Daily Archives: October 15, 2007

Reviewing Motorola Ahead of Earnings (MOT)

Motorola (NYSE:MOT) reports earnings this week and First Call has estimates at $0.04 EPS and $8.8 Billion.  We wanted to run over a recent call here ahead of plan since this just got a Cramer bump.  On tonight’s MAD MONEY on CNBC, Jim Cramer was discussing Motorola’s (NYSE:MOT) Ed Zander as being on the CEO "Hall of Shame" as one to go, although he doesn’t think that will happen with this week’s earnings. 

Cramer gave a quick break-up analysis of Motorola broken up into 3 parts (handsets, equipment, and set-top boxes) coming up to $24.60.  We ran our own valuation comparison for a break-up earlier this year and determined a rough value of $26.70. 

The company does at least have Carl Icahn that can create some stirring up this week since he’ll be making out quite well in both Biogen and in BEA Systems.  Now that things are starting to happen in these companies, Icahn may have more time to go back over Motorola.  Our only issue is that it seems Motorola is very stuck right now and it took some time for Freescale to work out quite well.  If this was just a month ago when shares were at $17.00 we’d assign a $22.00 break-up value, and we aren’t as optimistic on this one today as a break-up or turnaround candidate in a different investment climate compared to earlier this year. 

If you like to see private break-up analysis not available to the public, we have our "Special Situation Investing Newsletter" where we have our own private analysis of break-ups, buyout candidates, spin-offs, reorganizations and the like. 

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 5:44 pm in Technology Companies,

Google (GOOG) Copyright Software Sends A Boy To Do A Man’s Job

Google (GOOG) came out with the software it would use to flag copyright infringing video on its huge YouTube video-sharing site. "The technology can identify video content owned by media companies and dictate its usage on YouTube," according to MarketWatch.

But, big media will not be happy. "However, it cannot prevent the posting of potentially infringing content — something that may not sit well with companies such as Viacom (VIA)".

That won’t work.

Douglas A. McIntyre

Posted on: October 15, 2007 – 4:46 pm in Media, ,

Genentech’s Dribble (DNA)

Genentech (NYSE:DNA) posted $0.73 EPS vs $0.72 estimates, but revenues were $2.95 Billion versus a $2.93 Billion estimate.  It looks like 3 of the 4 major drugs came in under expectations, with Avastin being the only above-plan seller.  Here was our preview ahead of earnings.

U.S. product sales were $2.155 Billion, an 18% increase year over year.  As far as guidance, Genentech continues to expect 28% to 32% growth in non-GAAP earnings per share for the full year 2007, relative to 2006, for a range of $2.85 to $2.95.  unfortunately, and at least for the time being, the street has paid much closer attention to those revenue figures.

Shares closed up 0.3% in normal trading, but shares traded down about 2% at $76.00 in the initial after-hours trading reaction before recovering a bit of the losses.  Until the company clarifies its sales and expectations and until it gives more formal guidance in the conference call, this one should only be considered a partially-known earnings report.

Read More »

Posted on: October 15, 2007 – 3:18 pm in Biotech, Earnings, ,

The 52-Week Low Club, Toyota (TM)

Toyota (TM) Hard to believe. Must be the UAW settlement. Drops $107.70 from 52-week high of $138.

Nautilus (NLS) Fitness company cuts jobs. Down to $6.74 from 52-week high of $18.63.

Standard Pacific (SPF) Home builder Drops to $4.50 from 52-week high of $30.52.

Nordstrom (JWN) Close retail continues to smart from falling same-store sales. Down to $41.75 from 52-week high of $59.70.

Rite Aid (RAD) Chain of retail drugstores still smarting from weak earnings. Drops to $4.18 to 52-week $6.74.

Memory Pharmaceuticals (MEMY) Key drug in development fails trial. Drops to $1.05 from 52-week high $4.94.

Sharper Image (SHRP) Niche retailer loses chance to close out litigation over product. Fall to $1.74 from 52-week high of $14.16.

Acxiom (ACXM) Jilted in private equity buy-out, shares keep dropping. Down to $13.89 from $28.25.

McClatchy Newspapers (MNI) Newspaper chain faces falling revenue and big debt load. Down to $18.90 from 52-week $44.95.

Douglas A. McIntyre

Posted on: October 15, 2007 – 3:16 pm in HI/LOW, , , , , , , , ,

Sirius & XM Any Closer? (SIRI, XMSR)

CNBC just had some back to back coverage regarding Sirius Satellite Radio (NASDAQ:SIRI) and possibly of XM Satellite Radio (NASDAQ:XMSR).  We’ve been closely monitoring this merger and it just seems that at least the chances of a "bias toward approval" have increased at least a bit.

David Faber got to interview Sirius’ CEO Mel Karmazin.  Karmazin noted to Faber that both Sirius and XM have each sent in 6 million pages of documents to the regulatory agencies and have communicated with the FCC.  Karmazin said he thinks the chances should be 100% that the deal closes in his opinion, but he wouldn’t give any formal percentage chances that the merger would really pass regulatory scrutiny.  The backup plan is sort of a business as usual if the deal does get blocked.  The truth is there wasn’t really anything new in the interview.

Shortly after the David Faber interview, Jim Cramer came on CNBC (with a slur from root canals) discussing this and said he thinks the companies will get the deal done and that could get it to a $5.00 stock.

We’ll know fairly soon if this will occur or not by the end of the year.  We have covered this ourselves with recent notes about the chances getting higher that the deal could close.  One thing is for sure though: If the DOJ blocks this merger, XM and Sirius are both likely to announce substantially higher monthly prices to remain viable.  We recently noted how it sure sounded like the XM group was preparing to operate as its its own entity. 

We have reviewed this merger on and off, but have not yet made any formal calls for our Special Situation Investing Newsletter subscribers.  It is our opinion that the deal SHOULD be approved based upon other approvals, but ultimately this is at the mercy of too few key people that are deemed as being heavily under the influence of terrestrial radio lobbying to be able to make the "SHOULD" status become a "WILL" status.  The government has rubber-stamped just about every single "inside the US merger" and the influence from the radio industry is what has been holding this up; and the DOJ recently requested more data.  We have been reviewing Sirius and XM for the subscriber newsletter but have yet to make a determination we’d be willing to sign our name to.  An analyst opinion is one thing, and a decision from the government is another. 

Shares were up 1% at $3.58 before the call, but Sirius shares are now up 2% at $3.62 on over 33 million shares today after the two segments.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 2:17 pm in Mergers and Buy Outs, Satellite, , , , ,

Major Oils Flirt With New Highs As Oil Hits $86 (XOM, SLB, IYE, OIH)

Oil crossed the $85.00 threshold today and then crossed the $86.00-mark.  On last look, black gold was trading at $86.04 per barrel, up $2.35 from Friday.

The reason is tied to Iraq, although not really the U.S. campaign there.  This is due to more tensions between Turkey and Iraq.  The Turkish government is apparently seeking parliamentary approval for a military operation against Kurdish rebels operating in northern Iraq.  MF Global also issued an alert today with the call that oil could see $100 per barrel by the end of 2007. Another analyst from Doha Bank has called for $100 oil in the coming months.  Xinhua recently had an article calling for $100 oil based upon Chinese oil imports rising.

We have even covered on our own how Dubai is going to get to end up owning much more than just a part of the NASDAQ if oil prices go over $90.00 like we think is easily possible.  Imagine that these high prices now are actually with no major net delivery miss here having happened.

Exxon Mobil (NYSE:XOM) is seeing shares up 1.3% at $94.70, less than 0.5% away from the $95.07 all-time high.  This has a large percentage of the iShares Dow Jones US Energy (NYSE:IYE) and this briefly hit a new high today.  Schlumberger (NYSE:SLB) is also up 1.3% at $111.25 today, and it briefly hit all-time highs this morning.  That stock is the largest in the Oil Services HOLDRs (AMEX:OIH), which are up 0.5% at $201.25 and also flirted with new highs today.

The Kurdish region is Turkey has been seeking independence from Turkey for most of the last century (and probably under regional control for far longer).  We will spare the diplomatic explanation because it is long and complicated, but in summary Turkey doesn’t want to give up the region and let it become independent AND it doesn’t want the Kurds in Iraq to become its own region because it would in theory give the Turkish Kurds a bit more of a leg to stand on. 

PetroChina (NYSE:PTR) has surpassed GE to be the second largest company by market cap.
T. Boone Pickens was still bullish with his last forecast, although he did not offer any formal price targets.
Recently Goldman Sachs issued a higher "Super-Spike" target noting oil could hit $135/barrel and $4.50/gallon.
Anadarko up over 2% after filing for its MLP to come public.
Valero rose recently even on an earnings warning.
Ken Heebner is still quite bullish on black gold as well.
Superior’s battered IPO is up 2% from our October 4 article, but something still doesn’t seem right there.

Jon C. Ogg
October 15, 2007

Jon Ogg produces the Special Situation Investing Newsletter for 247wallst.com; he does not own securities in the companies he covers.  If you think oil mergers and spin-offs will continue, this is where you’ll get more proprietary data.

Posted on: October 15, 2007 – 1:42 pm in HI/LOW, Oil & Gas, , , ,

Would AT&T (T) And Verizon (VZ) Follow GM (GM) And Off-Load Liabilities?

"AT&T Inc.(T), the biggest U.S. phone company, and No. 2 Verizon Communications Inc. (VZ) may follow General Motors Corp. (GM) in trying to shift retiree health-care liabilities to a union-run fund, a move that has helped boost GM’s shares 39 percent this year". At least Bloomberg thinks so. 

International Union of Electronic Workers-Communication Workers of America  represents workers at AT&T, Verizon and Qwest Communication International Inc. in Denver, the second-, fourth- and 13th- largest companies ranked by retiree obligations in the S&P 500. The union will negotiate with Verizon and Qwest next year and AT&T in 2009, according to Bloomberg.

What could the move mean for telecom stocks? Based on the $3.5 billion Verizon spends each year on current and retired employee health costs, a great deal. GM’s stock got a 25% "healthcare fund settlement" benefit when it worked out its deal with the UAW.

That would translate into Verizon’s shares moving from their current $45 to over $56. Is that number based on exact calculations of health costs to balance sheet to share price? No. But it is probably in the ball park.

Douglas A. McIntyre

Posted on: October 15, 2007 – 11:53 am in Accounting, , ,

Genentech To Set Biotech Sector Earnings Bias (DNA)

Genentech Inc. (NYSE:DNA) is set to report earnings after today’s close. First Call has consensus estimates at $0.72 EPS on $2.93 Billion in revenues.  The biotech giant usually offers guidance and the next quarter is also pegged at $0.72 EPS on $3.04 Billion revenues.  It did offer prior 2007 guidance at $2.85 to $2.95 EPS on a non-GAAP basis (see below for long-term plans)

We used to do a breakdown on by-drug sales, but it seems that as the coverage has become more and more focused that there is just about always an equal number of analysts saying how pleased they were in one drug and disappointed with another.  The company breaks out its individual sales in Rituxan, Avastin, Herceptin, Lucentis and more.

Analysts still have a positive bias despite a dead-money stock performance and the average price target remains above $90.00.  If you trust the current options pricing as an indicator, it looks like options prices are not expecting a price change of more than $1.00 to $1.15 in either direction.

As far as the chart is concerned, this one has been dead money for two-years despite its stellar growth.  The good news of late is that the long-term downtrend chart pattern that was in place all year was broken in September.  That isn’t yet indicative of any sharp reversal, but at least it is out of that range that took it to two-year lows this summer.

With a $77.00 price it has roughly an $81 Billion market cap.  Shares have traded in 12-month range of $71.43 to $89.73 and shares briefly flirted with the $100 share price handle in late 2005.  As far as forward 2008 estimates, at $3.50 EPS and $13.5 Billion consensus, Genentech trades with a forward 2008 P/E ratio of 22 and a multiple of 6-times revenues.  Here is a link to the company’s pipeline as well.

In 2006 the company offered an update to a much longer-term plan to 2010:
20 new molecules into clinical development;
15 major new products or indications onto the market;
#1 in US Oncology sales;
average annual compounded annual non-GAAP EPS growth rates of 25%;
cumulative cash flow of $12 Billion.
We noted the huge options open interest in a competitor on Friday;
And by now it is well known that Biogen-Idec is up for sale; this could impact the Genentech-Biogen relationship over Rituxan sales;
Telik is way up after a clinical hold was released.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 11:26 am in Biotech, Earnings, , , , , ,

Carl Icahn Needs To Buy 4.9% Of Yahoo! (YHOO)

Carl Icahn has done a lot for shared holders at close to a dozen companies over the last year or so.

He continues to put pressure on Motorola (MOT) to increase its dividend or break itself into pieces. Many would argue that the pressure he bought on Time Warner (TWX) caused that company to spin out its cable unit. He has successfully pushed for the sale of biotech firm Biogen Idec (BIIB).Those shares are up 20% today, He urged BEA Systems (BEAS) to put itself up for sale. Oracle (ORCL) has made a bid. That moved the shares from under $14 to over $18 last week.

Perhaps it is time for Mr. Icahn to turn his attention to another undervalued company, Yahoo! (YHOO). For $1.5 billion, he could pick up about 4.9% of the company without having to disclose his full intentions.

An outsider like Icahn may be the only person who can get Yahoo! off the dime. The 100 days program by new management has not yielded much. One Wall St. analyst suggested breaking up the company. There has also been a suggestion that Yahoo! outsource its search functions to Google (GOOG) and cut 20% of its staff to improve earnings.

According to the last Yahoo! proxy, Legg Mason owned almost 6% of the the firm. Founder David Filo owns 6%. No other person or institution owned over 5%. A number of large funds probably own 2% to 3% each.

There are a several things that Icahn could ask for. He could push for the company to take on debt and use some of its $5 billion in cash and long term investments to start to return money to shares holder. If Yahoo! took on enough debt, it could probably buy-back a third of its shares and still have manageable debt service.

Yahoo! needs some significant shaking up from the outside. Icahn would be just the man to do it.

Douglas A. McIntyre

Posted on: October 15, 2007 – 9:43 am in Mergers and Buy Outs, , , , , ,

More Details on Superfund (BAC, C, JPM)

More details are out on this huge superfund we covered over the weekend to take advantage of over-sold (or now illiquid) asset-backed securities and loans.  The name of the structure is a master conduit to enhance liquidity ("M-LEC") in the market for asset-backed commercial paper and medium-term notes issued by structured investment vehicles ("SIVs").  Some would refer to this is a stabilizing fund or a bailout fund, and others might consider it more of a vulture fund.

Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and several other financial institutions reached an agreement in principle to create a single master liquidity enhancement conduit ("M-LEC").  Access to such liquidity is intended to allow participating sellers to meet pending redemptions and facilitate asset-backed commercial paper rollovers.  That sounds like a bailout. 

The press release says this M-LEC could be operational within 90-days.  The Department of Treasury facilitated the discussions among the consortium of banks and investment managers.  It almost sounds like the government is forcing the lenders to band together to keep the liquidity flowing, but you have to wonder if some further incentives were made.  Imagine what the conspiracy theorists will be talking about.

The first vulture fund for an IPO was filed back in August, although it was not related to this superfund.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 9:04 am in Banking, , ,

The Train Wreck At CNET (CNET) Gets Worse

Stifel Nicolaus downgraded CNET (CNET), the big online tech website business. It dropped the shares 7% to $8.27. The stock had risen recently on rumors of a buy-out by its former CEO.

CNET now trades at a modest 3.4x revenue. TheStreet.com (TSCM), the financial content site, trades at 7x.

Wall St. would think the shares would be headed up. An options probe of the company ended recently.

But, the company’s financial results have been poor, especially given the large number of unique visitors to it network of websites. CNET Networks’ global network of Internet properties reached an average of 137 million unique monthly users during the second quarter of 2007, an increase of 18 percent from the second quarter of 2006

Total revenues for the June quarter were $97.2 million, a 5 percent increase compared to revenues of $92.4 million for the same period of 2006. Not impressive at all for a company largest supported by internet advertising. Net cash provided by operating activities for the second quarter of 2007 was $17.5 million, up from $14.9 million for the second quarter of 2006. An equally weak number.

So, CNET’s audience is growing faster than its revenue, a sign that advertisers don’t have much faith in the company’s content.

Are sites like TechCrunch and GigaOm offering content that is considered more important to tech readers? Could be.

Douglas A. McIntyre

Posted on: October 15, 2007 – 8:59 am in Internet,

Level 3’s (LVLT) CFO Takes A Powder

Level 3 (LVLT) says that it is looking for a new CFO. "As the company focuses on ensuring we take full advantage of the opportunities presented by our marketplace, we believe we need a CFO with skills and experience which emphasize both operational and financial management," the company’s Chief Executive James Crowe said in a statement, quoted by Reuters.

Level 3’s shares are down 5% on the news, trading at $4.64, near a 52-week low. And, they should be. Announcing that the CFO is leaving just before the earnings release is a sure fire signal that the quarter will not be good.

Level 3 is a debt-laden nightmare, so its quarterly cash-flow is essential to keeping the company in good standing with its lenders. In the June quarter, the company showed over $6.8 billion in long-term debt. The company has had a string of quarterly operating losses.

The signal is not good.

Douglas A. McIntyre

Posted on: October 15, 2007 – 8:46 am in Management Change,

Countrywide Mortgage Tricks Continue (CFC)

The subprime mortgage malaise is quite multi-faceted.  The borrowers are at fault for overextending themselves.  The lenders are at fault for making loans that are a stretch.  Realtors exacerbate the problem by artificially boosting prices.  And the builders will keep building as long as they have access to construction loans. 

Just when it seems that the mortgage madness is trying to work itself out, there was a surprise in the piles of mail this weekend: a 40-year mortgage offering from Countrywide Financial Corp. (NYSE:CFC).  It seems that the lenders are still willing to play financial games to keep loaning money.  Unfortunately this isn’t really new at all.  But it shows that at least this lender is willing to keep the games alive in overextending credit.

Back in 2006, Bankrate.com was reporting on the proposed 50-year mortgages.  Japan had or has those 100-year mortgages available so that children (and maybe Grandchildren) can buy and own property that would otherwise be unavailable.

The current 30-year and even 15-year mortgages are sort of a hoax when you consider the fact that the amortization table is almost entirely interest upfront.  On a 30-year mortgage with a 6% interest rate with a $1,798.65 monthly payment, a borrower at month 60 still owes $279,163.07 in principal.  The same 6% rate mortgage for 40-years has a $1,650.64 payment, but at month 60 the remaining principal is $289,489.78.  The 15-year mortgage with a 6% rate is much more expensive with a $2,531.57 payment but is at least a bit more skewed with the principal remaining at month 60 as $228,027.30.

The value of dirt usually appreciates through time.  But many of these newer structures built don’t seem to be built as sound as prior generations of homes.  The thought of some of these three-story toothpick structures having a 30-year life seems like a stretch.  There is no doubt that these ‘more creative mortgages’ make what would have been out of reach into something more attainable.  But that is still part of the problem. 

Maybe this is a harsh assessment here, but it really just seems that many U.S. borrowers still need to be renters rather than temporary owners.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 8:28 am in Banking, , ,

Telik Surges on Trial Hold Release (TELK)

Telik, Inc. (NASDAQ:TELK) is seeing shares surging pre-market after it announced that the U.S. Food and Drug Administration has removed the partial hold on TELCYTA clinical trials after a complete review of TELCYTA data by the agency and permits the resumption of TELCYTA clinical development.

This is Telik’s most advanced development program, a tumor-activated small molecule product candidate in clinical development for the treatment of advanced ovarian cancer and non- small cell lung cancer.  Its other development candidate that is considered an advanced candidate is TELINTRA in clinical development for the treatment of myelodysplastic syndrome.

As of Friday’s close at $3.46, Telik had a $181.8 million market capitalization.  Shares are up over 15% pre-market at $4.05.  The 52-week trading range is $2.55 to $20.36, so you can see the reason for the large push pre-market.  It trades an average of about 370,000 shares in any given day, but as of the end of September its short interest was more than 9.4 million shares.  This sounds like there will be lots of short covering this morning.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 7:34 am in Biotech, ,

Pre-Market Stock News (October 15, 2007)

(APC) Anadarko filed for a spin-off of its Western Gas Partners LP.
(BIIB) Biogen-Idec trading up 18% after announcing it was putting itself up for sale.
(C) Citigroup $0.47 EPS vs. $0.44 est.; stock up 1% pre-market.
(CMED) China Medical Tech received Korean FDA approval for its HIFU system.
(CRA) Celera Genomics and collaboration team identified a risk score to predict genetic coronary disease.
(ELN) Elan hired Lehman for advice on Tysabri review extension from FDA; stock up over 10%.
(ETN) Eaton $1.67 EPS vs $1.68 est.
(GENZ) Genzyme presented positive results from Phase II of Alemtuzumab in Multiple Sclerosis studies.
(GLGC) Gene Logic agrees to sell its Genomics assets.
(MAT) Mattel $0.61 EPS vs $0.70 est, although that number includes some charges; stock down almost 1%.
(MDT) Medtronic suspended distribution of Sprint Fidelis(R) defibrillation leads on voluntary basis.
(NWS) News Corp.’s Fox Business News launches today.
(PCOP) Pharmacopeia acquired a selective androgen receptor modulator program from Bristol-Myers Squibb.
(PRM) Primedia put full year revenue guidance flat to low single digits versus previous "low single digit" guidance.
(TEK) Textronix gets $38 buyout from Danaher (DHR) in a $2.8 Billion deal.
(TELK) Telik said the FDA removed a partial hold on TELCYTA clinical development; stock up nearly 20%.
(VSAT) ViaSat was awared an $8.7 million contract to modernize Air Force telemetry tracking and control cryptographic units.
(WNG) Washington Group raised guidance.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 7:23 am in Pre-Market Activity

Anadarko Spinning Off Western Gas Partners in MLP IPO (APC, WES)

Anadarko Petroleum Corp. (NYSE:APC) has filed for an IPO of its Western Gas Partners, LP, for some
$452.8 million.  The company has a proposed sale of 18.75 million units with an additional 2.8125 million units in the overallotment for underwriters.  Western Gas will trade under the "WES" ticker on the NYSE.

This MLP was just formed in August as a midstream asset owner.  UBS Investment Bank was hired as the structuring advisor and will lead the underwriting group as the book-running manager.  This operates in East Texas, the Rocky Mountains, the Mid-Continent and West Texas and is engaged in the business of gathering, compressing, treating and transporting natural gas for Anadarko and third-party producers and customers.

For a comparison on market capitalization, Anadarko Petroleum itself has a $26.5 Billion market cap.  During the year ended December 31, 2006 and the six months ended June 30, 2007, approximately 92% of its total natural gas gathering and transportation volumes were comprised of natural gas production owned or controlled by Anadarko. For the six months ended June 30, 2007, adjusted for divestitures prior to this offering and including the assets being contributed, Anadarko’s total domestic midstream asset portfolio generated approximately $157 million of cash flow from operations and consisted of 25 gathering systems and one transportation system with throughput of approximately 3.0 Bcf/d, approximately 11,200 miles of pipeline, and 25 processing and/or treating facilities.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 7:18 am in IPOs, Oil & Gas, , , , ,

Pre-Market Analyst Calls (October 15, 2007)

AGU raised to Outperform at CIBC.
BEAS cut to Peer Perform at Bear Stearns; cut to Hold at Citigroup.
BJ cut to Sell at B of A.
BKUNA cut to Neutral at JPMorgan.
CHA cut to Underperform at Bear Stearns.
CLMS cut to Neutral at Credit Suisse.
CNQ cut to Neutral at Credit Suisse.
COGN cut to Neutral at UBS.
CWTR cut to Hold at Stifel Nicolaus.
DGX cut to Mkt Perform at Wachovia.
DKS cut to Neutral at Baird.
ECA cut to Neutral at Credit Suisse.
FCN cut to Buy at Deutsche Bank.
IMGN raised to Outperform at RBC.
KBH cut to Neutral at UBS.
LDG raised to Overweight at Lehman.
MEOH cut to Underperform at CIBC.
MHS cut to Mkt PErform at Wachovia.
NLY raised to Buy at UBS.
NVLS raised to Outperform at RBC.
ODP cut to Neutral at Credit Suisse.
PETM cut to Neutral at Credit Suisse.
STD raised to Buy at UBS.
TLM raised to Outperform at Credit Suisse.
WDR raised to Outperform at Credit Suisse.

Jon C. Ogg
October 15, 2007

Posted on: October 15, 2007 – 6:46 am in Analyst Calls

PetroChina (PTR) Passes GE (GE) In Market Cap

The news should cause some concerns or perhaps weeping among US investors who see big US companies as the pride of the global corporate fleet.

PetroChina (PTR), China’s big oil company,  passed GE (GE) in market cap today. The company’s oil and gas output rose a modest 5%. PTR shares were up 13% overnight.

PetroChina’s market cap is now over $420 billion. Exxon (XOM) is still ahead of it at $520, but that probably won’t last.

Douglas A. McIntyre

Posted on: October 15, 2007 – 6:42 am in China, , ,

Google: Best Bell Weather For US Earnings

Google (GOOG) has changed a great deal in the last two years. It is not just the bigger revenue and the growing share of market. It is not that the company has desktop software to compete with Microsoft (MSFT) or that the company owns video sharing giant YouTube.

The difference is that Google now has such a large piece of the US internet ad market that it has become a proxy for the overall economy in a way that the car industry was four decades ago.

By some estimates, Google now has 40% of the US online ad market. The company’s AdWord program draws marketers from an immensely broad spectrum of industries from financial services, to consumer goods to software to cars.

What this means is that Google’s earnings for this quarter will be as good a proxy for the overall economy as the numbers that any company reports this earnings season.

Under the circumstances, Google’s Q3 takes on a special significance. If they are good, tech stocks will be likely sucked higher by a surge in the company’s shares. If they are below expectations, they could take tech down with them. But, the effect is likely to be broader than that.

If Google has poor revenue growth, it is as good an indication that the economy is slowing as any other. It is arguably the most effective place to market almost any type of product or service. A slip in the numbers means that marketing spending in general is pulling back.

Douglas A. McIntyre

Posted on: October 15, 2007 – 6:08 am in Earnings,

Citigroup (C) Forecast Was Right, It Has A Bad Quarter

Citigroup’s (C) quarter was as bad as advertised. The bank reported net income for the 2007 third quarter of $2.38 billion, or $0.47 per share, a decline of 57% from the prior-year quarter. Results include a $729 million pre-tax gain on the sale of Redecard shares. Return on equity was 7.4%. On October 1, 2007,

Citi Segment Results

       
Third Quarter Revenues  

 

Third Quarter Net Income  

 

(In Millions of Dollars, except EPS)   2007     2006    

%
Change

  2007     2006    

%
Change

Global Consumer $ 14,683   $ 12,834 14 % $ 1,783   $ 3,195 (44 )%
Markets & Banking 4,603 6,067 (24 ) 446 1,721 (74 )
Global Wealth Management 3,509 2,486 41 489 399 23
Alternative Investments 125 334 (63 ) (67 ) 117 NM
Corporate/Other   (257 )     (299 )   14       (273 )     (129 )   NM  
Results from Continuing Operations $ 22,663 $ 21,422 6 % $ 2,378 $ 5,303 (55 )%
Discontinued Operations   -       202     NM  
Total Citi                   $ 2,378     $ 5,505     (57 )%
Earnings per Share from Continuing Operations $ 0.47 $ 1.06 (56 )%
Earnings per Share                   $ 0.47     $ 1.10     (57 )%
International results (1)   $ 12,256     $ 9,460     30 %   $ 2,035     $ 2,276     (11 )%

(1) International results are fully reflected in the Total Citi results above, and exclude Alternative Investments, Corporate/Other and Discontinued Operations.

 

NM Not meaningful.

Douglas A. McIntyre
Posted on: October 15, 2007 – 5:44 am in Earnings,