Daily Archives: September 13, 2007

Forget the FOMC, Watch Major Broker Earnings (BSC, LEH, BSC, GS, AGE)

Next week is the highly awaited FOMC meeting and the expected decision next Tuesday is certainly that a rate cut is coming.  But the predicament bet is mixed, with some looking for a 25-basis point cut and others expecting a 50-basis point cut.  Before we digress into what the FOMC should or shouldn’t do, keep in mind that the brokerage firm giants will all start reporting earnings next week.  That alone may actually show just how damaged the lending and financial fallout is on their bottom line, or it may show that the recent recovery was justified.

Frankly, the bond market has almost always been smarter than equities as a predictor of rates and the economy.  The Federal Reserve is so far behind the yield curve that you have to wonder either how smart the bond traders are or how incredibly dense the academia crew running monetary policy really is.  The two-year treasury note, one of the current benchmarks, is almost 125 basis points shy of the 5.25% Fed Funds rate.  That’s all fine and dandy, but what is going to run the financial sector perhaps even more than the FOMC (mandatory, at this point) cut is the earnings wave coming from bulge bracket Wall Street investment banking giants.

Please be advised that earnings estimates have come in sharply in most cases over the recent weeks because of the mortgage and lending derivative malaise that the markets have weathered.  It is also quite possible that these estimates will come in farther as analysts still have three mornings to make their changes to estimates.  If you saw how well these stocks performed on Thursday, you might not think anything had ever gone wrong.  Obviously that isn’t the case.  Some of these estimates could have also changed from calls on a given day, and most analysts have been trimming the estimates.  Here is the expected report schedule with current estimates:

Lehman Brothers (NYSE:LEH) reports on Tuesday (9/18) and estimates are $1.47 EPS & Revenues of $4.3 Billion.  Estimates were a dime higher just last week and were $1.81 EPS 60 to 90 days ago.

Morgan Stanley (NYSE:MS) reports on Wednesday.  Morgan Stanley is expected to post $1.53 EPS & $8.3 Billion in revenues.  Estimates were $1.60 last week and were over $1.82 90-days ago.

On Thursday (9/20) we get the dual reports from Bear Stearns (NYSE:BSC) and from Goldman Sachs (NYSE:GS).  Bear Stearns (NYSE:BSC) is expected to post $1.78 EPS on $1.65 Billion in revenues.  Just a week ago, estimates were over $2.00, and were over $3.00 60 to 90 days ago.  Goldman Sachs (NYSE:GS) is expected to post $4.35 EPS & $9.55 Billion in revenues.  Goldman Sachs has seen the least amount of estimate changes of the bulge bracket firms.

Thursday was a huge day for these brokerage giants, so maybe the worst is behind after all.  Billionaire investor Joe Lewis just invested close to $1 Billion for a stake in Bear Stearns and he now appears to be the single largest shareholder.  PIMCO has reportedly set up a $2 Billion distressed mortgage fund.  A recent vulture fund was registered for an IPO to buy distressed debt.  A huge infusion in debt and mortgage buying came from above.  Oh yeah, and that yield curve is signaling that the FOMC is about 3 or four months behind the curve. 

The main thing to watch here is how all of the crummy mortgage and lending operations and all the derivatives and losses tied to these are impacting the brokers’ bottom lines.  Oddly enough, the expectation is for all of these to still be profitable on a net basis.  Some may mask actual losses with an asterisk by saying there are one-time events since many operations are being cut, geared down, or eliminated.  We’ll also get to see if more layoffs or entire unit closures in these areas are coming.  Regardless of the FOMC and regardless of the "Big Picture" you know the malaise in that sector hasn’t ended for all the workers in that group.

But, back to earnings.  For longer than recent memory can serve, the old formula was that brokers would handily beat earnings estimates and see shares fall off in profit taking.  The last earnings report out of the sector wasn’t exactly a blue ribbon, and that may become more of the norm.  It would seem as though now the only issue is just how weak the street is willing to settle for on the current earnings.  Just at the start of August, Bear Stearns was looking like it might even crack under the $100 mark more than just that one intraday trade.  The merger wave isn’t going to be there for the coming quarters that was the norm over the last eighteen months, and even the IPO calendar has been soft at best.  The very recent economic numbers aren’t showing great overall trends for the sector’s customer base.

Most of the bad news should be known.  Now we just have to wait to see how many skeletons are in the closet.  If that is true, it should boil down to what investors are willing to live with.  Even after today’s large rise in the brokerage firm stock prices these are all way off of recent 52-week highs:

Broker                    Stock         52WK-High
Lehman Bros.      $59.68          $86.18
Morgan Stanley    $66.79          $90.95
Bear Stearns        $114.83        $172.61
Goldman Sachs   $188.47       $233.97

A.G.Edwards (NYSE:AGE) also reports Thursday (9/20) and estimates are $1.12, but this one is being acquired and rolled up by Wachovia (NYSE:WB) and its vote to approve the deal is at the end of the month.

Lastly, these reports may have some serious impact on many of the money center banking giants because they have so much overlap in the exposure and business units.  These would be the likes of Bank of America (NYSE:BAC), Citigroup (NYSE:C), J.P.Morgan (NYSE:JPM), Wachovia (NYSE:WB), and Wells Fargo (NYSE:WFC).

Jon C. Ogg
September 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 11:16 pm in Banking, Brokerage Firms, Earnings, Financial Stocks, , , , , , , ,

The Business Day in Global Warming (SWY, BRK-A,TM, SPWR)

Safeway Inc. (NYSE:SWY) has announced a new environmental project to power 23 California stores with renewable solar energy. The company installed solar panels atop a newly renovated Safeway Lifestyle store in Dublin, California and plans to extend the program to nearly two dozen stores.  Congressman Jerry McNerney joined on a tour of the store’s rooftop solar panel array. The unit is currently generating electricity to power the 55,000-square-foot retail facility. 

NetJets, a subsidiary of Berkshire Hathaway (NYSE:BRK-A), unveiled details of a multifaceted initiative to address the environmental impact of the company’s flights and other operations and strengthen its response to climate change and other environmental challenges.  The company retained the services of Esty Environmental Partners, a leader in corporate environmental strategy.

Chicago Tribune reported that The City of Chicago has signed an $8.7 million contract to buy up to 300 hybrid vehicles made by Toyota (NYSE:TM): 100 Prius sedans, 100 Camry models and 100 Highlander SUVs from Northside Toyota in the next three years.

SunPower Corp. (NASDAQ:SPWR), a Silicon Valley-based solar manufacturer, today announced a new partnership with GRID Alternatives, a San Francisco-based nonprofit organization, to bring the power of solar energy to low-income families in need.

This is from earlier in the week, but worth a read.  The Erb Institute for Global Sustainable Enterprise at the University of Michigan today announced that many companies who voluntarily participate in the U.S. Department of Energy’s program to report reductions of greenhouse gas (GHG) emissions tend to have increased emissions but report reductions.

With oil hitting $80 a barrel, alternative energy is going to stay front and center regardless of any political issues around the topic.

 

Jon C. Ogg
September 13, 2007

As a reminder, whether you prefer the term "Global Warming" or "Climate Change" is not the issue as far as 24/7 Wall St. covers it.  Green business has become big business, and this affects many public companies today.

Posted on: September 13, 2007 – 6:33 pm in Alternative Energy, , , , , , , , , , ,

VMware Already Looking Out To Its Next Conferences (VMW, EMC)

VMware (NYSE:VMW) is on of the stocks that no one seems to get enough of.  Part of the reason is more than easy to figure out, because virtualization is the next "Next Thing" and next buzzword for investors. 

But there does exist this stock conundrum because of the EMC Corp. (NYSE:EMC) relationship and ownership.  The float is tiny, so it takes a far lower amount of money in and out of this stock to manipulate the price of a $25 Billion market cap.  To top it off, we noted earlier how investors are starting to use out of the money stock options as a manner of gathering exposure to the company.  While it is risky and while many of the strike prices may expire worthless, it is too hard to blame anyone for using a stock option to play the stock.  We just noted how this new $90 target from an analyst may be hard to justify, but this stock does have a mind of its own.

The VMWORLD CONFERENCE 2007 in San Francisco was a big catalyst for the company.  VMware even announced an acquisition of a private virtualization company after less than a month of being public.  That is good, because the company has a whole lot of market cap to grow into.  It cannot justify that market cap entirely on its own, so more partnerships and acquisitions would make sense.

But interestingly enough, there are some more virtualization conferences coming up.  There was a release out yesterday showing the InfoWorld Virtualization Executive Forum at the end of this month.
What’s good about this is now virtualization is on the map, and this one is in New York closer to the analysts and fund managers that may be looking for other ways to invest in the sector.  VMware also today announced the first annual VMworld Europe conference in Cannes, France from 26th-28th February 2008. 

There are many developments in this space and virtualization is going to be helped by cheaper and cheaper RAM and multi-core processing power.  Now the company itself has to demonstrate that its stock is worth the $25 Billion on paper.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 5:55 pm in Software, , , , , ,

Pirate Capital Claims Misleading Media Reports

Pirate Capital, one of the more vocal activist investor hedge funds, is issuing a statement that various media reports are issuing misleading statements.  Here is what the hedge fund said in its press release:

Various media have published grossly misleading information regarding results at funds managed by Pirate Capital. Some reports have suggested that Pirate funds lost almost 80 percent of their value in the past year. In fact, while assets under management have decreased, average returns over Pirate’s four funds during the last year are about plus 4 percent.

Pirate Capital remains committed to its event-driven strategy to create value for its investors.

Hedgefund.net noted how Pirate Capital had frozen withdrawals from two of its funds.  This article noted that assets wouldn’t be available until positions were sold.

Reuters ran an article this week showing that assets were down considerably.  It listed its stock holdings at $478.9 million as of June 30, down from about $1.5 billion last September, according to a regulatory filing.

As always, you can go visit what Stockpickr has listed as Pirate’s last available large holdings.

Unfortunately in life in the financial markets, when things start to go bad they go really bad.  Just a few months ago, Pirate was one of the names that investors would chase into stock positions when SEC filings came across showing that Pirate had taken a stake.  Being an activist investor is a lot harder now that the financial markets have closed the window for a push to "take on debt to buyback shares" and now that use of financial leverage is once again frowned upon.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 3:42 pm in Uncategorized, , , ,

The 52-Week Low Club

Alcatel-Lucent (ALU) Telecom equipment merger has become train wreck. Drops to $8.96 from 52-week high of $15.43.

Nortel (NT) Down in sympathy with ALU. Falls to $16.32 from 52-week high of $31.79.

Krispy Kreme Doughnuts (KKD) Company looks like it is heading for extinction. Down to $3.01 from 52-week high of $13.93.

King Pharmaceuticals (KG) Loss on patent ruling still driving this to ground. Down to $11.67 from 52-week high of $22.25.

New York Times (NYT) Pains of the newspaper industry. Falls to $19.92 from 52-week high of $26.90.

Syntax Brillian (BRLC) Company cuts guidance and CFO leaves. Drops to $3.98 from 52-week high of $11.70.

Avid Technology (AVID) Media content production company takes a header. Down to $22.55 from 52-week high of $40.68.

Level 3 (LVLT) Big networl provider has a ton of high-yield debt. Falls to $4.41 from 52-week high of $6.80

Douglas A. McIntyre

Posted on: September 13, 2007 – 3:05 pm in HI/LOW, , , , , , ,

How Out of Favor Is P.F. Chang’s With Diners & Investors?

P.F.Chang’s (NASDAQ:PFCB) is one of those public restaurant chains that you just can’t necessarily judge a book by its cover.  Or maybe by the analogy "you can’t judge a restaurant by its food or its crowd."  Today PFCB shares are hitting the lovely and dubious list of 52-week lows.  Shares are under $31.20, and the prior range is $31.42 to $47.10.  Trading volume is not even 500,000 shares, and the average daily volume is close to 625,000 shares.

If this is pertaining to its core restaurants then it is a head scratcher.  In Houston you have to wait an hour or more for a table with frequent regularity and you often have the same sort of wait for downtown Chicago.  Franlky, both the food and the dining experience at the core restaurants have never been a disappointment outside of having to wait.  Obviously you cannot judge a whole franchise or a whole company based on two major metro locations that are in hot areas of the city and that don’t know what watching the pocketbook means.  Its newer Pei Wei initiative may be playing against it, but that is merely conjecture.  Operating costs per location is far less than at flagship P.F. Chang’s locations, but you know it when you walk in and the food is far less impressive than the flagship.

The analysts that cover PFCB are no longer under a real positive bias and the average price target is only around $39.00.  With $1.34 now expected for fiscal DEC-2007 and $1,56 EPS expected for fiscal DEC-2008, the forward numbers don’t seem overly expensive. 

Investing in hot food chains that revolve mostly around a single concept or at least closely tied comcepts is often a more wild ride.  It’s great when the trend is its friend, but being on the wrong side of company maturing or that has an execution flaw is as bad as eating by the sewer.  When these concepts start to mature, the logical step is to look for a buyer or to look for a new growth chain. 

The company lowered its expectations at the end of July and shares slid around the time before and after by about 10%.  In mid-August this did quite well and shares went back to over $37.00.  With its performance of late it leaves one of two conclusions: 1) the company is off center on its newer concept stores, or 2) it maybe wasn’t cautious enough with last guidance.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 1:46 pm in Food, , ,

Level 3 Hits 52-Week Low As Wall St. Ponders Telecom

24/7 Wall St. mentioned a few days ago that Level 3 (LVLT) has traded off sharply this year, probably due to its huge level of junk debt. The company has been able to push out the maturity date on some of the debt, but LVLT is still struggling with cash flow.  The shares hit a new 52-week low today trading at $4.41, down from their 52-week high of $6.80.

The Alcatel-Lucent (ALU) debacle has Wall St. taking a look across the entire telecom and telecom equipment sector. Another weak player, Nortel (NT), is taking a beating. Motorola (MOT), which has a large telecom equipment division, is also off.

On the other hand, the companies that own the phone systems and have ALU, MOT, and NT as suppliers are up. AT&T (T)  and Verizon (VZ) are both up about 2%. Both trade very near 52-week highs.

Looking at the landscape, investors appear to be saying that in telecom equipment, it is better to be a buyer of equipment than a seller, it is better to have the consumer and not the enterprise as a customer, and it is best to stay away from segments of the industry that are becoming commodities.

Douglas A. McIntyre

Posted on: September 13, 2007 – 1:04 pm in Telecom, , , , , ,

Nortel Feels Alcatel-Lucent Backlash

Shares in telecom equipment supplier Nortel (NT) hit a 52-week low at $16.39 down from their one year high of $31.79. Nortel is one of the largest competitors to Alcatel-Lucent (ALU), which warned on its full-year earnings today.

Oddly enough, Nortel’s shares have fallen by a greater percentage from their 52-week high than ALU’s have. Alcatel-Lucent’s shares are off to $8.96 from a 52-week high of $15.43.

It is hard to imagine being worse off than ALU is, but the market is casting a greater vote against Nortel

Douglas A. McIntyre

Posted on: September 13, 2007 – 12:31 pm in Telecom, ,

IPO FILING: AMC Entertainment (AC, RGC, CNK, CKEC, NCMI)

AMC Entertainment Holdings, Inc. has filed to come public in an IPO under the NYSE ticker "AC."  This filing lists up to $500 million as the amount of securities being sold for filing purposes.

AMC Entertainment posted for the 52 weeks ended June 28, 2007, on a pro forma basis, revenues of $2.4 Billion, Adjusted EBITDA of $425.6 million, a loss from continuing operations of $60.3 million.  On a historical basis it had net cash provided by operating activities of $394.7 million. In the United States and Canada, as of June 28, 2007, it operated 311 theaters with 4,597 screens.  As of June 28, 2007, it had 66 theaters with 703 screens consisted principally of wholly-owned theaters in Mexico and an unconsolidated joint venture in South America.

It also currently owns approximately 18.6% of National CineMedia, LLC; and it currently own approximately 27% of MovieTickets.com, an Internet ticketing venture representing over 10,000 screens.  One thing investors need to know is that the movie theater operation in the U.S. has been one of the most frequently changed in owners, and AMC recently became under Merger Sub in June of 2007.  AMC is also reclassifying its stock classes and it is currently held by J.P.Morgan Partners, Apollo Investment Funds, Bain Capital, Carlyle Group, Spectrum Equity Investors, and management.

Other publicly traded movie theater chains are Regal Entertainment Group (NYSE:RGC), Cinemark Holdings Inc. (NYSE:CNK), and Carmike Cinemas Inc. (NASDAQ:CKEC).  There is also of course the offshoot National Cinemedia (NASDAQ:NCMI), which AMC has had an ownership in the parent holding company of.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 10:31 am in Entertainment, IPOs, , , , , , , , , , ,

Time For Starbucks To Raise Its Dividend

Of course, Starbucks (SBUX) does not have a dividend. But, they might want to revisit that.

Starbucks’s is no longer a growth stock, at least not in the classic sense. Its shares are down about 22% this year. McDonald’s (MCD), a rival in the coffee game, among other things, is up over 15%.

McDonald’s raised its dividend 50% yesterday, and its share are up almost 5% to a 52-week high of $53.73. According to MarketWatch, the MCD CEO said "Our business momentum, strong stable cash flow, borrowing capacity and anticipated future capital needs reinforce our view that cash available for dividends and share repurchase will continue to grow."

Starbucks is doing well financially, too. In the last quarter its operating income was $245 million. The company has about $325 million in cash and short term investments. Fully diluted shares number 764 million. A $.20 a year dividend might work.

If Starbucks does not want to dividend in cash, it could send out one of those little cans of mocha for each share. But, at $2 per, that is too much.

Douglas A. McIntyre

Posted on: September 13, 2007 – 9:41 am in Dividend, ,

Microsoft’s Dividend Hike Not A Bold Move (MSFT, GOOG, VMW)

Last night Microsoft (NASDAQ:MSFT) announced that it was boosting its quarterly dividend from $0.10 to $0.11.  The dividend is payable December 13, 2007 to shareholders of record on November 15, 2007, and the ex-dividend date will be November 13, 2007.  Microsoft shares are up 0.35% after the open, about half of the gains in the broad market.

Raised dividends are usually a good thing, but it also shows the stage that the software giant has entered and we’d rather see more ’special dividends’ rather than a small incremental boost.  If you have read our take on things, you’ll know that this move is one we don’t have the world’s greatest opinion of.  The classical investing model shows that raised dividends lead to higher stock prices, but it also shows that Microsoft is farther and farther away from being a growth stock.  I have even hijacked a phrase "Microsoft isn’t a major growth company anymore, it’s a utility stock!" from a friend of mine at the Federal Reserve.  But we still think it can take a path that leads to higher share prices.

If Microsoft wants to be impressive on its dividend, it should hoard cash and pay these special dividends.  At the end of 2004, the software giant paid out a $3.00 special dividend.  Shares actually traded flat and lower for basically a year after that special dividend, but in the longer-term shares reached over $31.00 earlier this year.  The truth is that the two are unrelated.  The tie isn’t even relevant.  But this is the best way of returning cash to shareholders in what is currently a most tax efficient manner.  We don’t know if the dividend taxes or capital gains taxes will really go up after 2008 or not, but depending on election results there could be some big changes there.

As of June 30, Microsoft held $23.4 Billion in cash and short-term investments.  It also held over $10 Billion in longer-term investments, part of which are stocks in other large public companies.  It holds $8.3 Billion carried under ‘other’ and long-term debt, and its other $23.75 Billion in liabilities are all day to day operations.  After this, you have to back out the $6 Billion or so that the company paid for aQuantive that closed in August.

The company can do share buybacks, but with the size and average daily trading volume it just requires too much capital spent for it to make much sense.  Microsoft has roughly 8 Billion shares in the float and has 9.375 Billion shares outstanding.  If you do the math and do the projections out there for its earnings this year and next, the company could do a serious return of capital.  If investors know that every other year they might receive a $1.00 or higher special dividend they might get more excited than if they receive the $0.11 every quarter instead of the $0.10 previously.  The company should consider this for later in 2008.

The only reason the company wouldn’t want to do this is if wants to go make more and more multi-billion dollar acquisitions like aQuantive.  If it wants to do that, then all bets are off.  This special dividend versus a slight hike in a low normal dividend is also purely a matter of opinion.  Microsoft has been hampered by the likes of Google (NASDAQ:GOOG) and others, and the new virtualization efforts from it and VMware (NYSE:VMW) are going to end up being a mere footnote on a relative basis to Microsoft’s size for the next 12 to 18 months.  We also saw some of the plans in May for a post-Gates era.

We still think Microsoft can reach the mid-$30’s over the next 12 months if it can execute on its many initiatives, and the downside seems less than than the upside at current levels.  The problem is that we had the same viewpoint back in January when we laid out the path that could take Microsoft shares to $36.00.  A myriad of things can change that, and the calendar and upcoming industry trends will determine which side of the crystal ball is accurate.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 9:23 am in Dividend, Software, , , , , , ,

Are Sirius Shareholders 20% Better Off?

Shares in Sirius (SIRI) are up about 20% over the last month. Nothing has really changed. No new earnings.

The supposition is that the chances of a merger with rival XM Satellite (XMSR) have improved. That may be true. But, if testimony by management of the two companies aimed at getting the deal approved is any indication, the satellite radio business is not a very good place to be.

One of the offers that the companies have made is to allow consumers new packages that "would give satellite-radio subscribers more choice over what stations they paid for." That may not be good for revenue.

And growth at the companies has slowed. According to TheStreet.com "XM added 338,000 net new subscribers, taking its overall total to 8.25 million. But the pace of new subscriber gains was below year-ago levels, when the company added 398,000 users."

Sirius and XM have fundamentally agreed to cap price increases to get the deal done. Of course, that means that revenue improvement in the future will depend to a large extent on subscriber growth. And, that is not going so well.

Douglas A. McIntyre

Posted on: September 13, 2007 – 8:50 am in Satellite, ,

Accredited Home Lenders Still Has Hopes Of Merger, But… (LEND)

LSF5 Accredited Investments, LLC, the subsidiary of Lone Star Fund V that had offered in June to acquire Accredited Home Lenders Holding Co. (Nasdaq: LEND), announced that it is extending its tender offer for all outstanding shares of common stock until 12:00 midnight on September 14, 2007, in accordance with Lone Star’s obligations under the merger agreement with the Company.  If you read the press release, you’ll see right away that this is not a done and final deal as far as Lone Star is concerned, although it is still not as dead as fears of the subprime meltdown led to in August.

Read More »

Posted on: September 13, 2007 – 8:06 am in Financial Stocks, , , ,

ISIS Scores On J&J Collaboration & Milestones (ISIS, JNJ)

ISIS Pharmaceuticals Inc. (NASDAQ:ISIS) is trading up pre-market on new that it entered a broad collaboration with Ortho-McNeil, a Johnson & Johnson (NYSE:JNJ) unit, for discovery, development and commercialization of antisense drugs to treat metabolic diseases.

The company has two drugs here for this, but the company bought its entire franchise back and this collaboration will include Type 2 diabetes.  ISIS will grant to Ortho-McNeil worldwide development and commercialization rights to two of its diabetes development candidates, ISIS 325568 and ISIS 377131, which inhibit the production of glucagon receptor and glucocorticoid receptor.

Ortho-McNeil will provide funding to ISIS to support the joint discovery of novel drugs to treat diabetes and obesity. J&J will continue development of these drugs after the initial collaboration phase. ISIS will receive a $45 million upfront licensing fee, and research and development funding over the period of the collaboration. In addition to the licensing fee, ISIS could receive more than $230 million in milestone payments upon successful development and regulatory approvals of ISIS 325568 and ISIS 377131, plus royalties on sales. ISIS may also receive milestones and royalties on the successful development and regulatory approvals of additional drugs discovered as part of the collaboration.

Before this morning’s news, ISIS had a $1.06 Billion market cap and shares closed yesterday at $12.76.  Shares are up 8% at $13.80 after the CEO came on CNBC, and its 52-week trading range for its stock was $7.49 to $14.00.  On the June 30 balance sheet, the company had over $200 million in cash and short-term investments and its total liabilities were listed as $215.97 million.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

Posted on: September 13, 2007 – 7:32 am in Biotech, , , ,

Pre-Market Stock News (September 13, 2007)

(AINV) Apollo Investment priced a 13 million share secondary at $20.00.
(ALU) Alcatel-Lucent lowered full year revenue guidance.
(ANPI) Angiotech Pharma said it received a favorable patent decision from New Zealand’s Intellectual Property Office.
(BLTI) BIOLASE Technology has been granted a new U.S. patent covering its oral care technologies for a teeth cleaning and whitening system for toothbrush with electromagnetic and photosensitive agents.
(BRCM) Broadcom: U.S. Appeals Court denied Qualcomm’s request to stay ITC order.
(BRLC) Syntax-Brillian traded down over 20% after earnings, lowered guidance, and CFO leaving.
(DKS) Dicks Sporting Goods announced a 2 for 1 stock split.
(ECA) EnCana is selling its Brazil offshore exploration concessions for $165 million.
(ISIS) ISIS Pharma entered a broad collaboration with Ortho-McNeil for discovery, development and commercialization of antisense drugs to treat metabolic diseases, including Type 2 diabetes.
(MCD) McDonald’s boosted its dividend by 50% and promised to continue returning cash to holders.
(MMS) MAXIMUS received a Medicare Fraud pact from New York Life.
(MSFT) Microsoft increased its dividend, but only by 10% to $0.11 per quarter.
(SIRI) SIRIUS trading up another 1% pre-market on merger approval for XM hopes.
(SPI) Spectrum Pharma said the FDA accepted its ISO-Vorin new drug application amendment.
(TASR) Taser announced two follow-on orders for its electronic control devices.
(TGT) Target said it is reviewing its ownership of its credit card receivables. 

Jon C. Ogg
September 13, 2007

Posted on: September 13, 2007 – 7:20 am in Pre-Market Activity

T. Boone Pickens Calling For Higher Oil Prices

The famed T. Boone Pickens came on CNBC for a telephone interview again with new predictions for high oil prices.  It was a bit interesting that he doesn’t have a stated target for oil this time but he did note the likelihood of $85 to $88 oil in Q4, and he thinks the the fourth quarter will be exciting times in energy trading.  Here are some other things he noted:

  • BP said Mexico’s problems could be a problem for us.
  • Higher odds of a recession will cut oil prices if demand drops.
  • $80 oil, if you are on the brink of a recession, could push you into one.
  • He said he didn’t know what price the oil levels would impact the stock market.
  • Natural gas is still in an oversupply, but maybe not as much as first thought.

Yesterday, we gave a Best of Breed list of stocks with oil at $80 per barrel and gave the link for the first time T. Boone Pickens said that we’d see $80 oil before he turned 80 years old.  As a reminder, the two key energy ETF’s are: Energy Select Sector SPDR (AMEX:XLE) and Oil Services HOLDRs (AMEX:OIH). 

Jon C. Ogg
September 13, 2007

Posted on: September 13, 2007 – 7:15 am in Oil & Gas, , , ,

Pre-Market Analyst Calls (September 13, 2007)

ACW started as Hold at Citigroup.
ATHR started as buy at B of A.
BIIB cut to Sell at UBS.
BKI cut to Hold at Citigroup.
BRCM started as buy at B of A.
FTI started as Overweight at JPMorgan.
GM started as Buy at Citigroup.
GTW raised to Hold at Citigroup.
IFX raised to Overweight at Lehman.
INTC target raised to $32 at UBS.
JCI started as Hold at Citigroup.
LDK cut to Equal Weight at Morgan Stanley.
LEA started as Buy at Citigroup.
MWV raised to Outperform at Credit Suisse.
MRK raised to Buy at B of A.
MRVL started as Neutral at B of A.
PAS cut to Underweight at HSBC.
PRU raised to Outperform at Credit Suisse.
RIMM target raised to $120 at Canaccord Adams.
SLAB started as Buy at Jefferies.
STM cut to Underweight at Lehman.
TEN started as Sell at Citigroup.
TMA raised to Hold at Deutsche Bank; raised to Mkt Perform at Piper Jaffray.
UL raised to Equal Weight at Lehman.

Jon C. Ogg
September 13, 2007

Posted on: September 13, 2007 – 6:57 am in Analyst Calls

Alcatel-Lucent: Two Bad Companies Do Not Make It Right

Shares of Alcatel-Lucent (ALU) are down 12% in trading in Europe. The company warned on revenue for the third time this year.

The merger of the two companies started out with such promise. Management could take out hundreds of million of dollars in redundant costs. The company would have a much larger sales force. Competitive pricing would come out of the market as the two companies would no longer go after the same business. And, serving the growing telecom industry would be money in the bank.

According to The Wall Street Journal "Alcatel-Lucent said in a statement it now expects revenue growth in 2007 to be flat to slightly up at a constant euro-dollar exchange rate. The company had previously estimated its full-year revenue would grow in the mid-single digit percentage range at a constant exchange rate."

The new company faces two problems. The first is that there is probably still too much competition in the market. Ericsson. The Nokia-Siemens. Nortel (NT).  Huawei in China.

Results at Nortel indicate that the telecom equipment supply business is really not very good. It is barely a break-even operation and in not growing. It shares have been beaten like a drum.

Casting a shadow over the entire industry is the specter of Cisco (CSCO) which is able to bring next-generation routing systems to both telecom and cable. New solutions generally trump old ones.

The merger is not a failure because the companies could not cut costs. It is a failure because the new company is in a lousy industry.

Douglas A. McIntyre

Posted on: September 13, 2007 – 6:25 am in Mergers and Buy Outs, ,

Sprint Digs For Pennies

Sprint (S) has come up with an unusually clever new business. It has set up deals with 30 retailers to allow customers to compare and buy nearly seven million products over phones that work on its network. Sprint has about 50 million wireless customers.

The deal is good for the retailers because it gives them a completely new sales outlet. Jupiter Research estimates that wireless shopping will bring in revenue of $1.9 billion in 2010

According to Reuters  "Spinet said it will not charge mobile users extra subscription fees for the service, but it will charge them for Web access." And data charges are becoming a big part of many consumer cellphone bills.

Sprint needs to get out of trouble, and this program may be a partial solution. It is adding very few new subscribers while its larger rivals AT&T (T) and Verizon Wireless are growing each quarter. But, if Sprint can get a higher yield from each customer, added new ones become a bit less important.

With the launch of its WiMax network more than a year away and its stock down 20% over the last quarter, it needs a little magic.

It may have just gotten some.

Douglas A. McIntyre

Posted on: September 13, 2007 – 6:01 am in Telecom, ,

Europe Markets 9/13/2007

Markets in Europe were off slightly at 6.45 AM New York time.

The FTSE fell .1% to 6,298. Barclays (BCS) was down 1.5% to 599. ITV was down 2.3% to 108.4. RBS was down 1.8% to 532.

The DAXX was off .4% to 7,442. Siemens (SI) was down .9% to 87.62. BMW was down 1.7% to 42.25.

The CAC 40 fell .3% to 5,493. Alcatel-Lucent (ALU) fell 12% to 6.35. BNP Paribas fell 1.3% to 73.25. France Telecom (FTE) rose 1% to 22.49.

Data from Reuters

Douglas A. McIntyre

Posted on: September 13, 2007 – 5:52 am in International Markets, , , ,