Daily Archives: November 8, 2007

Bill Gates Sale of Microsoft Shares Continues (MSFT)

Seeing insider activity during certain selling windows is always an interesting observation.  When Bill Gates sells shares of Microsoft (NASDAQ:MSFT) it is normally just a blip, even though some may try to make a mountain out of a what is merely a molehill to the ‘Bajillionaire.’   

Since the end of October over 9 separate filings Mr. Gates has sold nearly 11 million shares of Microsoft.  If you just took the $36 handles seen on many prints in here for a rounding estimate you would see that this represents in the ballpark of some $400 million in gross proceeds so far.  As of the last transaction Bill Gates still was the beneficial owner of 866,499,336 million shares, so in no way can the argument be made that Gates is fleeing this as his his major investment holding.  But there might be more SEC filings with Gates selling shares before the current window closes.

In the prior sales window from the end of July to start of August, Mr. Gates’ holdings went from 897.49 million shares down to 877.49 million shares.  So maybe he’s only half way through reporting share sales this time.  We won’t know for another few days.

If many tech tycoons out there feel that the capital gains laws or that the income tax laws are going to change very much in 2009 after the election, then one might deduct that you could see an acceleration is share sales next year. 

We routinely cover more in-depth analysis and look for more irregularities or patterns on our open distribution list, and some of that data doesn’t always get posted to the open website.  As his holdings are so vast and as this is a mere blip for him, we have rounded all numbers rather than show exact numbers down to the penny.  When dealing with the richest people in the world, a few million dollars is like beer money to most people.

Jon C. Ogg
November 8, 2007

Jon Ogg also produces the Special Situation Investing Newsletter, which covers buyout candidates, spin-offs, break-ups, activist investor actions, reorganizations, and recapitalizations.

Posted on: November 8, 2007 – 9:06 pm in Insider Activity, Software, Technology Companies,

S&P Walked Away From Rio Tinto (RTP, BHP)

Standard & Poors took an already unenthusiastic "Hold" rating on U.K.-based metals giant Rio Tinto (NYSE:RTP) ADR’s down to the beloved "Sell" rating.  This was after a 29% pre-market gain in share prices based on the Australia-based BHP Billiton (NYSE:BHP) unsolicited offer to acquire the company in a stock for stock swap.  This would value Rio Tinto at $414 per share.  Rio Tinto did reject the offer with the statement that it undervalued the price for the company.  S&P said that based upon the assumption that Billiton will ultimately buy it, S&P raised its $250 target to $438 per ADR.  Since the value was above the target, S&P says sell. 

24/7 Wall St. thinks there is a much larger issue than today’s call from S&P, regardless of when their call came. Rio Tinto plc closed up 23% at $440.20 in regular trading, above the prior $376.40 high over the last year.  Shares are up more than 300% since mid-2004.  And this is ‘undervalued’? As of today’s close, BHP’s market cap was $218 Billion and RTP’s market cap was $141 Billion (after the gain).

We aren’t sure which government or international agency out there should be blocking these giant mergers, but realistically 24/7 Wall St. wonders just how big these metals companies will be allowed to grow to before everyone realizes that metals prices of any real size will be a supply-controlled market ruled by price-fixing.  That will not be a good development for anyone other than the conglomerate mining and commodity monopolies.

Jon C. Ogg
November 8, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 8, 2007 – 5:30 pm in Mergers and Buy Outs, Metals, ,

Allscripts… Just When You Thought It Was Safe (MDRX)

Allscripts Healthcare Solutions Inc. (NASDAQ:MDRX) is trading at a new 52-week low after a disaster earnings report this afternoon.  Non-GAAP adjusted earnings for the quarter ended September 30, were $6.7 million, or $0.11 per diluted share, quarterly revenues were $73.4 million, and gross margin percentage was 50.1%.  Unfortunately, First Call had estimates at $0.15 EPS and $77.6 million in revenues.

Allscripts updated 2007 targets of Non-GAAP adjusted earnings per diluted share outlook to a range of $0.48 to $0.49 and revenue to a range of $286 million to $288 million, but First Call had estimates at $0.58 EPS and $298.9 million in revenues.

Its new 2008 targets are for annualized growth in Non-GAAP EPS is expected to be 40% to 45%, which is an interpolated $0.679 to $0.703.  First Call has estimates at $0.79.  Its 2008 forecast for revenue is 20% to 25% growth, which at the mid-points generates a target of $344.4 million to $358.75 million.  Unfortunately First Call has estimates at $375.6 million.

Sometimes being a growth stock in healthcare isn’t quite what investors think.  Shares closed down over 2% today at $23.00, and the 52-week trading range was $22.21 to $31.38.  But shares in after-hours have lost almost 1/4 of their value and trading at a new 52-week low of $17.40.  Ouch.

The company provides clinical software and connectivity/IT solutions for doctors: Software and Related Services, Information Services, and Prepackaged Medications.  It sure sounds like some of the salespeople aren’t hitting their targets.  Or maybe their IT solutions just aren’t up to task.

Why does it feel like the company will need to seek to become part of a larger company to please shareholders after this trainwreck?

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 4:57 pm in Earnings, Earnings Warning, Healthcare, Software,

Nvidia (NVDA), No Big News

Expectations were for Nvidia (NVDA) to have EPS of $.37 for the last quarter, and revenue growth of 23% to $1 billion. After a tough day for tech, the chips company’s numbers were more important than they might be otherwise. Wall St. was looking for a sign that tech was not wounded.

In the regular session, NVDA sold off 6.27% to $33.84, moving almost 22 million shares.

What the company reported was for the third quarter of fiscal 2008, revenue increased to a record $1.12 billion compared to $820.6 million for the third quarter of fiscal 2007, an increase of 36 percent. Net income computed in accordance with U.S. generally accepted accounting principles (GAAP) for the third quarter of fiscal 2008 was a record $235.7 million, or $0.38 per diluted share, an increase of 121 percent compared to the third quarter of fiscal 2007.

The company did not provide guidance with its press release.

The stock was down over 2% after hours.

Douglas A. McIntyre

Posted on: November 8, 2007 – 4:37 pm in Earnings,

Qualcomm Guidance Takes Shares Lower (QCOM)

Qualcomm (NASDAQ:QCOM) reported earnings after the close today with $0.54 EPS and $2.31 Billion revenues, while First Call had $0.53 EPS and $2.26 Billion in revenues as consensus.  The company said this excluded $0.02 and $0.05 in charges and $0.20 earnings from items, and its tax rate was 19%.

Qualcomm shipped a record 253 million Mobile Station Modem chips, a 22% year-over-year increase.  Qualcomm’s cash and equivalents were approximately $11.8 billion at the end of the fourth quarter.  At September 30, $1.5 billion remained authorized for repurchases  and from October 1, 2007 through November 7, 2007 it repurchased and retired 13 million shares of common stock for approximately $525 million.

Because of legal disputes, Qualcomm now estimates shipments of 89 million handsets reported in fourth quarter fiscal 2007, compared to its prior estimate of 92 million handsets; its average sale price is still at an expected $218 per unit.

The company’s guidance is $0.50 to $0.52 EPS and $2.3 to $2.4 Billion in revenues, while First Call has estimates pegged at $0.52 EPS and $2.38 Billion revenues.  It now puts MSM shipments at 74 to 78 million and CDMA/WCDMA handset units shipped at 95 to 98 million with an ASP of $212 per unit.

It is offering some longer-term Pro Forma guidance for fiscal 2008 of $2.03 to $2.09 EPS and $9.5 to $9.8 Billion in revenues, while First Call has estimates pegged at $2.18 EPS and $9.84 Billion in revenues; and its ASP for CDMA/WCDMA handsets is approximately $199 per unit..  It is now offering annual guidance for 2008 CDMA/WCDMA handset shipments for Calendar 2008 at 492 to 522 million.

This report is a bit harder to track because of some numbers being backed out from the Nokia situation, and because of some "calendar December year-end data compared to Fiscal year-end data of September.  Qualcomm closed down almost 3.5% at $39.76, but because of the guidance and individual metrics from the pending suits shares are down about 7% in after-hours around $37.00.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 4:33 pm in Earnings, Technology Companies, Wireless,

Qualcomm Braces For Earnings (QCOM, BRCM)

Qualcomm (NASDAQ:QCOM) is set to report earnings after the close today.  First Call has $0.53 EPS and $2.26 Billion in revenues as consensus, with next quarter pegged at $0.52 EPS and $2.38 Billion revenues.

Options traders have expectations set for a move of up to $1.20 to $1.40 in either direction.  The average analyst target from Wall Street analysts is still north of $53.00.  Qualcomm’s chart has just gotten back within 1% of a key support level since the summer malaise, but it’s been range bound for the last month up until yesterday and today.  The mid-October short interest was listed as 23.3 million shares, which is the lowest short interest reading since February 2007.

Earlier today this was one of only two tech stocks of the top ten in the NASDAQ 100 that was positive, but now shares are down almost 3% at $40.02.

After Broadcom (NASDAQ:BRCM) was destroyed after the last earnings and with so many unknowns in the ongoing legal fight, this one is too hard to try outguessing.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 2:34 pm in Earnings, Technology Companies, WiMAX, Wireless, ,

Can Jones Soda Escape the Hansen Trap? (JSDA, HANS)

Jones Soda Co. (NASDAQ:JSDA) is set to report right after the close today, and it is actually surprising that the stock hasn’t seen more selling just out of sympathy with Hansen.  The soda and beverage maker is expected to post $0.02 EPS on $18.85 million revenues. 

One thing the company needs to figure out is how to shrug of the niche growth stock trap.  If the company hits the $0.18 consensus estimate for fiscal Dec-2008, it still trades just under 50-times forward earnings after todays sell-off.

At $8.90 its trailing P/E is still listed as "almost 100" on most systems.  The company obviously has a lot ahead for it with its niche drinks and its recent sports win, but it sure feels like in the last two days that the market isn’t going to pay for growth in the same manner it was willing to just last week.   

Hansen Natural (NASDAQ:HANS) was so confusing this morning that it’s no wonder shares went to hell in a hand basket.  The officers need to go to ‘press release’ school. Really.  Shares of Hansen were down almost 30% at last look.

Jones Soda shares are down 1% at $8.90, and the 52-week trading range is $8.50 to $32.60.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 2:15 pm in Earnings, Food, ,

Defensive Stocks Show Rotation Out of Tech (PEP, KO, BUD, TAP, KFT, CAG, CPB, HRL, MCD, MO, VGR, RAI, PG, CL, MRK, JNJ, NVO)

The markets haven’t fallen apart after yesterday’s 360 point dive on the DJIA, but we are still trading a tad lower today.  Now that Cisco Systems is showing you can’t just automatically hide out in all big technology stocks, it appears that investors who want to keep equity exposure are flocking to the DEFENSIVE STOCK names.  You can see below on our ticker list of defensive stocks that only Campbell Soup (NYSE:CPB) is not up today out of our 17 go-to defensive stocks.

DJI            13,249.05    -50.97    (-0.38%)   
S&P500    1,473.49     -2.13       (-0.14%)
NASDAQ   2,718.11    -30.65     (-1.12%)

PEP    $60.77    +$0.81 (1.35%)   
BUD    $50.29    +$0.23 (0.46%)   
TAP    $54.25    +$0.36 (0.67%)   
KFT    $33.37    +$0.04 (0.12%)   
CAG    $23.03    +$0.02 (0.09%)   
CPB    $35.50    -$0.08 (0.22%)   
HRL    $35.16    +$0.09 (0.26%)   
MCD    $59.21    +$0.83 (1.42%)   
MO      $72.75    +$0.77 (1.07%)   
VGR    $21.89    +$0.30 (1.39%)   
RAI     $63.71    +$0.64 (1.01%)   
PG     $70.07    +$0.65 (0.94%)   
CL     $75.33    +$0.01 (0.01%)   
MRK   $54.59    +$0.39 (0.72%)   
JNJ    $64.20    +$0.29 (0.45%)   
NVO  $123.41   +$1.72 (1.41%)   

Out of the top 10 holdings in the NASDAQ 100 QQQ (NASDAQ:QQQQ), only Microsoft (NASDAQ:MSFT) and Qualcomm (NASDAQ:QCOM) are trading up.  Unlike prior cautionary days, technology is giving back at least some of the gains today after the Cisco news last night.  It’s hard to tell a trend reversal if it is only the first or second day, but you can at least see where the money is going today (and it isn’t flocking back into financials yet).

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 12:08 pm in Defensive Stocks, , , , , , , , , , , , , , , , ,

Starbucks (SBUX) Hits 52-Week Low, While McDonald’s (MCD) Hits High

A chart is worth a thousand words. Or, maybe more. Starbucks (SBUX) hit another 52-week lows today at $23.29, down 3%. McDonald’s (MCD), which delivered strong same-store sales, is up 1.6% to $59.59, a few pennies from its 52-week high.

McDonald’s said, once again, that it is winning with breakfast. It opens a lot of its restaurants at 5 AM. Some stay open all night. Wall St. can debate who has better premium coffee. But, if a Starbucks store is not open, it hardly matters.

The market may also be concerned that consumers will cut back, even on expensive coffee and treats, if the economy gets tight. That helps the Dunkin Donuts guys and MCD. It probably does not do much for Starbucks.

McDonald’s has kept investor interest by issuing monthly same-store sales and revenue numbers. Starbucks has gone dark. They only draw the picture once a quarter.

The market is talking, but SBUX is not listening.

Douglas A. McIntyre

Posted on: November 8, 2007 – 11:33 am in Uncategorized, ,

Sotheby’s: No Auction Flippers Please (BID)

Just when you think the rich are immune and just when you think the super-wealthy Chinese and Russians will pay anything for any super-luxury good, the reminder is coming home that immunity is a stretch.  Take a look at the stock price collapse today at Sotheby’s (NYSE:BID).

Apparently there are fears that the art auctions are going to see their own recession, even though the company has not made any indications of that as a trend.  A Vincent Van Gogh landscape titled "Wheat Fields" that was painted shortly before his death went unsold.  Also coming up light were works of Picasso and Gaugin.  This last auction fetched $270 million, far short of a pre-sale estimate of $355 million.  It is a reminder of the movie ‘Wall Street’:  "Even the rich  are bitching!"

Banc of America cut the shares to ‘Neutral’ from ‘Buy,’ and boutique JMP Securities cut the rating to ‘Market Perform’ from an ‘Outperform’ rating.  Shares are already up over $4.00 from intraday lows at $35.70, but shares reached $31.20 in early trading.  The 52-week trading range is $29.81 to $61.40. 

24/7 Wall St. has had Sotheby’s as a potential "private equity wish list stock," although because of a prior dual class and prior voting control under the Taubman’s, we never did much work other than have it on a watch list.  After a quick glance this morning it appears the only change in control procedures now would basically require enhanced management payouts (simplification), but that is only giving it a quick look and we wouldn’t want to make any bold takeover or anti-takeover notes with an in-depth look.  We may revisit this for our Special Situation Investing Newsletter now that this has come off so much.

Jon C. Ogg
November 8, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 8, 2007 – 10:37 am in Luxury,

Kenaxa (KNXA) Down 34% On Weak Earnings

It’s a bad week to miss numbers, even by a little.

According to The Associated Press,  Kenexa (KNXA) a human resources operation,.said Wednesday its third-quarter profit and revenue rose by about two-thirds, but sales fell short of Wall Street’s expectations.

Net income for the three months ended Sept. 30 rose to $7.1 million, or 27 cents per share, compared with $4.2 million, or 20 cents per share, during the same period a year earlier.

Revenue rose to $46.8 million, from $28 million a year ago. That was short of analysts’ projection of $49 million.

On a good day, not much of a miss, but this isn’t a good day.

Douglas A. McIntyre

Posted on: November 8, 2007 – 10:31 am in Earnings Warning,

Has Charter (CHTR) Reached The End Of The Road?

Charter Communications (CHTR), the over-leveraged cable company, is down 21% today to $1.41, a new 52-week low. Not that long ago, the stock traded at $4.93.

Wall St. does not like cable companies right now. Even mega-cable company Comcast (CMCSA) is near a 52-week low. There is too much concern that satellite TV high-definition and telecom fiber-to-the-home products will steal cable subscribers.

But, Charter is much weaker than most other cable operators. It carries $19 billion in debt. At its current stock price, the company has a market cap of only $550 million.

Today Charter reported third-quarter pro forma revenues of $1.526 billion grew 11.2% year over year and actual revenue grew 9.9%, driven by significant increases in telephone and high-speed Internet revenues.

Digital video customers increased by only 15,800 in the quarter. Analog video customers decreased by approximately 40,200. Not a very good balance.

But, investors are looking beyond subscriber counts and pro forma numbers. Operating income from continuing operations increased to $107 million in the third quarter of 2007 from $66 million in the third quarter of 2006 and the net loss for the third quarter of 2007 was $407 million, or $1.10 per common share. For the third quarter of 2006, Charter reported a net loss of $133 million and loss per common share of $0.41.

The number that scares shareholder is the $453 million in interest expense. That is an awful lot for a company that reported only $210 million in cash flow.

Charter is in real trouble now. Billionaire Paul Allen controls the company. And it is going to cost him some real dough to get out of this.

Douglas A. McIntyre

Posted on: November 8, 2007 – 9:44 am in Cable Companies, ,

McDonald’s (MCD): The Hamburger Economy

McDonald’s (MCD) has an increase in same-store sales for October of 6.9%. Overall system-wides sales were up 14.2%.

In the U.S., comparable sales climbed 5.4% as customers continue to visit McDonald’s for the compelling value, new products, conveniences such as late-night hours and a wide-range of breakfast options

In Europe, comparable sales rose 6.4% for the month, driven primarily by France, the U.K. and Russia.

In Asia/Pacific, Middle East and Africa, locally relevant products, extended operating hours and branded affordability menus fueled October’s comparable sales increase of 9.4%. Strong performance in most markets, led by Australia, Japan and China, contributed to these results.

And, Target (TGT) and CostCo (COST) same-store sales also rose for October. Consumers are getting cheap which may mean that they are getting smart.

Target and CostCo are know for having excellent branded products at the lowest prices a buyer is likely to find.

And, no matter how bad things get, consumers can always afford a hamburger.

Brother, can you spare a dime.

Douglas A. McIntyre

Posted on: November 8, 2007 – 8:54 am in Food, , ,

Target Sales, Above Target (TGT)

Target Corp. (NYSE:TGT) just posted its same-store-sales figures for October, and it is considerably better than the situation over at Fall-Mart.  Target posted a gain of +4.1% on a comparable basis.  Analysts were only expecting about +2.5%, and that is at the higher-end of its recently offered range. 

One interesting aspect though is that the retail giant said it experienced soft sales in higher margin categories for the second straight month.  Does that lead to earnings or margin pressure?  So far Wall Street doesn’t seem to think so, or it doesn’t matter as much.

Target’s total sales were up 9.1% for the four weeks to $4.445 Billion, so now we have sales for the quarter listed as roughly $14.342 Billion. 

Shares of Target are now up about 3.7% at $61.00 in pre-market trading reaction. Costco Wholesale shares are currently up 1.3% at $67.00 and Wal-Mart shares are up 1.3% at $44.50 in pre-market trading about 45 minutes before the open.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 8:49 am in Retail,

Top 10 Pre-Market Analyst Calls (AAI, AMR, BIDU, RATE, FSLR, FWLT, DNA, PCG, TOT, VRTX)

It might not be fair to only break out 10 analyst calls from the myriad of calls out there, because there are dozens to hundreds of changes daily.  Here are the key calls that 24/7 Wall St. is looking at today, besides the Cisco calls:

  • AirTran (AAI) downgraded to Neutral from Buy at UBS.
  • AMR Corp. (AMR) downgraded to Sell from Neutral at UBS.
  • Baidu.com (BIDU) downgraded to Sector Perform from outperform at RBC Capital Markets; stock down 0.5%.
  • Bankrate (RATE) downgraded at both RBC and at CIBC; stock indicated down $2 pre-market.
  • First Solar (FSLR) raised to Outperform at CIBC; stock up 20+% pre-market after earnings.
  • Foster Wheeler (FWLT) raised to Buy at Citigroup; stock up 3% pre-market.
  • Genentech (DNA) added to Goldman Sachs’ Americas Conviction Buy List, but no change to $102 target; stock indicated up almost 1%.
  • PG&E (PCG) raised to Buy at Jefferies.
  • Total SA (TOT) raised to Overweight at J.P.Morgan.
  • Vertex Pharma (VRTX) raised to Buy at Goldman Sachs; stock up 1.3% pre-market.

There are many other analyst calls not mentioned that will be having an impact on share prices, as always.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 8:13 am in Analyst Calls, , , , , , , , , ,

Wal-Mart Discounting & Seasonality Drag October Sales (WMT)

Wal-Mart Stores, Inc. (NYSE:WMT) just posted same-store-sales figures for October.  On an ex-fuel basis the total sales came in +0.4%, which is broken down as 0.0% at Wal-Mart Stores and +2.7% at Sam’s Club.  Wall Street was expecting about 1.1% growth.

Maybe discounting too much has a price.  The company also said seasonal categories related to cold weather including those in apparel, home and hardlines were soft.

We now have a preliminary revenue for the quarter.  Total net sales for the third quarter of fiscal year 2008 ended October 31, 2007 were approximately $91 billion.  Wal-Mart now expects the comparable store sales of its U.S. operations for the November four-week reporting period to be FLAT to +2%.

Jon C. Ogg
November 8, 2007

Posted on: November 8, 2007 – 7:52 am in Retail,

Endeavor’s ‘American Apparel’ Buyout Revised Higher (EDA)

Endeavor Acquisition Corp. (Amex: EDA) has announced an amended and restated merger agreement with American Apparel, the blank check company’s acquisition target.

American Apparel shareholder Dov Charney will now receive a total of 37,258,065 shares of Endeavor, an increase of 5 million shares which are still subject to a 3-year lock-up.  The maximum level of American Apparel net debt at the merger closing date has been raised to $150 million, up from the $110 million ceiling in the original agreement.  Mr. Charney has entered into a 3-year employment agreement at $750,000 per year with up to a 150% performance based bonus and a long-term performance bonus of up to 300%; and this is a change from the initial $1 salary he was set to receive.   Endeavor will also increase the employee stock option and stock plans to 7.71 million shares from 2.71 million shares in the original agreement.  The additional shares for Mr. Charney will maintain his approximate 55% ownership position in the pro forma company as intended per the originally proposed transaction.

The reasons are pretty easy to see.  The company has 20 new store openings planned.  But the growth numbers were big here.  It posted third quarter same store sales growth at 27%. Its first 9-months EBITDA looks to exceed $40 million, which was its goal for all of 2007. As of October 31, 2007, American Apparel operated 166 retail stores in 13 countries.

The special meeting of stockholders to consider the transaction is expected to be held Wednesday, December 12, 2007.  You can guess that the shareholders will approve this transaction.  Endeavor’s closing price was $12.32 yesterday, and the 52-week range is $7.32 to $13.15.

Jon C. Ogg
November 8, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 8, 2007 – 7:35 am in Apparel, Mergers and Buy Outs, Retail, , ,

A Triumph At Ford (F)

Ford (F) is supposed to be the weak sister of the Big Three. It does not have the financial backing of a hedge fund and friends the way that Chyrsler does with Cerberus. It does not have GM’s (GM) size, sales volume outside the US, or $9 billion in cost cuts already behind it.

But, Ford and its new CEO pulled off the improbable, posting strong earnings in the last quarter.

The car company reported a net loss of 19 cents per share, or $380 million, for the third quarter of 2007. This compares with a net loss of $2.79 per share, or $5.2 billion, in the third quarter of 2006.

On a pre-tax basis, worldwide Automotive sector losses in the third quarter were $362 million. This compares with a pre-tax loss of $1.9 billion during the same period a year ago. The improvements were more than explained by higher net pricing, lower costs, and improved volume and mix, partially offset by higher interest expense, and unfavorable changes in currency exchange rates.

Ford is getting more money for each car. Incentives are probably falling and margins growing. That can’t be beat. It means the company is moving closer to the economics of companies like Toyota (TM) and Honda (HMC) and the UAW contract should help.

Ford’s number improved sharply in Europe and South America, a sign that its overseas reveue is becoming more robust, a must in a global market where US car sales are slipping overall.

Finally, the company said it was on plan to make money. Looking ahead, the company’s progress in 2007 reflects it is on track to meet its goal of being profitable in North America and Total Automotive in 2009. The company also is on track to meet its North American cost reduction target of $5 billion by 2008 as compared with 2005. Progress is being made on achieving U.S. market share goals, and the company is ahead of its $17 billion cash outflow target for the 2007 to 2009 period.

Ford has done what few thought it could. Combining new strength overseas with better margins in the US, and the company make actually be completely rebuilt within next 24 months, especially if Jaguar and Rover are gone.

That is extraordinary.

Douglas A. McIntyre

Posted on: November 8, 2007 – 7:25 am in Autos,

BHP Billiton (BHP) And Rio Tinto (RTP): Why Create A Giant?

BHP Billiton (BHP) has offered to buy rival Rio Tinto (RTP). BHP has a market cap of $230 billion. And Rio’s is $115 billion. Both stocks are moving up on the news. A combined company could be worth more than GE (GE).

Why? Most mergers don’t work. Why buy a rival?

In the industrial part of the global economy, which is probably shrinking outside China, economies of scale can still make sense. With dozens of mines around the world, processing facilities and transportation channels, both RTP and BHP both spend billions. The cost of revenue at BHP was over $20 billion last year. Any improvement in that number in a consolidation goes straight to the bottom line.

The deal makes sense for much the same reason that Alcoa (AA) wanted to buy Alcan (AL). There may be $5 billion in low hanging fruit represented by overlapping costs. The companies are that big and have that many duplicated expenses in mining, processing, and transporting their products.

A merger of BHP and RTP make a ton of sense.

Douglas A. McIntyre

Posted on: November 8, 2007 – 7:13 am in Mergers and Buy Outs, , , ,

GameStop’s ‘New’ Competitor (GME)

It is always interesting when you see a pure-play monopoly, and out of video game stores it is arguable that GameStop (NYSE:GME) is a pure-play monopoly on a video game focused business strategy.  24/7 Wall St. is not at all suggesting antitrust issues or predatory actions or anything of the sort, because there are the behemoths Best Buy, Wal-Mart, Toys R US, online giants, and many other large stores that sell games.

But there is a company that was just noticed as having grown after looking through press releases today, and this is a company we looked at before and had forgotten about.  A company called Play N Trade put out a press release about the winner of its Halo 3 tournament, but it was a little surprising how fast the company has grown and more importantly how much it wants to grow.  It claims 95 video game stores currently, but it says that it has sold more than 400 franchises.  On the store location site, we counted over 100 stores for Play N Trade that were either open or coming soon.  Its website has the goal of reaching close to 200 stores by the end of 2007 and a national presence of 1,000 stores in the next 3 years.

GameStop operated some 5,000 stores as of last look.  So this is not even 1/10 the size of the video game giant the merged Electronics Boutique with GameStop stores into the largest pure-play video game retailer out there.  You can also be sure that GameStop will grow its store count in the U.S. and much more internationally while Play N Trade is on its growth plans. 

Play N Trade’s "investment required" is listed as $125,000 to $150,000 on the Franchise.com web site, although the "investment required" for most franchises is usually not the full costs for running a business to success.  GameStop’s market cap is just under $9 Billion, which gives it a value of $1.8 million per store if you discount the online sales and the content sales etc.

Its doubtful that GameStop will even notice this in the immediate future, but this could be an issue that GameStop at least notices when the next generation of video game consoles start coming to market…. in a couple years or more.

Jon C. Ogg
November 8, 2007

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

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Posted on: November 8, 2007 – 7:10 am in Retail, Video Games, , ,