Visa filed for its IPO after the close. The S-1 is here.
For the nine months ending June 30, 2007, revenue for Visa was $3.727 billion compared with $3.908 billion in the year before. Due to a share decrease in expenses, oprerating income rose to $1.243 billion from $704 million in the previous period. Operating income as a percent of revenue rose to 33.4% from 18%.
Douglas A. McIntyre
E*Trade (ETFC) are off 12% after hours to $7.55, below their 52-week low.
The brokerage reported that it has observed continued declines in the fair value of its $3.0 billion asset-backed securities portfolio, predominantly within ABS CDO and second-lien securities. The total exposure to ABS CDO and second-lien securities at September 30, 2007 was approximately $450 million in amortized cost, including approximately $50 million of “AAA” rated asset-backed CDOs that were downgraded to below investment grade.
Management believes the additional deterioration observed since September 30 will likely result in write downs that exceed the previous expectations included in the Company’s 2007 earnings outlook updated on October 17, and investors should no longer expect these earnings levels to be achieved. Actual securities-related losses will depend on future market developments, including the potential for future downgrades by rating agencies, which are extremely difficult to predict in this environment. Accordingly, management believes it is no longer beneficial to provide earnings expectations for the remainder of the year.
That has to hurt.
Douglas A. McIntyre
Below is the short interest in certain stocks traded on Nasdaq. The figures are as of October 31 and compare to numbers posted on October 15, 2007
Largest Short Positions
Company Share Short
Level 3 (LVLT) 139.6 million shares short
Microsoft (MSFT) 101.3 million
Charter (CHTR) 99.5 million
Sirius (SIRI) 79.5 million
Intel (INTC) 75.9 million
Largest Increases In Short Position
Company Increase In Short Position
Microsoft 23.9 million increase
Dell (DELL) 10,4 million
Yahoo! (YHOO) 8.0 million
BEA Systems (BEAS) 6.9 million
Comcast (CMCSA) 5.6 million
Largest Decreases In Short Position
Company Decrease In Shares Short
Hologic (HOLX) 8.5 million shares decrease
Oracle (ORCL) 7.6 million shares
Juniper (JNPR) 6.0 million shares
Sirius 5.6 million shares
Applied Materials (AMAT) 5.5 million shares
Data from Reuters and Nasdaq
Douglas A. McIntyre
According to Bloomberg "JPMorgan Chase & Co., the third- largest U.S. bank, said it held $40.6 billion in leveraged loans and unfunded commitments as of Sept. 30 that are difficult to hedge and “further markdowns could result if market conditions worsen.”
Bloomberg also Bank of America Corp., the nation’s second-largest bank, said “significant dislocations” in the debt securities market will “adversely impact” fourth quarter results. The bank had $9.8 billion in collateralized debt obligations, mainly backed by subprime residential mortgages, the Charlotte, North Carolina-based company said in a regulatory filing today.
Douglas A. McIntyre
Citadel Broadcasting (CDL) Big charge in last quarter on write-down of radio assets. Down to $2.31 from 52-week high of $11.01.
Metropcs Communications (PCS) Potential merger candidate Leap has bad quarter. Down to $15.83 from 52-week high of $40.87.
Circuit City Stores (CC) Retail sales weak at almost every chain. Falls to $6.59 from 52-week high of $25.76.
Leap Wireless (LEAP) Restatements, bad earnings. Drops to $36.55 from 52-week high of $99.04.
Clearwire (CLWR) WiMax partnership with Sprint (S) tanks. Falls to $13.03 from 52-week high of $35.41.
Allscripts Healthcare (MDRX) Outlook misses forecasts. Drops to $16.26 from 52-week high of $31.38.
Douglas A. McIntyre
Coach (NYSE:COH) has decided that the recent stock crush is a good opportunity to announce a $1 Billion share buyback plan. This represents roughly 30 million shares, or 5-times average volume; $12 Billion market cap.
Fair Isaac (NYSE:FIC) approved a $250 million share buyback plan, compared to a market cap of $2 Billion.
Mirant Corp. (NYSE:MIR) had one of the more impressive buybacks and share retirement plans announced, although its shares fell 8% because of losses. Mirant’s total return plan is some $4.6 Billion, which includes $1 Billion in open market purchases and a $ 1Billion accelerated buyback plan. This has been under review for the Special Situation Investing Newsletter.
Avocent Corp. (NASDAQ:AVCT) added 3 million shares to its stock repurchase program; Avocent has repurchased 11.2 million shares of the 12 million shares previously approved. The buyback equates to $75 million more in buybacks if completed, compared to a $1.25 Billion market cap and it represents about 8 days of trading volume.
Starwood Hotels & Resorts (NYSE:HOT) raised its dividend and added $1 Billion to share buybacks, compared to a $10.5 Billion market cap. This one has also been under review for the Special Situation Investing Newsletter.
VMWare (VMW) looked good out of the box. After its IPO, shares went from under $52 to over $125. But, as the stock hit $84.60 today, one-third of the peak value of the company was gone. And, it took less than ten trading days to kill almost $15 billion in market cap.
What happened? The drop in big tech Nasdaq tech stocks has not helped. When it moved over $125, it has a PE of over 200.
VMWare is growing fast, but maybe not fast enough to support a company value of well over $40 billion. In the last quarter, revenue was only $357 million, which was up 88% over the same quarter last year. EPS tripled to $.18.
Buried in the company’s "risk factors" is the note that Microsoft (MSFT) is competing with VMW in the entry level portion of the virtualization business and that Redmond is planning to go after the larger enterprise end of the industry as well.
Microsoft may not do everything right, but it is willing to spend billions of dollars in markets that are important to it. Even VMWare does not have that kind of money.
Douglas A. McIntyre
Fannie Mae (NYSE:FNM) is seeing shares trade much lower after net income fell by more than half in the first nine months now that SEC filings for Q1, Q2 and Q3 have been caught up to date. The good news is that this catches Fannie Mae back up to date in its SEC filings, but the bad news is the same as news reports in Zombie outbreak movies: "bad."
The mortgage lender and guarantor posted earnings and the results were $1.17 EPS (down from $3.16 for the first 3 quarters in 2006) on net income of $1.5 Billion. These results "reflect a worsening housing market" and "credit market volatility," like you didn’t see that coming. Shares are down over 8% at under $46.00 to a new yearly low under the prior $47.78 low right after the open.
Fannie’s red-headed step brother Freddie mac (NYSE:FRE) is seeing a 9% drop to under $40.00 in sympathy, and that is far under the $43.01 to $71.50 prior range.
Barclays (NYSE:BCS) is down about 7% on talk of $10 Billion in CDO writedowns, even though the company denied anything this wide. Everyone on the street knows the banking giant was a huge buyer of CDO’s, so the question is not IF they have write downs but HOW MUCH the writedowns will be.
Wachovia’s (NYSE:WB) admissions of more than $1 Billion in writedowns has shares down over 3% at $38.81, right at the bottom of the $38.47 to $58.80 range over the last year.
Citigroup (NYSE:C) has fallen and is now under $32,00 since Chuck Prince left because the company has no formal or acceptable succession plans other than Rubin as interim Chairman. The huge writedowns might not be over there yet either.
American International Group (NYSE:AIG) is down again by 1% at $55.33 after hitting a year low of $53.99 yesterday. Despite Hank Greenberg turning on the activist investor hat, they had writedowns with earnings too.
If you have an AOL Instant Messenger or a Yahoo! Instant Messenger with any contacts from Wall Street on your buddy lists then you’ve undoubtedly received gloom and doom emails regarding probably every single bulge bracket firm. The best one being past around yesterday was "Merrill Lynch may be the next Enron" if you can believe it. Merrill Lynch (NYSE:MER) is at risk of having a major broker defection, but these brokers better know that wherever they go they better be demanding upfront cash guarantees because CDO writedowns are hiding on the books of probably every single major financial institution out there. Traders passing around instant messages calling it the next Enron may not be fair even if shares are down another 4% today, but what is obvious as a black eye is that Merrill Lynch (and every other bulge bracket firm on Wall Street) have no clear picture of what the situation will look like one or two quarters out.
Any guidance and any estimates from major financial institutions is obviously at risk. About the only good news for New York City retailers this Christmas is that the Europeans are able to spend like drunken sailors now that the dollar has become the U.S. Peso.
It’s going to be quite some time before any guidance from financial institutions will either be offered or that will be taken seriously. Unfortunately it’s also a case where everyone is throwing the baby out with the bath water.
Jon C. Ogg
November 9, 2007
Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.
Jon C. Ogg
November 9, 2007
According to Reuters "British bank Barclays Plc categorically denied rumors it was about to announce a $10 billion writedown and see its top management quit, after the market talk sent its shares tumbling over 9 percent.
"There is absolutely no substance to those rumors," a spokesman for Britain’s third biggest bank said when asked about a possible $10 billion writedown..
Credit Suisse downgraded key power stocks: NRG Energy (NRG), Edison(EIX), and Entergy (ETR) all downgraded to Neutral on valuation afterlarge runs.
The top 10 individual analysts calls 24/7 Wall St. is looking at today:
Jon C. Ogg
November 9, 2007
Wachovia (WB) is down 5% in the pre-market.
According to Reuters the fourth-largest U.S. bank, said on Friday that it expected increased loan losses in the fourth quarter. In addition, the company estimates the pretax value of its asset-backed securities collateralized debt obligations declined by $1.1 billion in October.
Douglas A. McIntyre
Yesterday’s sharp sell-off in the Nasdaq showed the market something. In a downturn, the Apples (AAPL) and RIMMs (RIMM) of the world have an Achilles Heel. They have run up too much. At one point, RIMM was off 11% and hot IPO VMWare (VMW) was down almost 13%.
So, what are the super-hot techs worth? Wall St. clearly has hundreds of analysts working on those issues and they are the smartest guys in the room, so debating with them would seem futile.
But, looking at some of the better stocks around like Microsoft (MSFT), Oracle (ORCL), Intel (INTC), Cisco (CSCO), HP (HPQ), and Verizon (VZ) and the going PE is about 25.
Apple’s PE is 44. RIMM’s is 81. VMWare’s is 184. Google’s (GOOG) is 54. Amazon’s (AMZN) is 96.
The first thing most analysts would say is the Wall St. has to look at the forward PE, the PE for next year. But, forecasts are notoriously wrong, so a forward PE for current valuation may be a good guess, but it is a guess nonetheless.
Another point almost every analyst would make is that companies like Apple and RIMM are growing faster than Oracle or Microsoft. The forecast for the current fiscal year is that Oracle’s EPS will be up about 21%. Microsoft is also about 21%.
The projected growth rate for Apple’s EPS is 27%, so not all that much better than some of the less highly valued companies. At Google, however, the figure is 47%. RIMM’s EPS is expected to almost double in the next fiscal year. But, once again, those are forecasts, not the "real world."
As the rate at which EPS is growing for any company moves up, the risk to the hitting the number is probably greater. A company like RIMM could suddenly face real competition from Apple or Nokia. Google could be hit by a big slowdown in the US ad market. VMWare might face a real challenge from the Microsoft virtualization effort.
Even with strong growth prospects, in a dicey market, can a forward PE above 40 be justified for most of the hot tech shares. Maybe, but if the Nasdaq keeps falling, those numbers may get harder to defend. A 40 PE is almost double where Microsoft’s sits now.
What would that mean. That Apple is worth $150 and not $175. It did trade at $150 in September. It would mean RIMM is worth about $65 and not $124. It did trade at $65 in June. It would say Google is worth $515 and not $694. But Google was at $515 just this last September.
If the Nasdaq falls, a lot of stock could move toward a 40 PE. That is a big haircut for some high-fliers.
Douglas A. McIntyre
Markets in Europe were narrowly mixed at 6.15 AM New York time.
The FTSE was up .3% to 6,398. BHP Billiton (BHP) was up 3.2% to 1709. BT (BT) was down 1.7% to 296.75. Rio Tinto (RTP) was up 8.7% to 5752.
The DAXX was up .5% to 7,860. SAP (SAP) was down 1.1% to 35.55. Siemens (SI) rose 2.3% to 105.4.
The CAC 40 .1% to 5,627. Sanofi-Aventis was up 1.2% to 62.54.
Data from Reuters
Douglas A. McIntyre
It has been a bloody and bitter fight. Merck’s (MRK) pain killer Vioxx has been alleged to cause heart problems and worse. The drug hit the market in 1999 and was pulled in 2004. At that point the lawsuits began in earnest. The Wall Street Journal says that there were eventually 27,000 of them.
Now the paper says Merck "is expected to announce that it agreed to pay about $4.85 billion to settle a significant portion of the claims over injuries allegedly linked to its Vioxx painkiller."
But, it is a perverse decision and may not be a good one for Merck shareholders. The company had won several landmark cases which made it appear that it had the upper had over plaintiffs. Much like the Big Tobacco suits of the 80s, a strategy of winning and waiting the suits out would probably have prevailed.
Based on its legal spending on the matter in the last quarter, Merck has an annual cost to handle the Vioxx suits that is probably just over $600 million. The current settlement amount is over eight times that. And, it resolves most, but not all, of the cases. If the tobacco court cases of twenty years ago are any indication, Merck had a very good chance of another two or three years of litigation and then a positive resolution.
The argument will be made and should be made that there is a real liability for Merck if a large number of the Vioxx cases go against the company. That appears unlikely, but it has to be put down on the ledger when management looks at the pros and cons of a settlement.
Perhaps Merck’s management just wanted peace, to lay the litigation and bad PR to rest. But with its shares up 80% in the last two years, the market was showing it believed that the Vioxx problem would turn out OK.
And, that means Merck management did shareholders no favors.
Douglas A. McIntyre
WiMax appears to be such a promising technology, at least on paper. It can send wireless broadband signals for miles from one base-station. If is faster than 3G, the core technology used for cellphone signals by AT&T (T) Wireless and Verizon Wireless.
WiMax can also send signals to PCs and hand-held devices. It is a broadband dream come true. It has the backing of tech giants including Samsung, Intel (INTC), and Motorola (MOT)
The only problem with WiMax is that it is not getting deployed around the US, at least not with any haste.
Sprint was to spend $5 billion to create a WiMax network that would reach 100 million people two years from now. WiMax start-up and recent IPO Clearwire (CLWR) was also building a network. It was probably going to need to spend as much as Sprint planned to. Both companies decided to link up and cooperate on the build-out and allow one another’s customers to have free roaming privileges around the US.
But, Sprint and Clearwire broke off their agreement today. There has been pressure on Sprint to cut back capital spending as its core subscriber base has begun to drop. Sprint’s recently departed CEO was a big WiMax champion.
Whither WiMax now?
For one, the Sprint plans are not dead. What becomes of them may depend on the thoughts of the company’s yet-to-be-located new CEO.
Clearwire’s stock is likely to take an awful beating on the news. But, Intel and others have a tremendous stake in the technology. The chip company is making products that could work in hundreds of millions of devices that would connect to a national WiMax network. Nokia (NOK), Samsung, and Mototola could bring in very large sums building the WiMax infrastructure and providing devices which will operate on it.
Look for a group of companies, perhaps lead by Intel, to put $2 billion or $3 billion into Clearwire. The company’s market cap is only $3 billion, so the money might have to go in as a convertible preferred. That would probably give Intel and its partners de facto control of Clearwire.
But, it will take something at least a bit extreme to keep WiMax in the US on track.
Douglas A. McIntyre
Qualcomm (QCOM) reported earnings yesterday. Wall St. should have been happy. Revenue was up 15% to $2.31 billion. Operating income rose 84% to $1.14 billion. EPS was up 86% to $.67. All of these numbers were in line with or bested Wall St. estimates.
But, guidance for next year was light. And, to make matters much worse. a fight with Qualcomm’s largest customer, Nokia (NOK), is starting to take its toll. The company said in its earnings release: "We have excluded from our fiscal 2008 revenue and earnings guidance our estimate of royalties which we believe Nokia is required to report and pay to us under our existing license agreement in fiscal 2008 of approximately $0.25-$0.30 diluted earnings per share."
That news made the market crazy, driving Qualcomm shares down by as much as 8% after hours. If the stock opens down that much, it will hit $37, a drop of about 15% over the last two years. The company’s shares had moved from $15 in mid-2005 to $53 in May 2006.
And, Qualcomm’s problems may not nearly be over.
The company had a market cap of over $100 billion less than two years ago. It has been a core US technology company, provide much of the guts to many of the one billion cellphones sold worldwide each year. About 400 million phones containing Qualcomm technology will ship this year.
Qualcomm is fight for its life on two fronts. One is it battle with Nokia. The world’s largest handset company believes that less of the technology in its handsets come from Qualcomm, so its wants to cut royalties to the US company. That could potentially cost Qualcomm several hundred million a year. The debate about royalties is finding its way into the legal system as an intellectual property dispute.
Qualcomm’s other tormentor is Broadcom (BRCM). The smaller chip company has claimed that Qualcomm has violated some of its patents, and has had success keeping some phones with Qualcomm technology from being shipped to the US. This has cause problems for several Qualcomm customers.
Qualcomm is beginning to admit, for the first time, that its public shareholders need to be worried about these disputes and that they could cost the company on the bottom line.
It is hard to imagine that a company that has done as well as Qualcomm could cease being a growth stock. But, its shares were below $25 in late 2005, and they could go back there again.
Douglas A. McIntyre
According to Reuters, Qualcomm (QCOM) posted weaker that expected guidance and its shares fell sharply.
Reuters writes that BHP Billiton’s (BHP) bid for Rio Tinto (RTP) is likely to start a bidding war for the company.
Reuters writes that profits were up at Disney (DIS) on strength at theme parks and at ESPN.
The Wall Street Journal writes that Merck (MRK) is about to settle most of the Vioxx claims against it for $4.85 billion.
The Wall Street Journal writes that Sprint (S) and Clearwire (CLWR) cancelled an agreement to cooperate on a nationwide WiMax network.
The Wall Street Journal writes that ratings agencies are preparing to downgrade hundreds of mortgage-related investments.
The New York Times writes that Ford (F) will keep its Volvo unit.
Barron’s writes that Nvidia (NVDA) sees strong revenue growth in the next quarter.
Douglas A. McIntyre
Markets in Asia were mixed.
The Nikkei fell 1.2% to 15,583. Hitachi (HIT) was down 3.7% to 730. Mitsubishi Chemcial was off 5.1% to 858. Yahoo Japan was off 3.2% to 46550.
The Hang Seng was up .1% to 28,783. China Netcom (CN) was down 2.5% to 21.4. China Petroleum (SNP) was up 5% to 10.94.
The Shanghai Composite was down .3% to 5,316.
Data from Reuters
Douglas A. McIntyre
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