Daily Archives: November 12, 2007

Home Depot Earnings Preview (HD)

Before the open on Tuesday morning, Home Depot (NYSE:HD) is set to report earnings.  If you can find anyone positive they are either named "Pangloss" or they look like Robin Williams and named themselves "The Bottom-Fisher King."

Estimates are $0.61 EPS on revenues of $19.59 Billion.  Next quarter is the throw away quarter, and next quarter earnings are expected to be $0.49 EPS on revenues of $18.44 Billion.

Is there a secret housing recovery?  Is there a secret storm that didn’t hit to cause major regional damage?  You get the idea.

Shares sit only 2% above 52-week lows, and at a $28.46 shares are way at the botttom of the $27.99 to $42.01 trading range of the last year.  The only real hope here is that Wall Street threw out too many babies with the dirty bathwater, or that the delay in cold weather in many areas has allowed many supplies to continue being purchased by a few percent more than would have been guessed.

As you can tell, this DJIA component earnings is just too hard to get excited about.  It’s time to bring back that entrepreneurial atmosphere back that Nardelli ran off.  Oh wait, they all work at Lowe’s now or they work at Ace or True Value franchises.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 7:05 pm in Earnings, Retail,

Wal-Mart Earnings Preview (WMT)

Wal-Mart Stores Inc. (NYSE:WMT) is set to report earnings before the open on Tuesday morning.  There is a discrepancy on earnings consensus, because the WSJ shows a FactSet consensus at $0.66 EPS and First Call has a consensus of $0.67 EPS.  The difference is from rounding, and we have the First Call revenue estimate at $91.72 Billion for the quarter.  As far as what to expect for Fiscal Jan-2008, we have First Call consensus at $1.02 EPS and $106.6 Billion in revenues. 

Besides the earnings per share, all that really matters at this point is what the company says regarding same store sales for the quarter ahead and its margins.  The main reason for this is that we already know the preliminary sales for the quarter within one or two percentages points, and that was listed as approximately $91 Billion.  Here are the last round of retail sales out of the key comp’s here:

Some portion of retail has to do well in a slowdown.  After it’s all said and done, people need to eat, they need to wear clothes, they need to buy batteries, and they need to buy household and personal care goods.  The bulls need to hope Wal-Mart doesn’t cut prices too much, at least not more than has already been telegraphed.

Lee Scott has maintained too much of a "more of the same" stance for 24/7 Wall St. to be positive on its strategic outlook, and if you haven’t heard us over and over or if you haven’t seen us on CNBC, Scott needs be shown the door.  We question the plan that Wal-Mart will win in a slower economy because they had their chance to prove that before.  But we at 24/7 Wall St. are willing to accept that we may be wrong.  Wal-Mart needs to slow its cap-ex even more than it forecast at its last meeting.  But enough there.  The funny part is that it looks and feels like the worst is over, but the stock is probably going to see profit taking into any strength.

We are looking at the company’s guidance and we’ll keep our hopes up for a reduced domestic growth plan out of the company.  24/7 Wall St. has Wal-Mart up for review in our "Special Situation Investing Newsletter."  If Lee Scott can’t do the right thing and if the board of directors wants to keep losing money, then we’ll be offering a far more radical solution starting in 2008.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 6:50 pm in Earnings, Retail,

Quest Software Buys Into Virtualization (QSFT)

Quest Software, Inc. (NASDAQ:QSFT) has announced the acquisition of the assets of Provision Networks Inc.  Provision is a privately held enterprise-grade presentation and desktop virtualization solutions provider across both physical and virtual desktops, and applications and servers. The companies’ combined products will enable Quest to extend its leadership in infrastructure management from the desktop to the datacenter.  Effective immediately, Paul Ghostine, co-founder and CEO of Provision Networks, will report directly to Smith and lead this newest addition to Quest.

Provision Networks is a global provider of presentation and desktop virtualization solutions which embrace and extend the Microsoft Terminal Services platform and Virtualization Infrastructure platforms from VMware, Virtual Iron, XenSource, SWSoft, and Microsoft.

Quest Software Inc. (NASDAQ:QSFT) closed up 1.8% at $16.48, in between the $13.58 to $18.14 52-week trading range.  Shares are up 0.2% at $16.51 in after-hours trading.

See our 24/7 Wall St. exclusive, where we interviewed the CEO of Virtual Iron as one of the leaders in virtualization.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 4:43 pm in Mergers and Buy Outs, Software, ,

Al Gore Goes Deeper Into Green VC, As Alternative Energy Stocks Tank (PBW, GEX, FTEK, FSLR, SPWR)

24/7 Wall St. does not normally cover venture capital news, particularly when it doesn’t pertain to a pre-IPO company.  But when we see news that Al Gore is joining a top VC-firm like Kleiner Perkins Caufield & Byers as a partner for green investing it sure makes one wonder just how much deeper the green investing trend will get.  Interestingly enough, shares in alternative energy stocks are seeing severe profit taking today (see below).

Kleiner Perkins Caufield & Byers and Generation Investment Management have announced a global collaboration to find, fund and accelerate green business, technology and policy solutions with the greatest potential to help solve the current climate crisis. This partnership will provide funding and global business-building expertise to a range of businesses, both public and private, and to entrepreneurs. As a result of the collaboration, the chairman and co-founder of Generation, former Vice President of the United States Al Gore, will join KPCB as a Partner.  KPCB has already committed $200 million to green tech ventures.

This doesn’t mean green tech companies can ramp up indefinitely and without logic, but this is one more piece to the green-tech investing strategies that have generated huge gains in 2007.  These have pulled back some and may pull back further.  In fact, as oil prices fall (and if it continues) then you are likely to see quite a correction in the green-tech sector.  Corrections come and go, but with 2008 being a regime change election year it’s hard not to believe that there won’t be deeper pushes into environmental pledges from both sides of the aisle.

What is so interesting here is the argument between the believers and the doubters of global warming or climate change.  Whether you believe in it or not, it’s actually silly to not recognize a major trend here.  Green technologies (or more eco-friendly operations) are becoming mainstream and represent a major business opportunity here, regardless of politics.

If you wish to see our coverage of select alternative energy news from the financial angle, not the political side, you can set your RSS readers or save to favorites the following link:
http://www.247wallst.com/alternative_energy/index.html

Jim Cramer recently covered some of his favorite stocks he feels will win from these trends, even if these have recently come off highs.  Not all of these are green-tech, but they will benefit from the trends already set in place.

Big green-tech stocks are taking it on the chin….

  • PowerShares WilderHill Clean Energy (AMEX:PBW) is down nearly 6% at $22.98, and the Market Vectors Global Alternative Energy ETF (NYSE:GEX) is down 4.5% at $54.40….proof that it is quite widespread selling in the alternative energy sector;
  • Fuel-Tech Inc. (NASDAQ:FTEK) is down 11% at $25.50;
  • First Solar (NASDAQ:FSLR) is down 12% at $182.00;
  • SunPower Corp. (NASDAQ:SPWR) is also down 12% at $113.00.

Here is a sample of our last "The Business Day In Global Warming" where we cover the business and financial side of green investing.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 2:37 pm in Alternative Energy, , , , ,

Glaxo (GSK) CEO Has A Senior Moment

GlaxoSmithKline’s (GSK) diabetes drug Avandia has such frightening side effects that the FDA will probably make it carry a "black box" label. Studies have found that the treatment can increase risk of heart attack.

Concerns about the side effect drove sales of the drug down 48% in the US during the September quarter.

Glaxo CEO Jean-Pierre Garnier told Reuters that sales might return if the "black box" warning is not too severe. "Absolutely. It all depends on what the language is," he said.

So, the FDA will have to tone down the part about heart attacks.

Douglas A. McIntyre

Posted on: November 12, 2007 – 1:54 pm in Drug companies,

ACA Capital, A Disastrous Post-IPO Year (ACA)

Is it normal for a company to respond to a "negative credit watch" call from a ratings agency, only to see its stock fall another 31%?  Enter ACA Capital Holdings, Inc. (NYSE:ACA)….

Last Friday after the market close, ACA responded to a ratings action by Standard & Poor’s after it placed the ‘A’ financial strength rating of ACA Financial Guaranty Corp. on CreditWatch with negative implications, based on a variety of factors.  The Company also reported strong Public Finance and Structured Credit production in the third quarter of 2007 and results for the nine months of 2007 were in excess of the posted full year results for 2006.  ACA said it intends to have further discussions with S&P to better understand its actions and the remedies that may be available to respond to the negative credit watch position.

24/7 Wall St. has warned investors of the potential impending exposure to severe problems inside ACA.   ACA Capital is a holding company that provides asset management services and credit protection products to participants in the global credit derivatives markets, structured finance capital markets and municipal finance capital markets.  That sounds a hell of a business to be in right now, the hell where the fire and torture is taking place anyway.

ACA came public in late 2006, but as soon as the credit crunch came in summer of 2007 its shares went from good, to flat, to down, to way down, to somewhat stable, and now down even far worse.  Another few days like this and the stock will get to go trade on the beloved pink sheets.  At $2.06, shares are at a new low.  The last year’s trading range is $2.48 to $16.55. 

Jon C. Ogg
November 12, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 12, 2007 – 1:45 pm in Financial Stocks,

Ford (F) Passes On Fixing Jaquar And Rover: Turns to Short List Of Buyers

Based on Ford’s (F) recently posted third quarter earnings, the company is getting better at running its core car business. But apparently not good enough to think it can turn around its flagging Jaguar and Rover brands. That’s a shame.

Ford will probably not get a lot of money for the two brands because they are so damaged now. They would certainly be worth more as part of the No.2 US car company if they were operating successfully two or three years down the road. Niche car company Porsche has a market cap of $22 billion.

Word from Reuters is that India’s Tata Motors, Mahindra & Mahindra , and One Equity Partners are the final bidders for the two brands. Estimates are that Jag and Rover could bring in as much as $1.5 billion.

Ford would be better off just hiring the management of the two Indian companies to run its global auto operations.

Douglas A. McIntyre

Posted on: November 12, 2007 – 1:40 pm in Autos,

Yahoo! (YHOO) Finance NYSE Quotes Off-Line

Yahoo ! (YHOO) Finance quotes from the NYSE have been off-line all day.

Both live and delayed quotes at the largest US finanncial site have been dead since the open and still show the Friday numbers.

Douglas A. McIntyre

Posted on: November 12, 2007 – 1:25 pm in Internet,

Is Wendy’s Most Likely Scenario A Take-Under? (WEN, MCD, TRY, BKC)

Despite reports that Wendy’s International Inc. (NYSE:WEN) would-be acquisition process is being hampered by liquidity concerns in the credit markets, its stock is actually up about 2% today.  Bids are due today and the concerns are mounting that bidding price will be highly conditional and have more outs than the New York sewer systems.

At $31.90, assuming the fiscal 2007 estimates of $1.22 are accurate, the fast food operator trades just over 26-times this year’s estimates.  McDonald’s (NYSE:MCD) is running much better and it trades at a far cheaper 20.6-times 2007 earnings estimates.

Another issue that may be holding things up Triarc Companies’ (NYSE:TRY) review.  It is still unknown if Triarc will be the ultimate buyer of Wendy’s to roll into Triarc’s Arby’s Franchise or if Triarc will be able to separate itself from its money management operations.  We have reviewed that one for our Special Situation Investing Newsletter, and the verdict is still not in there.

Wendy’s has a 52-week trading range of $29.56 to $42.22, and the 2% rise to $31.90 sure gives ’special situation investors’ looking for buyouts, spin-offs, and restructurings the feeling that maybe Dave Thomas’s baby needs a strong turnaround manager.  By the time the turnaround is in force this liquidity mess in the credit markets may have played itself out.  Then investors might be looking at a much better scenario.  That finally worked well for Burger King (NYSE:BKC) holders.

A would-be bidder is arguably getting to overpay on valuations for a company that still needs a turnaround.  Unless there is a hidden and completely overlooked credit and liquidity environment change, Wendy’s should scrap this review  and fix itself before it seeks a buyer.

Jon C. Ogg
November 12, 2007

Jon Ogg produces the 24/7 Wall St. Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 12, 2007 – 11:33 am in Food, Mergers and Buy Outs, Private Equity, , , ,

EchoStar Feels The Subprime (and FTTH) Pressures Too (DISH, T, DTV)

This morning’s post-earnings downgrade of EchoStar Communications Corp. (NASDAQ:DISH) from a "Buy" to a "Hold" at Citigroup, is having a much broader impact than it originally seemed.  Shares were not indicated this much lower at 7:15 AM EST, but shares are now down almost 13% at $42.28 in mid-morning trading.

It seems that the subprime mortgage mess is increasing the churn rates in the customer base, at least that is what the company indicated on Friday with its earnings filing.   If AT&T (NYSE:T) is really looking to acquire the satellite television operations, it sure looks like the price of playing poker just got a lot cheaper.  What will this mean to Echostar’s review for a restructuring?  The woes at cable companies and the fiber-to-the-home initiatives from the Bells has created a perfect storm where maybe they all lose, at least on pricing power and on margins from the old triple-play packages.

For some reason, DirecTV (NYSE:DTV) is not down as much with only a 3% drop.  That doesn’t make much sense, although a 13% drop at EchoStar seems exaggerated as well if it is really a potential buyout candidate.  This drop won’t assure that EchoStar gets covered in the Special Situation Investing Newsletter from 24/7 Wall St., but it is definitely worth a more in-depth review on this pullback.

EchoStar’s 52-week trading range is $35.16 to $52.54.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 10:58 am in Cable Companies, Satellite, Telecom, , ,

Och-Ziff IPO Terms & Dubai Investment (OZM)

Och-Ziff is one step closer to coming public, and this is set to trade under the ticker "OZM" on the New York Stock Exchange.  The hedge fund family is indicated to sell 36 million class A shares priced in a range of $30 to $33 per share.  The company has also agreed to sell a stake to Dubai International Capital LLC, pursuant to which it will sell 38,138,571 Class A shares so it will beneficially own 9.9% of the outstanding Class A shares on the closing date of this offering.

Interestingly enough, Och-Ziff’s underwriting group is massive.  Goldman Sachs and Lehman Bros. are tagged as the lead underwriters, and other key underwriters are Merrill Lynch, Morgan Stanley, Citigroup, Deutsche Bank, and J.P.Morgan.  Co-managers with smaller allocations are listed as Credit Suisse, Keefe Bruyette & Woods, Bear Stearns, Macquarie, Nomura, BOC International, Ramirez & co., and Utendahl Capital Partners.  While some of the key European investment banks are not listed in here, it looks like the hedge fund operator is giving an allocation to every investment banker in its rolodex.

As of September 30, 2007, Och-Ziff managed approximately $30.1 Billion in assets from over 700 fund investors.  More detailed information on this and other IPO’s and spin-offs goes out to our public distribution list several times per week.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 10:35 am in Financial Stocks, IPOs, , ,

Panic Sets In For E*Trade (ETFC) Shareholders

E*Trade (ETFC) is off as much as 50% in early trading and has dropped below $4. The stock has a 52-week high of over $26.

According to The Associated Press "Citi Investment Research analyst Prashant A. Bhatia cut his rating on the stock to "Sell" from "Hold" and lowered his price target to $7.50 from $13. Bhatia said there’s a 15 percent chance that E-Trade will declare bankruptcy and said management may be forced to sell loans and securities at significant discounts."

Douglas A. McIntyre

Posted on: November 12, 2007 – 10:01 am in Brokerage Firms,

Microsoft (MSFT) Buys Into Mobile Music

Microsoft (MFST) today announced it has entered into an exclusivity agreement around its intention to acquire Musiwave SA, an Openwave (OPWV) company and a leading provider of mobile music entertainment services to operators and media companies. The acquisition would bring Musiwave’s relationships with music labels, device makers and mobile operators that deliver digital entertainment to consumers, together with Microsoft’s Connected Entertainment technologies and services, including Windows Mobile, Zune, MSN and Windows Live. Should the transaction proceed, Musiwave would continue to operate out of its current headquarters in Paris.

Douglas A. McIntyre

Posted on: November 12, 2007 – 9:15 am in Mergers and Buy Outs, ,

NASDAQ Expands Alliance for Private Placements (NDAQ)

The NASDAQ Stock Market (NASDAQ:NDAQ) has secured a deal which will expand "The PORTAL" to include a trading standardization for trading private placements under rule 144a.

The founding members of The PORTAL Alliance are Bank of America, Bear Stearns, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, NASDAQ, UBS and Wachovia Securities.

While the collaboration is subject to execution of a definitive agreement and subject to regulatory approval, this would seem to be a done deal.  This will allow qualified institutional buyers to buy and sell these 144a private placement securities in shorter-time periods instead of what is often a 3-month to two-year holding period.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 8:55 am in Exchange News,

Sun Microsystems Reflects Ticker Change Over 1-4 Reverse Split (JAVA, JAVAD)

Sun Microsystems (NASDAQ:JAVA) (NASDAQ:JAVAD) traders may have a bit of identity crisis for the next month as the stock will begin trading ex-split to reflect its previously approved 1 for 4 reverse stock split.  The high-end server maker and owner of the rights to Java will temporarily change its stock ticker to "JAVAD" to reflect its 1 for 4 reverse stock split.  The "D" added on will trade that way for twenty trading days before reverting back to the "JAVA" ticker.

Any fractional shares will be paid out in cash rather than in fractions of a share.  Based upon a $5.14 close, this would in theory have a $20.56 equivalent open if there were no price change.

Keeping the books at the company is about to get much simpler.  The total of authorized number of shares of common stock will be reduced from 7,200,000,000 to 1,800,000,000.  The par value of common stock would change from $0.00067 to $0.001 per share.

Unless the stock takes another severe haircut, it looks like Sun Microsystems won’t be appearing in the "10 Stocks Under $10" newsletter any longer.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 8:27 am in Stock Splits, Technology Companies, ,

Top 10 Pre-Market Analyst Calls (BHI, HAL, FNM, FRE, INTC, MAT, MSFT, ORCL, MIR, NOVL, FTO, TSO, VLO)

These are not the only impacting analyst calls in the land of upgrades & downgrades, but these are the top ten analyst calls 24/7 Wall St. is looking at today:

  • Baker Hughes (BHI) & Halliburton (HAL) raised to Outperform at Bernstein.
  • Fannie Mae (FNM) & Freddie Mac (FRE) cut to Equal Weight at Lehman.
  • Frontier Oil (FTO), Tesoro (TSO) & Valero (VLO) estimates lowered at Goldman Sachs.
  • Intel (INTC) added to Goldman Sachs conviction Buy List, to replace the Long SNDK, Short AMAT pairs trade.
  • Mattel (MAT) raised to Overweight at J.P.Morgan.
  • Microsoft (MSFT) cut to Neutral from Buy at Merrill Lynch.
  • Mirant (MIR) raised to Overweight at Lehman.
  • Novell (NOVL) raised to Buy at UBS.
  • Oracle (ORCL) cut to Neutral from Buy at Merrill Lynch.

Jon C. Ogg
November 12, 2007

Posted on: November 12, 2007 – 8:08 am in Analyst Calls, , , , , , , , , , , , ,

IBM Pays $5 Billion for Cognos (COGN)

IBM (IBM) said today that it was buying business intelligence company Cognos (COGN) for about $5 billion. The move takes IBM deeper into the software business and moves it away from its traditional hardware roots.

The acquisition of Cognos supports IBM’s Information on Demand strategy, a cross-company initiative announced on February 16, 2006 that combines IBM’s strength in information integration, content and data management and business consulting services to unlock the business value of information

Douglas A  McIntyre

Posted on: November 12, 2007 – 7:44 am in Mergers and Buy Outs, ,

A CEO On Steroids For Citigroup (C)

The board at Citigroup (C) is telling CEO candidates that they want with the bank, short of burining it to the ground.

A new chief can sell off units, almost at will, or break the bank into pieces.

According to the FT  "Citi’s board is telling candidates for the post of chief executive that they would have a free hand to decide whether the financial services group should make significant disposals or even break itself up."

Perhaps the bank should hire an auctioneer.

Douglas A. McIntyre

Posted on: November 12, 2007 – 7:16 am in Banking,

Virtual Iron CEO Calls VMware Dominance Bad For All In I.T. (VMW, EMC, CTXS, SAP, GS, MSFT, DELL, HPQ, IBM, INTC, AMD, SYMC, SUNW)… 24/7 Wall St. Exclusive

The CEO of Virtual Iron, Ed Walsh, spoke exclusively to 24/7 Wall St. partners in two separate interviews.  Virtual Iron is the virtualization company owned in part and backed by Goldman Sachs (NYSE:GS), Intel (NASDAQ:INTC), and SAP (NYSE:SAP). It would seem to have little reason to speak well of VMWare (NYSE:VMW), since the much larger company is its rival and competition.  But, Walsh makes the point that his company is the only real obstacle to VMWare moving into an entirely dominant position in the server software business. This could hurt other tech companies in the pocket book. Walsh came to Virtual Iron out of EMC Corp.’s (NYSE:EMC) Information Management Software Group after being CEO of Avamar Technologies, Inc. which was acquired by EMC in 2006.

Microsoft (NASDAQ:MSFT) has a virtualization product of its own called Veridian, coming out later in 2008. But Ed Walsh notes that the product is at least a year behind VMWare and is aimed at lower level functions in server operations—server consolidation and provisioning which cuts operations costs. These are functions useful to smaller business but are less likely to fit the bill for large enterprises.

So, who plays where the real money is, and where the revenue per customer is highest?  Walsh contends that only Virtual Iron and VMWare have products that can handle complete disaster recovery, server capacity management, and the movement of tasks from application to application in a server cluster. He readily admits that VMWare is the Cadillac of the business. But, he claims that his software is easier to install and manage. 24/7 Wall St. asked if Citrix Systems’ (NASDAQ:CTXS) XenSource acquisition is coming on strong in the space and Walsh noted, “We never come up against XenSource. Just VMware.”  This was something similarly questioned by 24/7 Wall St.

When 24/7 Wall St. asked Walsh about what we have referred to over and over as “The VMware Conundrum” regarding valuation, we were surprised about the potential metrics Walsh was willing to discuss.  Walsh referred to the virtualization market on its own and gave some lofty multi-billion figures from IDC and even loftier figures from Bear Stearns What he added was all of the overlaps and secondary and tertiary operations that virtualization leads into that have been under the control of traditional I.T, software, security, and hardware firms.  The potential increase in the value of VMWare, if it can take over OS and security functions, could be substantial.

Read More »

Posted on: November 12, 2007 – 6:55 am in Software, Technology Companies, , , , , , , , , , , , ,

As Doctors Renew Interest In Stents, Boston Scientific (BSX) May Get A Break

Several studies which showed that stents could cause blood clotting in the heart have done significant damage to the revenue for those products at Boston Scientific (BSX) and Johnson & Johnson (JNJ). BSX trades near a multi-year low and there are even concerns about it making its debt service. The company has begun to sell off divisions to improve its cash position.

Now, doctors and the medical community are saying they were just kidding. Stents aren’t all that bad. They work better than those negative studies said. Maybe a lot of MDs were just short the BSX stock.

According to The New York Times "a year after safety questions about drug-coated heart stents prompted doctors to change treatment for hundreds of thousands of cardiac patients, many physicians say the medical community overreacted and should now reverse course." The paper adds the medical reports of blood clots were amplified by sometimes alarmist media coverage, as when one cable news network described drug-coated stents as “tiny time bombs.”

About $1 billion of stent sales per annum have gone away. Some of that may be due to drugs which now do a better job of keeping blood moving through blocked arteries.

But, the public is afraid. It is bound to be. The dangers of the little devices have been covered everywhere. And that means stent sales aren’t coming back.

Douglas A. McIntyre

Posted on: November 12, 2007 – 6:45 am in Medical, ,