Daily Archives: March 3, 2008

Intel (INTC) Grounds Out

Intel (NASDAQ: INTC) sent the tech world and stock market more news which they did not need. The company cut its gross margin estimates. According to the company "Intel Corporation today lowered its first-quarter gross margin forecast to 54 percent, plus or minus a point, as compared to the previous forecast of 56 percent, plus or minus a couple of points, due to lower than expected prices for NAND flash memory chips."

Intel closed at $20 and dropped to $19.50 after hours. It may test its 52-week low of $18.05 tomorrow.

Wall St. should expect a bigger sell-off in Intel’s smaller rival AMD (NYSE: AMD). It can’t afford to lose any more margins points. AMD dropped over 6% today. Their shareholders must have heard footsteps.

Douglas A. McIntyre

Posted on: March 3, 2008 – 7:23 pm in Semiconductor, ,

Cramer’s Natural Gas Play (CHK)

Tonight on CNBC’s MAD MONEY, Jim Cramer came out with some huge commodity price calls all around "Sweet 16" and "March Madness."  His picks all revolve around "$16" for commodity price handles.  He already gave a new gold pick tonight and also gave a new agriculture pick that is different than his top ag-play last week.

Cramer thinks that as oil and coal go up and up, natural gas becomes the go-to play and his pick in natural gas is Chesapeake Energy Corp. (NYSE: CHK).  He likes the production growth, and he really likes that insiders and the CEO are buying up stock.  This insider buying is after waves of successful insider buying that has now seen exponential gains.  But the last bit of insider buying was a monster purchase and that has moved more than $10 since then.  He also noted that bears are shorting the stock and the stock doesn’t really stay down that much.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 7:16 pm in Cramer, Oil & Gas,

Cramer’s New Play For $1,600 Gold (AEM)

Jim Cramer came out on CNBC’s MAD MONEY tonight, predicting huge gains in gold and he thinks that the current sub-$1,000 per ounce prices may go to $1,600 per ounce.  He started talking about Basketball’s March Madness and a "Sweet 16" his "sweet 16" targets all revolve around "$16" for commodity prices.

Cramer thinks that most of these gold companies have no risk to earnings with prices rising higher and higher.  His new top pick in the gold sector for new buyers that haven’t bought a gold stock is Agnico-Eagle Mines Ltd. (NYSE: AEM).  He noted that it is growing production and is is the second lowest cost producer.  It also has a small uranium twist.  We’d note that is different than his "value pick" in gold he gave in early January, and that pick is actually up almost by 50% after a huge move today.  He recently featured Agnico’s CEO on CNBC, and said he was unprepared for how bullish he felt.

If you prefer a diversified strategy in gold or other commodities, we just gave a full list of our ETF and fund universe as several new gold-related trading instruments have been formed.

Cramer also talked up agriculture yet again, but he did give a new pick.  He’s also got a new pick to win from natural gas.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 6:43 pm in Cramer, Metals,

Jim Cramer’s Play On $16 Corn & Wheat (POT, MOO)

Jim Cramer came out on CNBC’s MAD MONEY tonight, predicting huge gains in agriculture prices and in gold.  Unlike Basketball’s March Madness and a "Sweet 16" his "sweet 16" targets all revolve around "$16" for the commodity.  Cramer said he is making some key changes to some of his stocks picks in each of these sectors.

His first theme is agriculture.  He thinks agriculture is being thrown through the roof because of ethanol.  Cramer thinks that corn goes $16 and wheat goes to $16.  He has been very positive on this one over and over and here were his last picks.  He wants to switch gears and you should go into Potash of Saskatchewan (NYSE: POT) because of severe pricing power.  He loves the high barriers to entry and lack of competition.  We also had a recent IPO get filed in this sector.  He noted that consensus estimates are 107% in 2008, and with a fair earnings multiple that stock could see significantly higher prices.  If you are still unsure about picking individual stocks in this sector, we would note that you can look at the ETF for the agriculture play that is the Market Vectors Global Agribusiness ETF (AMEX: MOO).

Cramer is also talking up some new picks he has for gold and also in higher gas prices. 

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 6:31 pm in Agriculture, Cramer, , , , , , ,

Microsoft (MSFT): Recession Proof?

Microsoft (NASDAQ: MSFT) has not felt the impact of slower spending. Software must be sitting outside the vortex which is dragging the rest of the economy under.

Redmond’s CFO says that the company’s geogaphic diversity has helped. "We certainly are conscious of the fact we might see some economic slowdown, but overall, our business hasn’t been substantially impacted to date," Chris Liddell said according to Reuters. Somewhere over the rainbow things may be getting worse, but Microsoft is at least hinting that its business may continue to grow even in a downturn.

There is some sense sense to it. Vista is still young enough to have legs. PC sales are still expected to grow low double digits worldwide. Companies like Oracle (NASDAQ: ORCL) and SAP (NYSE: SAP) have not indicated that they are being dragged under, so Microsoft’s Office and other enterprise sectors may be moving along just fine.

There is, of course, the Xbox 360. No on can weather a recession without one.

Douglas A. McIntyre

Posted on: March 3, 2008 – 6:29 pm in Software, , ,

SPAC IPO FILING: Sidhu Special Purpose Capital Corp. (SOV)

After today’s close, we have yet another special purpose acquisition company, or SPAC, that has filed to come public.  Sidhu Special Purpose Capital Corp. filed for an initial public offering for $150 million in units.  Each unit will consist of one share of common stock and one warrant with a $7.00 strike price.  Sidhu will list on AMEX, although no ticker was designated.  Bear Stearns is listed as the sole underwriter.

WNH Holdings, LLC, is the sponsor company, and that is controlled by its chairman and chief executive officer, Jay S. Sidhu, who served as chief executive officer of Sovereign Bancorp, Inc. (NYSE: SOV) from 1989 to 2006.

While the company claims it will not be focused only in one sector, it will initially focus its efforts on identifying, performing due diligence on, and effecting a business combination with one or more businesses which operate in the depository institutions sector and other businesses which operate in the broader financial services industry.  The pool here looks rather large to choose from, as the filing noted that there are more than 6,100 privately held banks and thrifts in the U.S. and almost 1,400 publicly traded banks and thrifts.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 5:40 pm in Banking, Financial Stocks, IPOs, ,

Microsoft (MSFT) Looks To Yahoo! (YHOO) For Delivery Of Online Software

It is now plain that part of the reason Microsoft (NASDAQ: MSFT) wants to buy Yahoo! (NASDAQ: YHOO) is to use its customers as targets for Redmond’s big push into online delivered software. Google (NASDAQ: GOOG) has already made a significant move in this business with Google Apps.

Microsoft announced that it will expand its offerings in the server side software business by improving its word processing, spreadsheet, and presentation software.

As one analyst told MarketWatch "Yahoo is essentially a software-as-a-service company by definition, so there is a lot of merit there. On a more forward-looking scenario, you could see Yahoo serving as the distribution channel given the existing infrastructure.

Yahoo!’s 130 million unique users in the US would be a healthy platform for delivering the new range of Microsoft’s online Windows apps.

Douglas A. McIntyre

Posted on: March 3, 2008 – 5:03 pm in Internet, , ,

The Business Day In Global Warming (CSIQ, FTEK, TSL, GE, GOOG, CS, SOPW, AKNS, JASO, ENER, CPST)

Canadian Solar (NASDAQ: CSIQ) issued and sold $75 million in 6.0% Convertible Senior Notes due 2017 in a private placement on December 10, 2007, and in a filing today investors were given the right to resell their notes and/or converted shares.  This one also reports earnings on Wednesday of this week.

We’d note that Fuel Tech (NASDAQ: FTEK) is soon to report earnings, this weekend we issued a full earnings preview.  Also, we’ll see earnings out of Trina Solar (NYSE: TSL) on Tuesday.

Cnet News ran a great piece today showing how the American Council on Renewable Energy organized the press conference for Tuesday to publicly lobby for extended tax breaks and credits for renewable energy firms beyond 2008.  Well-known energy investors and business people from General Electric (NYSE: GE), Credit Suisse (NYSE: CS), Google (NASDAQ: GOOG) and others are said to be involved.

SCHOTT AG of Germany broke ground today on a $100 million initial investment for a 200,000 square foot manufacturing facility outside of Albuquerque, New Mexico for its SCHOTT Solar, Inc. unit.

A boutique research firm called Global Hunter initiated coverage of Solar Power (OTCBB: SOPW) and Akkena Solar (NASDAQ: AKNS) with a neutral rating on each.  In another call, Zacks.com showed an interview with one of its analysts talking up JA Solar (NASDAQ: JASO) and Canadian Solar (NASDAQ: CSIQ), as well as Energy Conversion Devices (NASDAQ: ENER).  That can be seen at Zacks.com

Capstone Turbine Corporation (NASDAQ:CPST) announced that RSP Systems completed installations of New York’s first microturbines in four location under the City’s new rule for residential and commercial use.  This stock is up roughly 50% since we added this one to our "10 Stocks Under $10" newsletter, and we haven’t yet taken our foot off the gas…. nor off the turbine.

As a reminder, whether you prefer the term "Global Warming" or "Climate Change" is not the issue as far as 247WallSt.com covers it. Green business has become big business, and this affects many public companies today.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 4:55 pm in Alternative Energy, , , , , , , , , , ,

The Great Car Sales Bust (GM)(F)(TM)

After a tough 2007, it would be hard to believe that a domestic car company could have a 13% drop in January sales. GM (NYSE: GM) did just that. The stock is so low, it dropped only a fraction to $23.20. The shares now change hands for .07x sales.

Over at Ford (NYSE: F) the news was only slightly less bad. Sales dropped 7% to 196,681. Truck units dropped 6% and cars 9%. Ford’s shareholders at least had the clarity of thought to sell pushing the shares down over 5% to $6.18.

Toyota (TM) sales dropped almost 3% to 182,169. Shares in the largest Japanese car company moved up a small fraction.

Douglas A. McIntyre

Posted on: March 3, 2008 – 4:27 pm in Autos, , ,

KLA-Tencor Loses CFO (KLAC)

KLA-Tencor Corporation (Nasdaq:KLAC) has announced that Jeffrey Hall, its CFO, will resign effective March 31, 2008.  Normally we look further into CFO resignations since they are the final ones who "sign off on the books" but this reasoning has been disclosed as "to pursue an opportunity closer to his mid-western hometown."

The board of directors has also appointed John Kispert, KLA-Tencor’s president and chief operating officer, as the interim chief financial officer, effective March 31, 2008. Kispert will also retain his duties as president and chief operating officer. It also appointed Virendra Kirloskar, its vice president and corporate controller of KLA-Tencor, as chief accounting officer, effective March 31, 2008.

Besides an obvious slowing chip market, this doesn’t look like anything ominous that would need to be thoroughly questioned.  It looks like he joining Express Scripts (NASDAQ: ESRX) as its CFO.  Shares closed down 0.9% at $41.63 in normal trading, and shares are down almost 1% more at $41.22 in after-hours trading.  KLA’s 52-week trading range is $39.86 to $62.67.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 4:24 pm in Management Change, Semiconductor,

The 52-Week Low Club (SCA)(DFR)(TMA)(FMT)

Security Capital Assurance (SCA) Warns of loss and hires investment bank to help out of trouble. Stock drops to $.67 from 52-week high of $34.58.

Deerfield Capital (DFR) Big loss on impairment charges. Seels off to $2.75 from 52-week high of $17.44.

Thornburg Mortgage (TMA) Chapter 11 worries. Falls to $3.53 from 52-week high of $28.40.

Fremont General (FMT) Company may be on the block. S&P ratings cut. Down to $.58 fom 52-week high of $13.80.

Stereotaxis (STXS) Quartely loss and delay of catheter product. Runs down to $3.82 from 52-week high of $16.88.

Douglas A. McIntyre

Posted on: March 3, 2008 – 4:19 pm in HI/LOW, , , , ,

Apple Analysts Race To Cut Targets (AAPL)

Apple Inc. (NASDAQ: AAPL) has been a success story that few in history have repeated.  But the best growth days have been seen, or at least that is what two analyst reports are pointing toward today with large brokerage firms cutting their targets on Steve Jobs & Co. 

RBC Capital Markets has trimmed its price target to $175 from $200, although it has maintained its "Outperform" rating.  What is interesting here is that RBC has been active in its target changes on the much loved company.  We looked back at a matrix of calls here and saw that RBC trimmed its target to $200 from $215 at the end of January, and that was after raising that same target in early December.

Banc of America Securities took its old $180 price target down to $160 today, although they maintained their official "Buy" rating on the stock.  Banc of America lowered estimates on new iPod sales for 2008 by about 5%, cut iPhone targets, and lowered the fiscal 2008 targets down to $5.01 EPS (was $5.05).

Apple shares are down some 3.5% at $120.60 in early afternoon trading.  Since the first of 208, Apple shares have traded as low as $115.44 on February 26.  It closed out 2007 at a price of $198.08.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 2:07 pm in Analyst Calls, Consumer Electronics, PC Companies, Technology Companies,

Options Traders Looking For Yahoo! Bid Hike? (YHOO, MSFT)

Options trading often shows some key insight on trade bets as far as upcoming events.  It appears that at least some options traders may be speculating that a higher bid is coming out of Microsoft (NASDAQ: MSFT) for Yahoo! (NASDAQ: YHOO).  You can see that there has been much activity today in the near-month call options in Yahoo! when you compare these to the open interest:

             Mo./Strike  Contract  Open Int.
YHOO JUL32.50   36,079      93,198   
YHOO APR32.50   32,117     139,140
YHOO JUL30.00   28,735      79,245 
YHOO APR30.00   24,754     177,117

The reason this looks more speculative is because these contracts are all above the current share prices.  But if you look at these, whoever did the bulk of these options trades was looking for a higher bid or at least a more cooperative Jerry Yang.  Even if there was no hostile bid, there is no way this merger would actually close that fast, so it would make sense that someone is hoping for or looking for a higher bid.

This could also be some "bullish spread" trading, although that volume is rather large for positions like that.  On a fully leverage basis and assuming this was just natural buying, this would represent more than 12 million shares.

We’ll be the first ones to admit that even the market makers for options traders don’t always know the reasoning or a strategy that some other traders make.  As noted, this could just be a hedged bet even though it would be a large one.  Maybe many traders are just keying off of Steve Ballmer’s comments from Germany that Microsoft still wants Yahoo! and is still going to try to close the merger.  Yahoo! shares are up about 0.5% at $27.93 on last look.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 1:47 pm in Internet, Options, ,

SPAC IPO FILING: Transformation Capital… Public Hedge Fund? (TCY, TCY.U, AINV)

Transformation Capital is another special purpose acquisition company or SPAC that has filed to come public via an initial public offering.  The company has many options like all SPAC filings indicate, although it intends to initially focus on the alternative asset management sector.  In short, we’re about to have either a hedge fund or other alternative asset management company coming public.

Its plans to offer 15 million units at an expected price of $10.00 that will consist of a share of stock and one warrent per unit.  Transformation will list on the AMEX under the ticker "TCY.U." There is also an overallotment of 2.25 million units, so this could raise $172.5 million if fully subscribed.  Banc of America was listed as the sole book-running manager for the SPAC IPO.

Randall Yanker is the company’s CEO, and he is a former CEO of Lehman Brothers Alternative Investment Management.  According to the filing, he has more than 25 years of trading, investment management and biz-dev experience with investment banks including Salomon Brothers, Swiss Bank Corporation and Lehman Brothers. Randy is also a co-founder and senior partner of AAM, a private investment boutique focused on advising institutions on alternative asset management.

Elliot Stein Jr. is the chairman with more than 30 years, and he is a director of Apollo Investment Corporation (NASDAQ: AINV), a publicly traded closed-end, non-diversified management investment company.  Rodney Yanker is chief operating officer, secretary and director, and he worked at firms such as Deloitte & Touche and at Ramsey Financial. He is also co-founder of AAM.

It sure sounds like we are about to have another public hedge fund operator, or at least something close to it.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 12:51 pm in Financial Stocks, IPOs, , ,

Fannie Mae Dodges Appraisal Bullett (FNM)

Fannie Mae (NYSE: FNM) has announced a settlement that ultimately looks like will give the company a huge sigh of relief.  It has entered into an agreement with the New York Attorney General and OFHEO (the Office of Federal Housing Enterprise Oversight) to assist the regulators in their efforts to enhance home appraisal practices on behalf of consumers. 

The New York Attorney General’s office has also terminated its inquiry of Fannie Mae, which began in November 2007 as part of the Attorney General’s complaint against First American Corporation regarding that company’s appraisal practices.  Fannie Mae is basically getting out of the appraisal woes almost scott free.  It will take two steps "to assist regulators to enhance the quality and independence of the appraisal process":

  • First, Fannie Mae will adopt a Home Valuation Protection Code to help ensure appraisal independence and valuation protection.  This code will establish requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other requirements.  Fannie Mae will subsequently adopt this new code immediately, and make appropriate changes to its sellers guide to reflect the changes.  As of January 1, 2009, Fannie Mae will require that lenders represent and warrant that appraisals prepared in connection with mortgage loans originated on or after that date that are delivered to Fannie Mae conform to the Code.
  • Fannie Mae will also provide $12 million over five years to help establish what it calls an "Independent Valuation Protection Institute" to monitor and study the area of home valuations.  So the net result is that it will fund a study for $2.4 million per year in a make-work project that will tell them that "valuations" and appraisals from 2003 to 2008 came in at prices that were far too high; and they will probably realize that some folks were playing appraisal games.

The Institute will establish a telephone hotline for consumers to contact "if they believe the appraisal process has been tainted or if they believe they have been harmed by appraisal fraud."  Appraisers also will be able to contact the Institute if they believe their independence has been threatened in any way.  If you think about this so far after the fact, it’s really a wonder who this is really for and ultimately who it will benefit after the fact.  Hopefully that call center won’t be based in India.  Fannie Mae also noted that while the New York Attorney General office has concluded its inquiry, it will continue to work with the New York Attorney General and OFHEO on appraisal practices.  Good luck.

The long and short of this is pretty simple.  There were major appraisal games that were played from top to bottom and start to finish.  If you went through a home purchase, refinancing, or used your house as a personal piggy bank for home equity from 2003 to 2006, you already know this.  It sounds like Fannie Mae just won a cheap public relations coup over something that could have been a source of ugly headlines for years to come.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 11:49 am in Financial Stocks, Law, Regulation,

Finish Line, Better Lucky Than Good (FINL, GCO, UBS)

If there is one company that needed to get out of its crazy merger, it was Finish Line. Inc. (NASDAQ: FINL).  The company last year made a greatly leveraged buyout offer to acquire Genesco Inc. (NYSE: GCO) for terms that were maybe too high in general but that were definitely too high for what Finish Line could afford.  Despite a high fee having to paid, Finish Line is one lucky company today.  The two companies have settled after a long legal fight over this merger, Finish Line will give Genesco a stake in the company and pay a termination fee, and get out of its obligation to complete the buyout of Genesco.

We recently covered Finish Line in our weekly "10 Stocks Under $10" newsletter with the note that if the company could not wiggle out of that merger that it was going to implode from the leverage and financing.  We had noted this one being in trouble even last year.  The worst part for common shareholders in this company is that the dual-class of shares keeps the bulk of the votes and control in hands of management.

We have even named its CEO Alan Cohen as one of our ten CEO’s that need to go.  This merger should never have been ventured into in the first place.  Even with Finish Line shares up more than 30% at $3.73, its 52-week high is $13.86.  Finish Line stock was north of $10.00 before its mouth became hungrier than its pockets could afford.

Genesco is the real winner here, although you wouldn’t know it if you look at the stock today with shares down nearly 20% at $24.50.  UBS (NYSE: UBS) and Finish Line will pay to Genesco an aggregate of $175 million in cash along with a number of Class A shares of Finish Line common stock equal to 12% of the total post-issuance Finish Line outstanding shares of common stock.  If the financial markets were not in disarray for deal financing, we’d probably be noting how the valuations of Genesco are compelling.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 10:40 am in Apparel, Law, Mergers and Buy Outs, Retail, , ,

Oil, A Record As Crude Nears $104, A Look Towards $125

The price of crude came very close to $104. According to the AP "That’s higher than the price of $103.76 that many analysts believe oil hit in 1980, when adjusted for inflation into 2008 dollars." It is not bogus record, or one that can be tarnished by talk of indexing to older numbers.

The next question is whether crude will move up another 15% to 20% toward $125. While that seems unimaginable the idea of $100 oil seemed absurd just a few quarters ago.

The case for much higher oil prices becomes more compelling each day. OPEC has made it clear that it will hold production steady and may even drop output. The benefits to member nations at the cartel are simply too great. It is driving wealth into sovereign funds which they can, in turn, use to buy assets of US financial institutions and corporations while these are depressed. If they guess correctly and bank and brokerage firms rebound, they will have a handsome return.

The demand side is even more troubling. A  number of oil executives and analysts believe that some of the world’s largest fields are now mature and that they will not yield any more crude than they do today, even using technology that can drill deeper and access deposits which could not be reached a decade ago. If the fields are mature now, their production will begin to drop and the number of new, huge fields being discovered is unlikely to offset declining production at existing facilities.

Normal demand metrics are not part of the global oil industry at this point. More crude is being kept in producer countries as they add infrastructure, roads, automobiles and trucks. Large countries like India cannot do without crude to modernize.

In China, the central government distorts the cost of oil by underwriting the prices of gas and diesel. If the cost of these fuels were to reset to open market levels, China’s ability to transport goods over highways and railroads would be severely impeded.

High oil prices are not going away. The only question is how much higher they will go.

Douglas A. McIntyre

Posted on: March 3, 2008 – 10:38 am in Oil & Gas

Safeguard Scores $100 Million Sale (SFE)

Safeguard Scientifics, Inc. (NYSE: SFE) has signed and exit agreement regarding its ownership position in three majority-held and three minority-held partner companies through a transaction with Saints Capital.  The partner companies being sold in the transaction are Acsis, Inc., Alliance Holdings Group Associates, Inc., Laureate Pharma, Inc., NextPoint Networks, Inc., Neuronyx, Inc. and ProModel Corporation.

This sale is being valued at approximately $100 million and is expected to generate a Pre-expense and pre-transaction cost gain of roughly $16 million.  Saints will additionally be assuming an aggregate of $31.5 million in debt guaranties from Safeguard concerning certain companies being sold.

We interviewed the CEO of Safeguard last year when their hadn’t been any major swings in the credit markets and in private equity.  You can see that full interview here.

The company operates as a holding company which builds value in growth-stage technology and life sciences companies, and income is usually generated from gains in portfolio companies. Safeguard typically invests in fast-growing companies with capital requirements between $5 and $50 million.

Safeguard shares are up some 7% at $1.65 on this news, and the 52-week trading range is $1.46 to $3.28.  Its market cap at current prices sits at $199.7 million.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 9:37 am in Cult Stock, Mergers and Buy Outs, Private Equity, Shareholder Issues, Value Investing,

Dollar Tree Reorganizes, Sort Of (DLTR)

Dollar Tree Stores, Inc. (NASDAQ:DLTR) has announced that it has reorganized its structure by creating a new holding company structure.  The effective date is today.

The company noted that the primary purpose of the reorganization "was to create a more efficient corporate structure." The business operations of the company and its subsidiaries will not change as a result of the reorganization.

The new parent name is now Dollar Tree, Inc., and it will maintain its "DLTR" ticker on NASDAQ.  All outstanding shares are converting and effectively there are no changes to shareholders.

Obviously the bean counters determined that the company would either have higher income from accounting changes, or maybe a tax benefit.  Who knows for sure.  Hopefully they didn’t buy the play book for $1.00.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 9:23 am in Corporate Governance, Retail, Shareholder Issues,

Goldman Sachs Notes An Insurer Worth Zero In Run-Off (SCA, MBI, ABK)

Security Capital Assurance Ltd. (NYSE: SCA) has been terminated from coverage at bulge bracket firm Goldman Sachs after the company has seen shares plummet over recent months.  The company noted that all three ratings agencies have downgraded the credit rating of the bond insurer.  This notes the probability that the company will either struggle or will be ultimately unable to write new business entirely because it doesn’t have a Triple-A rating. 

Goldman Sachs has outlined ratings on this and other with several scenarios.  Its value for SCA in a run-off scenario now sits at ZERO.  It has been negative on financials.  Goldman Sachs previously gave a valuation matrix under multiple scenarios for the bond insurers.

SCA stock has traded over $30.00 in the last year.  Ambac Financial (NYSE: ABK) just cut its dividend to almost nothing.  Both it and MBIA Inc. (NYSE: MBI) are seeking rescue packages partly in order to keep their respective "Triple-A" ratings as well.  While their stocks have also been disasters, they might want to consider this scenario here.  The clock is ticking.

Jon C. Ogg
March 3, 2008

Posted on: March 3, 2008 – 8:40 am in Analyst Calls, Financial Stocks, , ,