Daily Archives: December 10, 2007

A JP Morgan (JPM) Takeover Of Citigroup (C)?

Well, some one with a pen and paper thinks that Citigroup (C) may be taken over. According to FT blog site Alpahville, JP Morgan (JPM) may be just the folks to do it.

The reasons the deal might get done include an anticipation that Citi will have much larger write-downs at its SIVs and that the bank still has huge CDO problems.

Alphaville writes "Indeed, with a definite sense that the super-senior CDO debt market is fast collapsing, Citi can expect more trouble. The bank has $45bn in super-senior CDO exposure."

Add to that the fact that JP Morgan CEO Jamie Dimon is a super-CEO and Wall St. has a marriage.

It would save Citi the cost of hiring its own chief.

Douglas A. McIntyre

Posted on: December 10, 2007 – 6:44 pm in Banking, ,

Cramer’s Blue Cross Blue Shield Play (GTS)

On tonight’s MAD MONEY on CNBC, Jim Cramer said he wanted to review a recent IPO which is a great spot that didn’t perform well.  Triple-S Management (NYSE: GTS) is the Blue Cross Blue Shield affiliate in Puerto Rico that came public very recently under its proposed IPO range of $16.00 to $18.00. 

Cramer likes when health insurers come public from a non-profit to a for-profit entity, and he’s noted how all the Blue Cross players that came public have done incredibly well and ultimately get acquired.  Cramer thinks the company will ramp up margins and profitability in the coming years.  The market cap is merely $450 million and Cramer thinks the stock will come back down a bit over the next week or so.

Initially, shares are up 15% in after-hours trading on thin volume at $18.00.

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 6:13 pm in Cramer, ,

Medarex Stubs Its Toe (MEDX, BMY, DNDN)

Medarex inc. (NASDAQ: MEDX) is seeing shares slapped in after-hours trading after the company is issuing disappointing news over the hopes for its Ipilimumab Pivotal Trials in patients with Advanced Metastatic Melanoma.  Its partner is Bristol-Myers Squibb (NYSE:BMY).

We have noted upon many occasions how the options trading in Medarx and Bristol-Myers was quite similar to that of former high-flyer Dendreon (NASDAQ:DNDN) that also ran into trouble after its pivotal prostate cancer trials failed to impress the FDA enough for an approval.  This was recently hit with a Sell rating.

The results from study 008 were conducted under Special Protocol Assessment and did not meet the primary endpoint, which was to rule out a best objective response rate of less than 10%.  However, the totality of data from the registrational program included a clear dose response effect observed in study 022 and best objective response rates across the three studies ranging from mid-single digits to mid-teens as determined by independent radiology review.

The objective responses were consistent with previous observations and included complete and partial responses.  The majority of the responses were ongoing at the end of the observation period.  Given the importance of these findings and the limited treatment options for this patient population, Medarex and Bristol-Myers Squibb are planning to meet with regulatory agencies in the near future.   Pending these discussions, the companies aim to submit a regulatory filing to the U.S. Food and Drug Administration (FDA) in the first half of 2008.

Medarex (NASDAQ: MEDX) shares are down 17% in after-hours at $11.00, and its prior 52-week trading range was $11.10 to $18.23.  Unfortunately, metastatic melanoma is still mostly untreated and this was the lead candidate for the company thought could yield a $1 Billion annual blockbuster drug status for it and Bristol-Myers.

Bristol-Myers Squibb (NYSE: BMY) closed up 0.2% today.

Here is the full release from Medarex.  The thing that is keeping Medarex from falling totally apart on this news is that the company actually has an extremely large pipeline with many other corporate partners aimed to treat many other diseases and conditions.

We routinely monitor such options open interest for unusual expectations for our open email distribution lists.

Jon C. Ogg
December 10, 2007

Posted on: December 10, 2007 – 4:57 pm in Biotech, , , , ,

Slash And Burn At Washington Mutual (WM)

Washington Mutual (WM) has announced that it will cut its dividend, stop lending to the subprime market, and raise $2.5 billion through a preferred stock offering. The market took that news badly and pushed the company’s shares down 6% after hours to $18.70.

The company will generate approximately $3.7 billion of tangible equity as a result of the proposed capital issuance and the intended reduction in the common dividend in 2008.

WM said it will continue to providing mortgage products to its customers. However, "the mortgage market is undergoing a fundamental shift due to credit dislocation and a prolonged period of reduced capital markets liquidity. As a result, WaMu expects national mortgage originations to shrink to $1.5 trillion in 2008, down about 40 percent from an estimated $2.4 trillion this year."

The company will fire 2,600 people in it home loan business and 550 corporate jobs.

Continued deterioration in the mortgage markets and declining housing prices have led to increasing fourth quarter charge-offs and delinquencies in the company’s loan portfolio. As a result, the company now expects its fourth quarter provision for loan losses to be between $1.5 and $1.6 billion, approximately twice the level of expected fourth quarter net charge-offs.

Douglas A. McIntyre

Posted on: December 10, 2007 – 4:45 pm in Banking,

Texas Instruments Sweetens Its Tune (TXN, SMH)

It appears that the weakness being seen in many of the mobile handset makers isn’t really hurting Texas Instruments (NYSE: TXN).  The company gave its mid-quarter update and narrowed its prior guidance to levels that are actually above the First Call consensus:

  • The new revenue range is $3.50 to $3.66 Billion, with consensus at $3.56 Billion.
  • The new EPS range is $0.50 to $0.54, with consensus at $0.50.

Shares of Texas Instruments (NYSE:TXN) closed up 0.6% at $32.67 today, but shares are up almost 4% at $33.94 in after-hours trading.  The 52-week trading range is $28.24 to $39.63.

Even the Semiconductor HOLDRs (AMEX:SMH) rose 0.9% to $34.00 in after-hours trading.

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 4:39 pm in Semiconductor, ,

10 CEO’s That Need To Leave in 2008: Gary Pruitt of McClatchy (MNI)

It is no secret that the newspaper industry is in trouble and it might not be fair to only single out one individual CEO out of the whole industry.  But Gary Pruitt of McClatchy (NYSE: MNI) is being listed as one of the TOP CEO’s TO GO for 2008. 

Pruitt led the Knight-Ridder buyout that was completed in June 2006 and this company performance has been utterly dismal ever since.  At least Knight-Ridder shareholders received $40.00 cash, but they also received 0.5118 shares of McClatchy stock was well.  McClatchy shares sat above $40.00 back then, and the Knight-Ridder holders that held on probably cry themselves to sleep each night wishing they had sold out entirely in cash.

The company’s corporate governance section does show "an annual CEO review" and we would suggest the company get on this.  It may be unfair to single out only one newspaper-related CEO and we cannot blame the entire newspaper malaise on him alone.  Even a good and solid CEO can’t keep the raw number of newspaper readers in the U.S. from disappearing faster than smokers.

But if you look at the share prices, you’ll see how this one is performing extra poorly.  Mr. Pruitt has been Chief Executive Officer since 1996 and President since 1995, and he became Chairman of the Board in 2001.  What we think the board needs to do if they want to keep him in charge is to make him the non-executive Chairman and they need to bring in a new President & CEO that has more of a digital thrust in mind.  The problems will likely continue under a new head, but this company looks ripe for new blood to lead the day to day operations.

If you back out goodwill at $2.5 Billion and other intangibles at $1.07 Billion, we look at its balance sheet being severely inverted.  That isn’t really unusual for the newspaper operators, but the company is going to need to sell of more of its dailies and it’s going to have to make more severe cuts.

The last two years have been the darkest period since the late 80’s to early 1990’s.  Just two years ago the stock sat at $60+, now shares are trading with a $13 handle.  To add insult to injury, the company is expected to post lower revenues in 2008 versus 2007, and "earnings" are expected to decline as well if you evaluate the First Call earnings projections.  The company recently gave a projected rise in earnings for 2008, but there is some disbelief from Wall Street.  We’ve noted how Wall Street doesn’t trust the numbers.

If Pruitt would turn the keys over to Christian Hendricks, VP of McClatchy Interactive Media, or if he’d bring in an outside digital media superstar he’d be doing his shareholders a huge favor.  He could easily remain chairman to oversee all those declining newspaper from city to city.  He’d also be able to use his directorship at The Associated Press to lean down more and more of the newspaper operations.

24/7 Wall St.’s own Douglas McIntyre has been very cautious on McClatchy stock in our OLD MEDIA NEW MEDIA newsletter, and offered much deeper insight into the books and the fix there.  Below is a listing of its dailies from the company site:

  • ALASKA: Anchorage Daily News
  • CALIFORNIA: The Fresno Bee, The Modesto Bee, The Sacramento Bee, Merced Sun-Star, The Tribune
  • FLORIDA: Bradenton Herald, The Miami Herald, El Nuevo Herald
  • GEORGIA: Ledger-Enquirer, The Telegraph
  • IDAHO: Idaho Statesman
  • ILLINOIS: Belleville News-Democrat
  • KANSAS: The Olathe News, The Wichita Eagle
  • KENTUCKY: Lexington Herald-Leader
  • MISSISSIPPI: Sun Herald
  • MISSOURI: The Kansas City Star
  • NORTH CAROLINA: The Charlotte Observer, The News & Observer
  • PENNSYLVANIA: Centre Daily Times
  • SOUTH CAROLINA: The Beaufort Gazette, The Herald, The Island Packet,  10 Buck Island Road, The State, The Sun News
  • TEXAS: Fort Worth Star-Telegram
  • WASHINGTON: The Bellingham Herald, The Olympian, The News Tribune, Tri-City Herald

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 4:31 pm in Management Change, Media, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The 52-Week Low Club

Force Protection (FRPT) Concerns about whether the company’s latest product will ever come to market. Recent IPO falls to $7.48 from $9.99.

Spartan Motors (SPAR) No major news. Falls to $7.55 from 52-week high of $25.03

Housevalues (SOLD) Real estate website. Opps. Falls to $2.97 from 52-week high of $5.89.

Douglas A. McIntyre

Posted on: December 10, 2007 – 4:05 pm in HI/LOW, , ,

What To Expect From Classmates IPO (UNTD, MSFT, NWS, CLAS)

This week we expect the pricing of the Calssmates.com (NASDAQ:CLAS) parent Classmates Media Corp. IPO and partial spin-off from United Online (NASDAQ:UNTD).  We have noted recently and before that this Classmates.com is not a ‘normal’ social networking site like that of News Corp.’s (NYSE:NWS) MySpace nor like that of Facebook or Linked-In.  That $240 million investment from Microsoft (NASDAQ:MSFT) into Facebook created a slightly different measurement metric out there for the value of Social Networking.

We did note that United Online was attractive right after the original filing,but shares had just run up too much because investors appeared that theywere hoping for a repeat of the EMC-VMware play book.  Unfortunately, when United Online shares were running up, we noted for our Special Situation Investing Newsletter that we felt United Online shares were pricing in too excessive of a premium because of the upcoming spin-off of Classmates.com.  The implied value will be tracked and commented to by many investors, analysts, and fund managers.  Now that shares are back under $13.00, we do not feel as negatively regarding the United Online valuation. 

Classmates increased its revenue roughly 44% to $140.1 million during the first nine-months of 2007 and posted a profit of $1.7 million instead of a loss of $3.9 million in the first nine-months of 2006.

We have our own open email distribution list covering details of other IPO’s, special situations, spin-off’s, and merger candidates.  The current offering is for 12 million shares in a range of $10.00 to $12.00 per share.

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 2:50 pm in IPOs, Internet, , , , , ,

ETN/ETF Launch: Tracking Closed-End Funds (GCE)

NYSE Euronext has launched an unusual ETN.  The Claymore CEF Index-Linked GS ConnectSM ETN (NYSE: GCE) began trading on the NYSE today.  This is not a typical ETF (or actually an exchange traded notes offering) because this one tracks an index that is comprised of Closed-End funds.

Linked to the Claymore CEF Index, this ETN provides investors with an opportunity to track a portfolio of liquid Closed End Funds listed in the U.S.  The NYSE also has not demanded exclusivity here on this one.  Out of the current 75 constituents, 68 are listed with NYSE Group.

As a reminder, closed-end funds are much older than ETF’s.  They also trade intraday just like an ETF or like a stock rather than an open-ended "five letter ticker" mutual fund.  What is different is that closed-end funds trade at a premium or discount to the net asset values, so that is one more added feature to take into consideration.

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 2:22 pm in ETF,

ETF Launch: Vanguard Extended Duration Treasury ETF (EDV)

The American Stock Exchange has launched trading in the Vanguard Extended Duration Treasury ETF (Amex: EDV).

The "EDV" ETF is designed to track the performance of the Lehman Brothers Treasury STRIPS 20-30 Year Equal Par Bond Index which includes zero-coupon U.S. Treasury securities (Treasury STRIPS) with maturities ranging from 20 to 30 years.

As noted, a Treasury STRIP represents a single coupon payment, or a single principal payment, from a U.S. Treasury security that has been “stripped” into separately tradedcomponents.  What is interesting here is how this will account for the accumulated interest.

Vanguard now offers investors 34 ETFs, all of which are listed on the AMEX.  Hopefully Mr. Bogle won’t pan his own ETF’s like he has in general.

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 2:11 pm in ETF, , ,

Lazard’s Sell & $25 Target on LDK Solar (LDK, WFR)

Lazard Capital Markets has maintained its sell rating on LDK Solar Co. (NYSE: LDK) despite a 22% rise in the stock today.  LDK signed a 10-year "take or pay" contract to supply multicrystalline wafers and polysilicon to Q-Cells.  LDK will deliver more than 6GW of multicrystalline solar wafers to Q-Cells AG over a 10-year period starting in 2009.  The contract has two parts: silicon agreement and wafer processing. Under the silicon agreement, LDK will supply Q-Cells with 1,000 MT in 2009,increasing to 3,500 in 2010, 4,000 in 2011, 4,500 in 2012, and 5,000 from 2013 to 2018. LDK will also process this silicon into solar wafers for Q-Cells.

Lazard’s Sanjay Shrestha said in his report, "We understand that silicon pricing is set for the first two years and is subject to negotiation based on market pricing thereafter. Q-Cells will make prepayments on the order of 10% of the silicon value, or more than $200 million, to assist LDK with financing the expansion required to supply these volumes. LDK is required to supply the silicon from its internal production or external sourcing. We believe this contract announcement provides a validation of LDK’s wafering capabilities and, more importantly, represents an inflow of much needed cash, which helps to reduce near-term financing risk…..

Shrestha says this is a necessary and an incremental positive for LDK, but it does not change his long-term thesis on the company.  "We believe that LDK shares are assuming a best possible and overly optimistic outcome for the company’s capacity ramp and pricing, and the broader sector clearly has a strong positive bias. However, we remain cautious on pricing and the ramp and maintain our SELL rating.   Our $25 price target reflects a low-teens multiple on our 2009 EPS estimate of $2.00. While solar multiples have been somewhat arbitrary as of late, we note that MEMC (NYSE: WFR), a silicon provider with a long track record, is trading at 17x, suggesting to us that LDK should not garner anything more than 15x on 2009E EPS, indicating a $30 stock In the event LDK is successful, a best-case scenario for EPS is likely around $3.00, suggesting the shares are fully valued at $45."

Shares of LDK are up some 22% today at $55.90 and have already traded one and half times normal volume. Also in recent alternative energy calls:

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 2:02 pm in Alternative Energy, Analyst Calls, ,

No Good News For CNET (CNET) Investors

According to recent numbers from comScore, CNET’s (CNET) News.com website has been losing audience. Unique visitors in August were 2.478 million. In October, that number fell to 2.045 million. Pageviews from News.com run about six million a month. CNET lists daily pageviews in its 10-Q at 91 million. Either News.com is a very small part of the CNET total, or the comScore numbers are way off.

If comScore is accurate, tech blog TechCrunch had eight million pageviews in October. It begs the question of how CNET’s blog network is doing.

Douglas A. McIntyre

Posted on: December 10, 2007 – 12:55 pm in Media,

Celgene Proves Riskier Than Imagined (CELG)

Celgene Corp. (NASDAQ:CELG) is seeing the price of its shares crushed today after trial results were shown on Sunday at the 49th annual American Society of Hematology (ASH) Meeting of Celgene’s drug Revlimid as a treatment for a blood cancer failed to impress Wall Street.  One trial compared Revlimid combined with dexamethosone, a steroid, to only dexamethosone. The second trial combined Revlimid with two different doses of dexamethosone and the levels of complete response with total remission has failed to please.

Shares of Celgene traded down to a new 52-week low today.  Its prior range over the last year was $49.46 to $75.44, and it traded as low as $47.21 today.  Shares are currently down about 14% at $49.35 and the stock has traded over 26 million shares.

Since October, shares of Celgene have now lost 1/3 of their value, and its market cap is still over $19 Billion.  Prior to today, analysts estimates from First Call put the entire 2008 revenues at $2.06 Billion.  Prior to today’s stock sale the average analyst price target was over $75.00.  Wachovia just assigned a new Outperform rating to it last week, and in the two weeks prior it had been upgraded at BMO Capital Markets and at Banc of America.

This had previously been a Cramer pick as well and he’s even interviewed the CEO before.  Cramer has also evaluated this one before with other biotech blow-ups.

 

Jon C. Ogg

December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 11:52 am in Biotech, ,

MBIA Raises Cash & Bolsters Books

MBIA Inc. (NYSE: MBI) has entered into a definitive agreement with global private equity firm Warburg Pincus to invest up to $1 billion in MBIA through a direct purchase of MBIA common stock and a backstop for a shareholder rights offering.  MBIA said the investment will increase MBIA’s "already substantial capital and claims-paying resources" and "enable MBIA to grow its business profitably at a time when market conditions present it with attractive opportunities."

What is interesting here is that the market cap for MBIA is $4.47 Billion and that is after the big pop in the stock.  It is hard to rely on the books from prior quarters because of the liquidity crunch that has been seen more sharply in recent weeks.  It had listed over $4.5 Billion in current assets with cash, short term investments and receivables, although its long-term investments were listed as just under $40 Billion.  Total liabilities were $38.79 Billion.  Obviously there are going to be some different numbers on the next report.

Shares of MBIA are up almost 19% at $35.60 after the financing pact announcement.  Its 52-week trading range is $25.84 to $76.02. 

Jon C. Ogg
December 10, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 10, 2007 – 11:28 am in Financial Stocks, , ,

Starbucks (SBUX) May Have Bottomed

Normally, when McDonald’s (MCD) comes out with strong same-store sales and attributes some of its success to revenue from premium coffee, shares in Starbucks (SBUX) sell off.

MCD did just that, saying that global same-store sales were up 8.2%, which was more than most Wall St. analysts expected. McDonald’s stock moved up about 2% on the news to a new 52-week high over $61.

But, the report that premium coffee sales were part of the big food chain’s success did not hurt the Starbucks share price. It moved up about 1% to $22.84. That is still near a 52-week low, but at least the stock is not moving down.

What happened? Investors may assume that coffee consumption is simply up all over. Perhaps so many people go to work early that java sales are increasing for most chains. Could be.

Or, expectations for Starbucks may be becoming less spectacular. The company has lost over a third of its market cap as it has fallen from it one-year high of almost $37. Below $23, investors can be more forgiving.

Whatever the reason, it looks like Starbucks has bottomed.

Douglas A. McIntyre

Posted on: December 10, 2007 – 11:16 am in Food, ,

Yahoo! (YHOO): Short Sale Of The Month?

Yahoo! (YHOO) is looking more and more like the best internet stock for shorting. The stock trades at $25.70 now.

This week Barron’s quoted an internet analyst from Bernstein as saying that the company’s share of the search market has dropped below 18% in the US and worldwide below 13%. Bernstein believes that Yahoo! needs to cut one-fifth of its staff to get costs in line with next year’s revenue, but new management appears to have no stomach for this. That means that margins could drop further.

In mid-November, the short interest in Yahoo! was over 54 million shares making it sixth among total short interest for companies listed on the Nasdaq. Wall St. has growing concerns that internet
advertising growth will be hurt by the economic slowdown. Yahoo!’s revenue grow is already
slower that the 25% or so year-over-year improvement in the internet advertising revenue pool.
Yahoo! shares were below $23 in August.

It would take very little in the way of bad news to push them back below that level.

Posted on: December 10, 2007 – 10:56 am in Short Interest,

A Mindless Look At “Blue Ribbon” Companies

Fortune has come up with a list of "Blue Ribbon" companies. The companies on the most Fortune lists (Fortune 500, Fastest Growing, Most Admired, Best To Work For) made the grade.

Some of the companies make sense, a least where the term "Blue Ribbon" is employed. It would be hard to argue that Intel (INTC), GE (GE), Cisco (CSCO), Apple (AAPL), and P&G (PG) shouldn’t be on the list.

But, there in the middle of those is Citigroup (C), one of only ten firms to make the grade.

Someone at Fortune has too much times on his hands.

Douglas A. McIntyre

Posted on: December 10, 2007 – 10:44 am in Media, , , , , ,

Why Wall St. Won’t Buy Akamai (AKAM) And Limelight (LLNW)

Research firm Kaufman put "hold: ratings on content deliver networks Akamai (AKAM) and Limelight (LLNW) with price targets below where the stocks currently trade.

The bull theory on the stocks was that as internet delivery of video and data moved up, these two companies would do exceedingly well as the two leader in quality media delivery.

What the market did not expect was that Level 3 (LVLT) would enter the business as a low cost provider using its international IP backbone.

But, that has not been the worst of it. Companies can get into the CDN market for a few hundred thousand dollars. And, the market is flooded with capacity. Some of the larger private operation are Mirror-Image, OnStreamMedia, RapidEdge, Swarmcast, and Panther Express, and EdgeCast.

Until some of these smaller CDNs are bought out or fail out of the market, it is going to be hard for AKAM and LLNW to move up.

Douglas A. McIntyre

Posted on: December 10, 2007 – 10:29 am in Internet, , ,

A Home Run For Cisco (CSCO)

Cicso (CSCO) has had a bad run. Since earnings the stock has moved from over $34 to below $27.

But, today the big router company got good news. AT&T (T) will "upgrade its Internet backbone network" using Cisco core routers, according to Reuters.

The loser in the deal was Juniper Networks (JNPR), which also bid for the business.

Douglas A. McIntyre

Posted on: December 10, 2007 – 9:41 am in Telecom, , ,

Restoration Hardware (RSTO) Numbers Fall Apart, Pulls Guidance

For the quarter ending November 3, Restoration Hardware (RSTO) announced net revenue increased 10.6 percent to $173.7 million compared to $157.1 million in the third quarter of 2006. Loss from operations for the third quarter of 2007 was $12.9 million, inclusive of $1.4 million related to costs associated with the Merger Agreement between the Company and certain affiliates of Catterton Partners. Loss from operations in the third quarter of 2006 was $3.7 million.

RSTO said due to uncertainty regarding the holiday outlook as well as the pending Merger Agreement and go shop process, prior guidance is withdrawn and the company will not be providing guidance regarding fourth quarter and full year 2007 financial results.

Shares are off 1% before the open

Douglas A. McIntyre

Posted on: December 10, 2007 – 8:49 am in Earnings Warning,