Daily Archives: December 4, 2007

Covad Drops Again, Yet Merger Supposedly Still On (DVW)

Covad Communications Group Inc. (AMEX:DVW) fell almost 5% today to aprice of $0.79 on double the normal trading volume.  But shares fellalmost 10% on Monday to $0.83, on normal volume.Back on October 29, 2007, the company announced that was being acquiredby private equity firm Platinum Equity.  This $1.02 price was almost a60% premium to the October 26 closing price, although the 52-weektrading range was $0.60 to $1.54 and Covad was over $2.00 in early 2006.

If you track pending mergers or merger arbitrage, you know that it’s time to start getting worried about a pending merger when you see two back to back price drops in the shares of the acquisition target.  That holds true even if it is a $1.00 stock (or less).  We track these spreads for identifying opportunities (or trouble) for our Special Situation Investing Newsletter subscribers.

This merger is subject to shareholder approval, and the fed filing from yesterday still notes the following: After careful consideration, our board of directors has unanimously determined that the merger agreement and the merger are advisable and fair to, and in the best interests of, Covad and its stockholders. Our board of directors has unanimously approved the merger agreement. But the proxy format also shows the following: Your vote is very important, regardless of the number of shares you own.  The merger agreement must be adopted by the affirmative vote of holders of a majority of our outstanding common stock entitled to vote at the special meeting. Therefore, if you do not return your proxy card, vote via the Internet or telephone or attend the special meeting and vote in person, it will have the same effect as if you voted “AGAINST” approval of the adoption of the merger agreement.

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Posted on: December 4, 2007 – 7:29 pm in Internet, Mergers and Buy Outs, Telecom, , ,

Comcast (CMCSA) Slashes Projections

Cable companies are taking a beating, and Comcast (CMCSA) has cut some of it guidance, which will make matters worse.

The firm said that reflecting an increasingly challenging economic and competitive environment and consistent with trends across the sector, Revenue Generating Units (sum of all digital cable, phone, basic cable and high-speed internet) are now expected to increase by approximately 6 million to 57 million, versus previous guidance of approximately 6.5 million additions.

In addition, cable capital expenditures are expected to be approximately $6.0 billion for the year, a 5% increase from originally issued guidance, reflecting increased advanced digital set-top box purchase, Comcast’s digital acceleration program, expanded network enhancements and acquisition-related investments.

Due to the changes, the firm’s consolidated free cash flow is expected to be approximately 80% of 2006, compared to previous estimates of 2007 consolidated free cash flow of at least 90% of 2006.

The news took Comcast shares down almost 5% after hours to $19.75 and is likely to hit Time Warner Cable (TWC), Cablevision (CVC), and Charter (CHTR) tomorrow.

Douglas A. McIntyre

Posted on: December 4, 2007 – 6:35 pm in Cable Companies, , , ,

Abbott (ABT) Stent Slowdown, Bad For Johnson & Johnson (JNJ) And Boston Scientific (BSX)

Abbott Labs (ABT) which just launched a new stent product, Xience V, has laid off 1,200 people because of slowness in the stent market. Stranger than fiction. According to MarketWatch, Abbott says it expects to "take a 25-30% market share in 2008." But, of course, it looks like they miscalculated by employing all of those people in the first place.

No matter how wrong-headed that Abbott seems, it is bad news for the two incumbents in the stent business, Johnson & Johnson (JNJ) and Boston Scientific (BSX). BSX is already struggling with falling operating income and a tremendous debt load.

Douglas A. McIntyre

Posted on: December 4, 2007 – 6:28 pm in Drug companies, , ,

Sohu (SOHU) Raises Guidance, Shares Rocket

Sohu (SOHU) is raising its guidance for the fourth quarter of 2007 for total revenue, which is now expected to be between US$55.5 million and US$57.5 million, an increase of US$2 million over previous guidance, with advertising revenue guidance unchanged from previously reported estimates of US$31 million to US$32 million, but with non-advertising revenue now expected to be between US$24.5 million and US$25.5 million, an increase of US$2 million over previous guidance

Sohu now estimates that non-GAAP fully diluted earnings per share (i.e. excluding share-based compensation expense) for the fourth quarter of 2007 will be between US$0.36 and US$0.38, an increase of US$0.03.

Shares are up 5.3% after hours to $63.20

Douglas A. McIntyre

Posted on: December 4, 2007 – 5:19 pm in Earnings,

Fannie Mae Liquidity Answer: Cut Dividend & Sell Securities (FNM, FRE)

It’s no secret that Fannie Mae (NYSE:FNM) has been in trouble, and this afternoon we just found out some more of what we have been expecting.  The troubled GSC is cutting its quarterly dividend by 30% down to $0.35 per quarter from $0.50.  It is also apparently raising some $7 Billion in preferred securities sales after a strong reception to a previous offering.

The dividend cut really isn’t this big of a shock even if the reports are "Breaking News" and "News Flash" stories.  This stock has performed so poorly that the dividend was now over 5%. 

We noted just last week how Rich Pzena had labeled Fannie’s brother GSC company Freddie Mac (NYSE: FRE) as a great long-term value stock after its meteoric drop as well.

Fannie Mae shares closed down almost 3% at $35.18 today and shares are down about 3% more at $33.95 or thereabouts in after-hours trading.  The 52-week trading range is $26.38 to $70.57, so it is still down more than 50% from the year highs.

Freddie Mac (NYSE: FRE) closed down 3.6% today at $32.31, and it is down 1.5% at $31.82 after the close in sympathy with sister Fannie.  Its 52-week trading range is $22.90 to $69.85, so it too is down over 50% from the highs of the year.  Freddie’s dividend is roughly 3%.

Don’t be too shocked when these dividend cuts start happening at the major banks as well, despite what the media pundits are saying.

By the way, Fannie Mae is guilty of a REG. FD violation here.  They sent this out to selective newswires and didn’t issue a press release and didn’t update this on their website.  Of course with so many troubled mortgages the SEC is going to let this slide (particularly as this is a quasi-agency too), but companies have a legal obligation to issue their statements in an "equally accessible manner" so that investors big and small have access to information.  Their press release came out after 5:00 PM on PRNewswire.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 5:11 pm in Financial Stocks, ,

The 52-Week Low Club

W Holding (WHI) Listing issues. Recently came out of SEC investigation. Drops to $.75 from 52-week high of $6.70.

Phillips-Van Heusen (PVH) Weak earning outlook. Down to $36.65 from 52-week high of $82.19.

AMD (AMD) Just keeps sliding. Drops to $9.22 from 52-week high of $23.

Spansion (SPSN) No recent news. Down to $4.44 from 52-week high of $15.10.

Epicept (EPCT) Prices new stock offering. Falls to $1.25 from 52-week high of $4.89.

Douglas A. McIntyre

Posted on: December 4, 2007 – 4:27 pm in HI/LOW, , , , ,

Junk Bond ETF Launch: SPDR Lehman High Yield Bond ETF (JNK)

The American Stock Exchange launched trading in a new ETF today as the SPDR Lehman High Yield Bond ETF (Amex: JNK) by State Street Global Advisors.

JNK uses a passive management strategy designed to track the total return performance of the Lehman Brothers High Yield Very Liquid Index which measures the performance of publicly issued U.S. dollar denominated high yield corporate bonds with above-average liquidity.

This new ETF brings the total number of ETF listings on the Amex to a total of 377 ETF’s.  It simultaneously launched stock options chains tied to it as well.  JNK traded only 1,900 shares today.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 4:11 pm in ETF,

Amazon.com’s Kindle Only Available For Scalpers (AMZM, EBAY, SNE)

We were quite interested in Amazon.com’s (NASDAQ:AMZN) upcoming product release for the new e-book reader, the Kindle.  Interestingly enough it almost immediately sold out of its initial supply and gave its first website update with an estimated December 5 ‘availability date’ to buyers.  That was right around Thanksgiving.  But if you look at the site now, forget about this being a Christmas or Hanukkah gift for 2007.  See below:

Availability: Temporarily out of stock. Order now and we’ll deliver when available. We’ll e-mail you with an estimated delivery date as soon as we have more information. Your credit card will not be charged until we ship the item. Ships from and sold by Amazon.com. Gift-wrap available.
Kindle Availability:  Due to heavy customer demand, Kindle is temporarily sold out. Because we ship Kindles on a first-come, first-served basis, please ORDER NOW to reserve your place in line. Your Kindle will not arrive by December 25th. Note that Kindles cannot currently be sold or shipped to customers living outside of the U.S.

But there is at least one place you can buy the Kindle.  eBay (NASDAQ:EBAY) has many Kindle units on auction, for quite a premium.  As of now and depending upon the seller’s rating at eBay, the bids are in excess of $600, $700, and even over $800….. not bad for the seller considering that this retails at Amazon.com for $399.00 for those who can be patient for yet a few more weeks.

Walt Mossberg at the WSJ only gave Kindle a so-so review.  You can always buy the ‘lower-features’ eBook reader from Sony Corp. (NYSE:SNE/ADR) for $299.95… and you can buy it on Amazon.com.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 2:57 pm in Internet, Product Review, , , , ,

Yu-Gi-Oh Starts Buying 4Kids Stock (KDE, SCHL)

4Kids Entertainment, Inc. (NYSE: KDE) must have gotten tired of seeing its stock hitting new near-term lows in its stock prices.  The entertainment company which has the US rights to Yu-Gi-Oh ™ and rights to TMNT ™, Cabbage Patch Kids ™, and more has approved a share buyback plan of up to 1 million shares of its common stock through December 31, 2008.  This only represents $11.5 million dollars or so today, but the market cap for the company is only $154 million.

Interestingly enough, this one just recently started coming through on certain value investing stock screens based upon its balance sheet and the stock recently hitting 52-week lows making the company’s market cap closer and closer to its tangible book value.

4Kids still has spotty earnings, so using a hard book value isn’t the greatest measurement out there.  That being said, as of its September 30 balance sheet it only has $23.6 million in total liabilities and its total assets were listed as $172.5 million.  Normally we’d back out the goodwill and other intangibles and look at this with having real assets of roughly $135 million, but because of the name kid franchises it has we actually think the goodwill and intangibles are possibly understated.

We were briefly evaluating this one as a candidate in recent days for our Special Situation Investing Newsletter, but the fairly low trading volume may keep this at bay.  24/7 Wall St. does believe that it has an under-leveraged balance sheet, although the spotty earnings and cash flows currently and expected ahead are the reasons for that.

For the right buyer this would offer some extreme value under the rightcircumstances.  But it is definitely not a given that the company’sstock will be the assured beneficiary.  4Kids stock is up over 4% today at $11.75 after the news, and its 52-week trading range is $11.18 to $20.31.  This did hit a new 52-week low this morning at $10.72 before recovering and this has a short interest of 815,000 shares as of the latest data.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 2:22 pm in Entertainment, Stock Buybacks, , , , , ,

Apple (AAPL) iPhone Starts Getting Business Software

SAP (SAP) is launching sales force automation products that will work on the Apple (AAPL) iPhone. As much as any initiative so far this begins to move the handset away its role as a consumer device and in the direction of products like the RIM (RIMM) Blackberry.

As a matter of fact, the SAP launch puts the iPhone ahead of other devices, at least in terms of product availability. According to Reuters "SAP is breaking with precedent by introducing versions of the new software that are compatible with the iPhone ahead of ones for mobile devices that businesses traditionally use." Versions for the Blackberry, Palm (PALM) Treo, and devices running Microsoft (MSFT) mobile applications will be released later.

If other enterprise software companies begin to target the iPhone ahead of the Blackberry, RIMM will have real problems with it legions of business users.

Douglas A. McIntyre

Posted on: December 4, 2007 – 1:28 pm in Consumer Electronics, , , , ,

IPO Filing: Gushan Environmental, Biodeiesel & In China (GU)

After yesterday’s close, there was quite an interesting IPO filing with the buzz that may ring in many ears: enter Gushan Environmental Energy Limited….. Gushan Environmental is biodiesel player for the alternative energy investors, and based in China for the China-investors.   

The nominal amount of the filing is for $250 million and the company will take the proposed ticker "GU" on the NYSE.  Merrill Lynch has been tapped as the lead underwriter in the syndicate and co-managers are listed as CIBC World Markets and Piper Jaffray.  So, take a look at the description and you will see what the potential excitement is:

  • China’s largest biodiesel producer as measured by annual production capacity in 2006 by Frost & Sullivan…..
  • One of the first commercial biodiesel producers in China; commenced operations in 2001 predecessor company, Sichuan Gushan Vegetable Fat Chemistry Co., Ltd., or Sichuan Gushan).
  • Aggregate annual biodiesel production capacity increased from 40,000 tons in 2004 to 70,000 tons, 170,000 tons and 190,000 tons as of 2005, 2006 and 2007, respectively.
  • Produced and sold 36,045, 61,119 and 158,994 tons of biodiesel in 2004, 2005 and 2006, respectively, and 136,587 tons of biodiesel in the nine months ended September 30, 2007. REVENUES: revenues and net income increased substantially during the same period…. generated revenues of RMB172.2 million, RMB360.8 million and RMB824.5 million (US$110.0 million) in 2004, 2005 and 2006, respectively, representing a compound annual growth rate, or CAGR, of 118.8%, and generated revenues of RMB736.4 million (US$98.3 million) for the nine months ended on September 30, 2007.
  • Net income of RMB74.2 million, RMB152.5 million and RMB332.8 million (US$44.4 million) in 2004, 2005 and 2006, respectively, representing a CAGR of 111.8%, and recorded net income of RMB250.1 million (US$33.4 million) for the nine months ended on September 30, 2007.
  • TARGET: to increase annual production capacity to 400,000 tons by the end of 2008.

We frequently discuss more detailed and IPO previews with back door plays for our open email distribution list if you wish to join.

Jon C. Ogg
December 4, 2007

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

Posted on: December 4, 2007 – 12:47 pm in ADR, Alternative Energy, China, IPOs, , , ,

AMD “Chip-Level Problems” in Quad-Core Processors? (AMD, INTC)

Advanced Micro Devices (NYSE:AMD) is gracing us on the new list of 52-week lows this morning, and we have featured this one negatively in the 24/7 Wall St. "10 Stocks Under $10" subscriber letter.

Keep in mind that "The Tech Report" is only one such technology review site out there, but they ran something yesterday that started making the rounds last night.   From the report: "AMD’s quad-core ‘Barcelona’ Opterons have been notably difficult to find since their introduction two months ago, and The Tech Report has learned that a chip-level problem has impacted the supply of these chips to both server OEMs and distribution channel customers."

If this is the true culprit, at least a fix is said to be available in Q1.  But the bad news is that the fix is still in the future.  24/7 Wall St.’s own Doug Mcintyre just noted: iSuppli says that AMD’s share of global chip revenue rose 0.6% to 13.9%, but that can hardly be deemed a recovery. Intel’s (NASDAQ:INTC) share during the period was 78.7%. 

AMD shares are down over 2% at $9.44, and the previous 52-week trading range is $9.62 to $23.00.  Less than two-years ago this was a $40.00 stock.

Our "10 Stocks Under $10" subscriber newsletter goes out weekly with bullish or bearish views on ten stocks that trade under $10.00.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 10:11 am in PC Companies, Semiconductor, ,

Another 52-Week Low For AMD (AMD)

AMD (AMD) is making another 52-week low today, trading down to $9.44. Concerns that Dell (DELL) may not be committed to using as many of the company’s chips as they did in the last few quarters are hurting the company. There have also been reports that customers are unhappy with the performance of the new Barcelona chip.

iSuppli says that AMD’s share of global chip revenue rose .6% to 13.9%, but that can hardly be deemed a recovery. Intel’s (INTC) share during the period was 78.7%

AMD’s (AMD) market cap is not down to $5.24 billion of .89x revenue. At Intel that number is 4.11x and at Nvidia (NVDA) 4.71x.

A number of analysts are still concerned that AMD has too much debt to cover even if its operating income improves modestly.

Douglas A. McIntyre

For more coverage of stocks that trade under $10, get a subscription to the 24/7 Wall St "Ten Stocks Under $10" weekly newsletter.

Posted on: December 4, 2007 – 9:50 am in Semiconductor, , ,

MarketWatch Bringing More New Features (DJ, NWS)

If you regularly use MarketWatch, you’ve probably noticed some additional offerings and additional features of late.  If you haven’t noticed you probably will soon.  MarketWatch has added "First Take" for more original in-house commentary about breaking news, and this is around the same time as the new features that have been added with its "Portfolio" investment tools.

As the News Corp. (NYSE:NWS) buyout of Dow Jones (NYSE:DJ) nears its closure date, there continues to be a push for more financial news and information.

First Take is an effort that is meant to tag original commentary generated by MarketWatch itself about breaking news.  In short, Reuters outsourced news regurgitation factory in India won’t be doing this (not out of India anyway).

MarketWatch apparently tested this over the summer and decided to make it a product after it became a consistently successful draw and a major traffic driver for our readers.  I also asked our sources inside MarketWatch what the best use would be for traders and investors.  First Take is aimed at putting breaking news in context and perspective to help readers inform their investment decisions.

It is unclear if this is the first of many new efforts or if this will have to be tested alone for some time.  Our sources inside MarketWatch say this is the result of ongoing innovation in news coverage (e.g., Subprime Today) and investor tools (e.g., Portfolio) driven by reader demand.

The driving force behind this was you.  First Take came about as the result of reader demand for something to complement our breaking news coverage.

With more than 6 million monthly unique visitors, this new section has the potential of being one of the go-to sources for independent commentary and analysis outside of basic reporting and conflict-free compared to brokerage firms.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 9:35 am in Media, , ,

Merck (MRK) Estimates Miss Street

Merck (MRK) is not going to do as well as Wall St. had hoped next year. It guided to $3.28 to $3.38 earnings per share. A Reuters poll puts the number at $3.27.

Merck shares have been near a 52-week high, but are down 2.5% at the open to $57.30

Douglas A. McIntyre

Posted on: December 4, 2007 – 9:32 am in Earnings Warning,

Goldman Sachs Casts Doubts On XM & SIRIUS, Merger or No Merger (SIRI, XMSR)

XM Satellite Radio (NASDAQ:XMSR) shares are reeling from a Goldman Sachs downgraded this morning.  Goldman Sachs downgraded its Neutral rating down to a new SELL rating with a 26% downside risk to the $11.50 price target of Goldman Sachs. 

What is interesting is that Goldman’s note says it could be wrong in the near-term if the Department of justice approves its merger with Sirius Satellite Radio (NASDAQ:SIRI).  But its call is somewhat firm.  The downgrade is said to be based upon valuation and contemplates possible short-term price swings whether the DOJ approves or blocks the merger.

"Deal or no deal, we think the current valuation incorporates a view too close to optimal…."

Take a look at the Goldman Sachs risk/reward matrix: 

  • It sees $3.00 upside if the deal is approved;
  • It sees $8.00 downside if the merger fails to win approval.

Shares of Sirius and XM had been climbing as others have signaled their belief that the deal may be closer rather than farther away.  XM shares are down almost 5% pre-market at $15.05, and even Sirius shares are down over 3.5% at $3.61.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 9:06 am in Analyst Calls, Satellite, ,

Finally, 10 Billion Cheers for Dell (DELL)

Shares of Dell Inc. (NASDAQ:DELL) are trading up in pre-market trading on the company’s announcement that it is FINALLY able to resume its share buyback plan.  Dell announced that it has authorized a stock buyback plan for up to $10 Billion.  More importantly, the company said IT WILL RESUME THE SHARE REPURCHASE PROGRAM THIS WEEK.

Also at the shareholder meeting, the company is electing 11 members to its board of directors: Donald J. Carty, Michael S. Dell, William H. Gray III, Sallie L. Krawcheck, Alan (A.G.) Lafley, Judy C. Lewent, Thomas W. Luce III, Klaus S. Luft, Alex J. Mandl, Michael A. Miles and Sam Nunn.

24/7 Wall St. has been expecting this buyback announcement for some time.  The company had to previously suspend its repurchase activities when it was a delinquent filer and during its financial review.  This is at the higher-end of the range of a buyback dollar amount we were expecting.

Dell has already seen almost 1 million shares trade hands in pre-market trading and shares are up close to 2.5% at $24.53.  The 52-week trading range is $21.61 to $30.77.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 8:44 am in PC Companies, Stock Buybacks,

Pre-Market Stock News (December 4, 2007)

Below are the news items affecting individual stocks in pre-market trading:

  • America’s Car-Mart Inc. (CRMT) indicated up over 13% after beating earnings estimates.
  • Deere (DE) trades ex-split to reflect a 2-1 stock split.
  • Dell (DELL) authorized a $10 Billion share buyback plan.
  • Dynegy (DYN) announced that its President and COO will retire at year end.
  • eBay (EBAY) shares up 0.5% on a Yahoo! collaboration on online auctions.
  • H&R Block (HRB) and Cerberus Capital mutually agreed to terminate the sale of Option One Mortgage; HRB shares down over 6% early AM.
  • Lehman Brothers (LEH) will take over Van der Moolen’s NYSE specialist activities.
  • LKQ Corp. (LKQX) trades ex-split to reflect a 2-1 split.
  • Merck (MRK) reaffirmed 2007 EPS guidance and it guides In-Line for 2008, although shares are down almost 2% pre-market.
  • Orbitz Worldwide (OWW) announced a distribution agreement with Avis.
  • Reant-a-Center (RCII) is closing 280 stores.
  • R.H. Donnelley (RHD) announced a $100 million stock buyback plan.
  • Sanderson Farms $1.18 EPS vs. $1.35 EPS estimates; unsure if comparable.
  • TASER (TASR) announced two Follow-On orders.
  • Yahoo! (YHOO) trading flat to up marginally after announcing an online auction collaboration with eBay.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 8:35 am in Pre-Market Activity

Lehman Swipes Up Van der Moolen Specialist Ops (LEH, VDM)

The fate of at least one of the exiting specialists has been sealed.  Van der Moolen Holding NV (NYSE: VDM) has reached agreement to sell certain assets of its US specialist and market making activities to Lehman Brothers (NYSE: LEH).  Financial terms were not disclosed, although initial indications are that Lehman is assuming the liabilities and obligations for a minute sum.

This transaction is subject to approvals and expected to close rapidly as it will be finalized on December 10, 2007. Lehman Brothers will now be the fourth largest specialist firm and act as specialist for approximately 400 NYSE-listed stocks.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 8:30 am in Brokerage Firms, ,

Top 10 Pre-Market Analyst Calls (ATVI, ALTH, BHI, BSC, GS, LEH, COO, CEPH, MRVL, TIF, PAY, XMSR)

These are not the only impact-calls affecting stocks from analysts in pre-market trading, but these are the ones that 24/7 Wall St. is focusing on:

  • Activision (ATVI) raised to Overweight at Lehman.
  • Allos Therapeutics (ALTH) started as Buy at Banc of America.
  • Baker Hughes (BHI) started as Buy at Oppenheimer.
  • Bear Stearns (BSC), Goldman Sachs (GS) & Lehman Bros. all downgraded to Sell from Market Perform at Punk Ziegel.
  • CNOOC Ltd. (COO) downgraded to Neutral from Outperform at Credit Suisse.
  • Cephalon (CEPH) raised to Outperform at FBR.
  • Marvell Tech (MRVL) reinitiated with coverage at Buy at Merrill Lynch.
  • Tiffany & Co. (TIF) downgraded to Neutral from Buy at Banc of America.
  • VeriFone (PAY) downgraded to Neutral at Merrill Lynch.
  • XM Satellite Radio downgraded to SELL at Goldman Sachs.

Jon C. Ogg
December 4, 2007

Posted on: December 4, 2007 – 8:09 am in Analyst Calls, , , , , , , , , , , ,