current estimates are for $0.21 EPS and $677.4 million.

The stock is actually trading above the average price target now that shares have run so much since March, so analysts will either need to hike their official price targets or make some ‘downgrades based on valuation.’  Options traders are not weighing very heavily on today’s earnings and the pricing for today’s contracts (that expire Friday) looks to be pricing in less than a 1.5% move either way.

Juniper’s market cap after the last run up has now gotten back to $15 Billion.  Shares trade at 32.8-times 2007 EPS estimates and trade at 5.55-times 2007 revenue estimates.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 18, 2007 – 10:13 am in Earnings,

Earnings Preview: eBay Q2 2007 (EBAY, YHOO, GOOG)

eBay Inc. (NASDAQ:EBAY) is set to report earnings after the close Wednesday.  The Q2 estimates from First Call are $0.32 EPS & $1.78 Billion revenues.

eBay frequently gives guidance and they sometimes give guidance out beyond a year, even if it is guesswork and more of the ‘internal business plan.’  Next quarter is also expected to be somewhat flat sequentially with $0.32 EPS and $1.79 Billion revenues.  Fiscal 2007 estimates are $1.34 EPS & $7.4 Billion in revenues.  If the company gives a 2008 internal business plan, the street has $1.58 EPS and $8.7 Billion, and that translates to a forward 18% EPS growth and 17.5% revenue growth.  As a reminder, the company just held its annual meeting of shareholders last month.

The real question regarding eBay is if the stock can continue to perform, because shares are up nearly 40% from the lows over the last year and its current P/E suggests more than twice its growth rate after this year.  This is not to be a naysayer, but an observation.  The company now has a market cap of almost $47 Billion, so it trades at more than 5-times 2008 revenues, but only 21.6-times 2008 earnings.  It could boil down to earnings power.  Last quarter it claimed a total 588 million listings, up 2% from the same quarter in 2006; and PayPal listed 143 million total accounts, up 36% year-over-year.

Since the company has had its spat with Google (NASDAQ:GOOG) and with Yahoo! (NASDAQ:YHOO) being virtually discounted, there is still an incredible opportunity for the company to grow revenues.  It probably has a lot it can add via ad revenues, and most of that effort could trickle straight to the bottom-line.  The stock is at the higher-end of its trading range, which has been $31 to $35 for what looks to be 90% of the trading days in 2007.

It would be nice to hear about the company’s ongoing legal fight as well over the "Buy It Now" feature.  It has also been adding PayPal as more of a powerhouse, and so far it is showing that its Skype purchase wasn’t the big waste that many feared.  After this is all said and done, you might even expect Jim Cramer to come back out telling eBay to acquire Yahoo! again.  So far eBay is the only one of the Internet Big 4 trading up on the day.  Last quarter it repurchased about 10 million shares at an average price of just over $33.00, and the company still has $2 Billion it can use for buybacks trough January of 2009.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 18, 2007 – 9:25 am in Earnings, Internet, , ,

AMD (AMD) Keeps True Believers

Intel’s (INTC) margin problems, which have taken its shares down over 5% today, have not been nearly as hard on its smaller rival AMD (AMD). Its shares are off only 2.3% on a big down day for tech.

A look at the Intel numbers should scare AMD holders, but it hasn’t. If Intel’s margins go squeezed, it would stand to reason that there is still a price was going on. And AMD should suffer a similar decline in gross margins.

Perhaps it is because AMD expectations are so low.

Analysts looking for -$0.85 after warnings now on $1.26 billion revenues. The real problem is that even if the company is able to ink a turnaround is that the it is expected to post losses for fiscal 2007 and even in 2008.

But, AMD’s number could be worse than that. Intel’s certainly were.

Douglas A. McIntyre

Posted on: July 18, 2007 – 8:44 am in Uncategorized, ,

MediaBistro.com Acquired by Jupitermedia (JUPM, YHOO)

MediaBistro.com is being acquired by Jupiermedia (NASDAQ:JUPM) for $20 million in cash, plus up to $3 million in additional earnings payouts if targets are acheived.  MediaBistro.com is not just a news site, it is a news site for media professionals to see specific media news, find jobs, find content, and more. 

The company is scheduled to launch Giga-what with Yahoo! (NASDAQ:YHOO) in August as an information site for technology publishers.

Jupitermedia (NASDAQ:JUPM) now has a market cap of $283 million and this acquisition was partly funded by the Jupiter’s $115 million senior credit facility.  It appears part of the allure was the paid online job board for media professionals, plus its own growing online content and blogs.

MediaBistro is a company we have been watching, and we’ll have to see how this integrates.  So far, no shares have traded in JupiterMedia this morning.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: July 18, 2007 – 7:48 am in Internet, Mergers and Buy Outs, ,

Rough Q For Gannett (GCI)

Lead lower by an fall in classified ads, Gannett’s (GCI) revenue fell 3.4% in the last quarter to $1.92 billion. Operating income was down. Operating income fell 8.5% to $483 million.

Classified ad revenue fell 7.5%.

Douglas A. McIntyre

Posted on: July 18, 2007 – 7:31 am in Uncategorized,

Pre-Market Stock News (July 18, 2007)

(ABT) Abbott Labs $0.69 EPS vs $0.68 estimate; guidance looks soft.
(ASD) American Standard $0.84 EPS net, but $1.05 before items; estimates were $1.08. Spin-off/sale remains on track.
(BLK) Blackrock $1.80 EPS vs $1.67 estimate.
(BSC) Bear Stearns said two of its funds are virtually worthless.
(CLDA) Clinical Data priced a 3 million share secondary at $22.00 per share.
(DAL) Delta Air $0.70 EPS; generated $1.1 Billion in free cash flow.
(DJ) Dow Jones board has approved a deal with Rupert Murdoch and will meet with Bancroft family.
(INTC) Intel trading down 5% after earnings last night.
(ISPH) Inspire Pharma announced a $75 million convertible preferred financing pact with Warburg Pincus.
(ITWO) i2 Technologies lowered guidance.
(JCI) Johnson Controls $1.98 EPS vs $1.98 estimate.
(JPM) JP Morgan Chase & Co $1.20 EPS vs $1.09 estimate.
(JUPM) JupiterMedia announced a $20 million acquisition of MediaBistro.com.
(LUV) Southwest Airlines $0.25 EPS vs $0.23 estimate; revenue performance looks better than expected so far for Q3.
(MO) Altria $1.05 EPS vs $1.13 estimate.
(NITE) Knight Trading $0.24 EPS vs $0.26 estimate; announced a $500 million share buyback plan..
(ORB) Orbital $0.23 EPS vs $0.21 estimate.
(PFE) Pfizer $0.42 EPS before items vs $0.50 estimates; reaffirmed 2007-2008 targets.
(STJ) St. Jude Medical$0.45 EPS vs $0.43 estimate.
(UTX) United Technologies $1.16 EPS vs. $1.15 estimates; reaffirmed targets.
(WFMI) Whole Foods’ board of directors started an investigation into CEO John Mackey Yahoo Message Boards postings.
(YHOO) Yahoo! trading down over 5% after earnings last night. YHOO target lowered at many firms: Goldman Sachs, Piper Jaffray, Credit Suisse, Bernstein, ThinkEquity and probably more.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: July 18, 2007 – 7:15 am in Pre-Market Activity, , , , , , , , , , , , , , , , , , , , ,

Pre-Market Analyst calls (July 18, 2007)

ACI cut to Hold at Citigroup.
AKAM started as Outperform at FBR.
BAGL started as Outperform at Piper Jaffray.
BTU cut to Hold at Citigroup.
CPB raised to Outperform at Bernstein.
DAC started as Outperform at Credit Suisse.
DSX started as Outperform at Credit Suisse.
DVA cut to Hold at Deutsche Bank.
FBCM started as Buy at Jefferies.
FCL cut to Hold at Citigroup.
IMB cut to Equal Weight at Lehman.
INTC cut to Mkt Perform at JMP Securities.
KEYS cut to Hold at BB&T.
KEYS cut to Mkt Perform at Morgan Keegan.
KND cut to Underperform at Wachovia.
LDK started as Outperform at CIBC.
LLNW started as Hold at Jefferies.
LLNW started as Mkt Perform at Piper jaffray.
MBRX cut to Hold at Jefferies.
OSG started as Outperform at Credit Suisse.
PX started as Outperform at CIBC.
QMAR started as Outperform at Credit Suisse.
RE cut to Peer Perform at Bear Stearns.
RSG cut to Mkt Perform at FBR.
SNDK raised to Overweight at JPMorgan.
SNY raised to Overweight at HSBC.
SSW started as neutral at Credit Suisse.
TK started as neutral at Credit Suisse.
TNP started as Outperform at Credit Suisse.
TOT cut to Neutral at JP Morgan.
WLL raised to Buy at KeyBanc/McDonald.

Jon C. Ogg
July 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: July 18, 2007 – 6:47 am in Analyst Calls, , , , , , , , , , , , , , , , , ,

JP Morgan (JPM) Investment Banking Numbers Fall From Q1

JP Morgan (JPM) announced earnings.

The second-quarter net income of $4.2 billion compared with net income of $3.5 billion for the second quarter of 2006. Earnings per share of $1.20 were up 21% compared with $0.99 per share in the second quarter of 2006. 

But, JPM’s critical investment banking unit saw reveue fall 7% from Q1 to $5,798 billion. Net income dropped 23% to $1.179 billion.

Maybe the growth engine is losing steam

Douglas A. McIntrye

Posted on: July 18, 2007 – 6:16 am in Uncategorized,

Pfizer’s (PFE) Bad Hair Day

Not a good quarter for Pfizer (PFE). Second quarter revenue fell 6% to $11.1 billion. Net income was down 48% to $1.3 billion.

The loss of U.S. exclusivity for Zoloft and Norvasc hurt earnings as did Lipitor’s performance in the U.S. The company did say it thought it could still reach its financial goals for 2007 and 2008. Lipitor sales fell 13% worldwide and 25% in the US. Zoloft sales worldwide were down 82%.

The generics are tearing Pfizer up. At least for now.

Douglas A. McIntyre

Posted on: July 18, 2007 – 5:59 am in Pharmaceuticals,

KKR And Macy’s (M)

Women’s Wear Daily says that KKR is close to a deal to buy Macy’s (M). The price would be about $52 a share. The stock currently trades a $40.

Douglas A. McIntyre

Posted on: July 18, 2007 – 5:49 am in Uncategorized, ,

3Com (COMS) For Sale

It appears that private equity interests are about to take 3Com (COMS) off the market. Silver Lake Partners and Bain Capital have apparently stopped by.

As The Wall Street Journal points out: "the story of 3Com in the past 10 years is one of missed opportunities." The company’s shares traded for $9 in early 2004. They now change hands at just over $4.

3Com has lost money each of the last three years, and each of the past four quarters. In the last reported period, the company lost $9 million on revenue of $323 million.

Aside from being poorly managed, the company now competes with Cisco (CSCO) in almost all of its core markets. The company has had three CEOs in the last two years.

What private equity sees in 3Com is a mystery. It may simply be a matter of too much money going after too few deals.

Douglas A. McIntyre can be reached at douglasamcintyre@247wallst.com.

Posted on: July 18, 2007 – 5:37 am in Uncategorized, ,