Daily Archives: March 6, 2008

The 52-Week Low Club (MS)(LEH)(WB)(FNM))(MER)(C)(JPM)

Thornburg Mortgage (NYSE: TMA) Fear of Chapter 11. Falls to $1.26 from 52-wek high of $28.40.

CIT Group (NYSE: CIT) Lehman Brothers cuts price target. Drops to $15 from 52-week high of $61.47.

iStar Financial (NYSE: SFI) Price target cut by Citigroup. Falls to $12.71 from 52-week high of $49.84.

JP Morgan (NYSE: JPM) Worries about more write-offs. Sells down to $37.15 from 52-week high of $53.25.

Citigroup (NYSE: C) Concerns about need to raise more capital. Down to $21.11 from 52-week high of $55.55.

Merrill Lynch (NYSE: MER) Another candidate for big write-downs. Down to $45.73 from 52-week high of $95.

Fannie Mae (NYSE: FNM) Mortgage business slightly out of favor. Falls to $21.21 from 52-week high of $70.57.

Wachovia (NYSE: WB) Money center banks all dropping. Sells down to $27.36 from 52-week high of $57.45.

Lehman Brothers (NYSE: LEH) Joins investment banking low club. Drops to $45.20 from 52-week high of $82.05.

Morgan Stanley (NYSE: MS) Ditto. Down to $39.46 from 52-week high of $90.95.

Omrix Biopharmaceuticals (NASDAQ: OMRI) Misses on earnings. Falls to $13.88 from 52-week high of $40.90.

PETsMART (NASDAQ: PETM) Pets stop shopping. Earnings off. Drops to $19.64 from 52-week high of $35.48.

Douglas A. McIntyre

Posted on: March 6, 2008 – 4:03 pm in HI/LOW, , , , , , , , , , , ,

Apple’s iPhone Strategy For Business, A Long Journey in the Making (AAPL, RIMM, MSFT, PALM, T)

Apple has determined that the best way to reach and ultimately exceed its goal of selling 10 million iPhones this year is by adding more features and opening up the code and making the system more interoperable with other systems.

Today it has made efforts to become more business-friendly than it is currently.  This is one of the issues that has constantly been brought up by fans and critics alike. Steve Jobs has gone as far as supporting the Microsoft (NASDAQ: MSFT) Exchange program to push email to the iPhone in order to allow iPhone to be more business email oriented.  Apple even gave details of a software toolkit that lets outsiders write applications that can be purchased via the iTunes store.  It appears that much of the software will not be available to developers until June 2008, so don’t think that all of your iPhone wishes are going to be instantly met tomorrow or next week.

This is a direct attack in the space dominated by Research-in-Motion (NASDAQ: RIMM) and that which was part of the Palm (NASDAQ: PALM) space. The truth is that this can impact R-I-M, and almost anything can impact Palm since they have been losing out in a field they had a huge jump in.  Research-in-Motion shares are down over 3% to $99.00 today, and Palm shares are down over 3.5% to $6.01 today.

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Posted on: March 6, 2008 – 3:20 pm in Consumer Electronics, Software, Technology Companies, Wireless, , , , ,

An Idiot’s Guide To A Bad Economy

Today was the day the roof officially fell in on the US economy. News from Europe involving bank trouble at UBS (NYSE: UBS) and an inadequate rescue of Ambac (NYSE: ABK) helped push at least a half a dozen major financial stocks to 52-week lows.

The Fed then came out with news that is as bad as anything it has passed along this year. Americans’ percentage of equity in their homes fell below 50 percent for the first time on record since 1945.

According to the AP "Moody’s Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak."

On the heels of that news The Mortgage Bankers Association said that "proportion of all mortgages nationwide that fell into foreclosure shot up to a record high of 0.83 percent in the October-to-December quarter." The delinquency rate for all mortgages climbed to 5.82 percent in the fourth quarter. That was up from the 5.59 percent in the third quarter and was the highest since 1985.

Due to the price of oil staying over $100, gas prices are also moving up. The national average price of a gallon of gas rose 0.7 cent overnight to $3.185, according to AAA and the Oil Price Information Service.

For people who don’t know what a recession looks like, this is it.

Douglas A. McIntyre

Posted on: March 6, 2008 – 1:21 pm in Economy, ,

American Water Works Closer To IPO (AWK)

American Water Works may be closer to coming public.  The huge water utility has an amended IPO Filing with full fiscal details for 2007.  It lists that is intends to sell up to $1.5 Billion in securities and it will trade under the ticker "AWK" on the New York Stock Exchange.

The lead underwriters include Goldman Sachs, Citigroup, and Merrill Lynch.  Others in the syndicate are JPMorgan, Morgan Stanley, UBS Investment Bank, Edward Jones, Janney Montgomery Scott, Societe Generale, Wachovia Securities, Boenning & Scattergood, Cabrera Capital Markets, HSBC, Stanford Group Company, Williams Capital Group.

The company has regulated subsidiaries subject to economic regulation by state public utility commissions in Arizona, California, Hawaii, Illinois, Indiana, Iowa, Kentucky, Maryland, Missouri, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Tennessee, Texas, Virginia and West Virginia.  It employs nearly 7,000 workers and serves drinking water, wastewater, and other water services to 15.6 million in 32 states and in Ontario, Canada.

In 2007, it generated $2.214 Billion in revenue and some $15.1 million in operating income, including $509.3 million in impairment charges.  Its regulated operations generated 89.8% of operating revenues in 2007.  We had previously noted that American Water Works generated $2.1 billion in total operating revenue in 2006, and pro forma for the nine months ended September 30, 2007 is $1.66 billion in operating revenues.

This is being sold back to the U.S. investor base as it is owned by RWE Aktiengesellschaft in Germany.  All IPO proceeds are going to RWE.  Here was the original filing summary if you care to compare the data.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 1:06 pm in IPOs, Water, , ,

Is Annaly Really Immune? (NLY, TMA, CIM)

Shares of Annaly Capital Management, Inc. (NYSE: NLY) are being pounded this morning.  The reason for the selling isn’t on its own news.  Competitor Thornburg Mortgage (NYSE: TMA) has fallen some 60% on massive share volume after it disclosed new margin calls that have gone unmet, higher default rates, using default rights of its own, a Fitch downgrade, multiple analyst downgrades, and even the question of bankruptcy.

Annaly even raised $900 million recently.  Annaly has long been thought of as immune because of its high quality mortgages, yet the real estate in the movie Wall Street might have been right by saying "Even the rich are bitching!" Annaly has see n a 19% drop to $15.61 in trading after the first hour of the market open and it has now fallen more than 25% from recent highs seen just over the last two weeks.

Annaly is also involved in ownership and running Chimera Investment (NYSE: CIM), which we have applauded last year as the first pure vulture fund filed to come public.  That was working better than well for a while, but this is now trading as a busted post-IPO company and it has put in new post-IPO lows this morning.  On last look shares were down almost 10% at $14.51, above the $13.99 lows seen this morning.  We had noticed the sharp price correction in this one earlier this week and last with no real news.

We still think many financial mergers are going to almost end up being mandated.  But at this point, the fallout in the mortgage and credit malaise is leaving no one immune.  The beatings continue.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 10:50 am in Financial Stocks, , ,

View on Intel: Maturity Versus Growth (INTC)

After the first day of the Intel Corp. (NASDAQ: INTC) analyst day, we have been looking through many opinion pieces and reports.  There is one standout report that addresses growth and value, without being overly optimistic nor overly negative.

American Technology Research’s Doug Freedman has an interesting call.  While AmTech notes the growth initiatives and strong execution opportunities, Freedman ponders how long it will be before Intel has matured.  He notes, "It may take 5-7 years, but management appears unwilling to concede that the tech market is mature. We also question if any new opportunity could ever rival the core IA CPU business and help grow revenue to $80B in 3-5 years. The core PC is mature and highly cyclical, and the new consumer-oriented initiatives could also mature very quickly."

Freedman also notes that analyst sentiment is very negative in terms of growth success.  If the report sounds negative by the mere question of maturity versus growth, it isn’t.  Freedman noted the accelerating share repurchases as positive, a quick addressing of not allowing NAND woes to drag the entire company, Silverthorn for ultra-mobile computing, and strong volume and average selling prices.

While this report questions growth versus maturity, that is merely for the long-haul.  Freedman has reiterated AmTech’s BUY rating with a $27.00 price target.  That is almost $1.00 higher than the average target from analysts on Wall Street, and with shares right at $20.00 it represents a potential gain of roughly 35% from current prices.  Recently AmTech did remove this from its FOCUS LIST, but maintained that Buy rating before today’s report.

We would note that we also recently noted that if you take the NAND weakness at face value, it actually implied that Intel’s core business is holding up and the negativity may be too overdone.  Shares would have to run 40% before they took out a recent 52-week high at $27.99.  We have also questioned whether or not it would have to warn, but that appears to be already baked in on the recent news.  At current prices, Intel trades at roughly 15-times fiscal 2008 earnings estimates and about 12.9-times 2009 earnings estimates.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 10:20 am in Analyst Calls, Semiconductor, Value Investing,

Big Financials Hit 52-Week Lows (TMA)(MER)(FRE)(JPM)(C)(BAC)(WM)

A number of the large financial stocks took news of a write-down at UBS (NYSE: UBS), debt problems at Merrill Lynch (NYSE: MER), and downgrades of Thornburg (NYSE: TMA) hard.

Hitting 52-week lows early in the day were Merrill Lynch at $46.41, Fannie Mae (NYSE: FNM) at $22.45, Thornburg at $1.26, JP Morgan (NYSE: JPM) at $37.51, and Freddie Mac (NYSE: FRE) at $20.27.

Shares in Citigroup (NYSE:C), Bank of America (NYSE: BAC), and Washington Mutual (NYSE: WM) also traded off sharply.

Douglas A. McIntyre

Posted on: March 6, 2008 – 9:48 am in Financial Stocks, , , , , , , , ,

Wal-Mart Juices Dividends (WMT)

Wal-Mart Stores Inc. (NYSE: WMT) already gave stronger sales than most this morning, but the company is doing another shareholder friendly initiative that is far better than a stock buyback: 

  • It is hiking its quarterly dividend to investors.  The prior $0.88 dividend per year that was paid out at $0.22 per quarter is now being jacked up to $0.95 per year that will be paid out as $0.2375 per quarter.

Raising a dividend is never a bad thing.  Without trying to sound like a greedy kid who didn’t get the proverbial G.I. Joe with the kung-fu grip, this is still a pretty low yield for a DJIA component.  With a $50.00+ opening price this morning that puts the dividend yield at roughly 1.9%.  This is still a much higher yield than many other dividends from competing retailers, so don’t take the comments above as being too harsh of criticism because it is still better than peers.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 9:36 am in Dividend, Retail,

Goldman Sachs Hikes Ag/Fertilizers (MOS, MON, MOO)

Goldman Sachs has come out positive on two companies that overlap in agriculture and fertilizer plays this morning, and it has raised estimates and targets:

  • The firm recently visited Monsanto (NYSE: MON) and it notes that the recent pullback gives an attractive buying opportunity.  The company is the beneficiary of market share gains for both Dekalb and ASI brands, and its triple-stack is still a must for corn farmers. It also noted sharp increases in Roundup prices.  Goldman Sachs noted a significant boost for 2008 earnings.  It raised estimates by $0.10 to $2.95 for 2008 and raised 2009 estimates by $0.05 to $3.65 EPS.
  • It also has a call on The Mosaic Co. with fertilizer fundamentals to remain tight in the medium term.  It noted that farmers are more concerned with maximizing yield rather than cost control issues.  With phosphate prices in upward trend, Goldman Sachs is also hiking targets: raised 2008 EPS by $0.19 to $3.90; raised 2009 EPS by $1.30 to $7.30; raised 2010 EPS by $0.80 to $7.45.  The firm has also lifted its price target on Mosaic to $135 from $120.

On a macro call, Goldman Sachs actually sees corn plantings declining any acreage increasing, with a rapid adoption of biotech traits.  If one person has been behind anything related to agriculture, it is Jim Cramer and you can see his new agriculture pick for $16 corn/wheat or you can see his top five picks for the agriculture group here.

We still note that if you want to pursue the whole agriculture theme but do not want to have the risks associated with picking one stock and taking any company execution risk versus the sector, you can look at the Market Vectors Global Agribusiness ETF (AMEX:MOO).

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 8:59 am in Agriculture, Analyst Calls, , ,

Goldman Sachs Updates Oracle/BEA Targets, Issues Buy on Oracle (ORCL, BEAS)

Oracle Corp. (NASDAQ: ORCL) is being reinstated as a "Buy" rating in new coverage this morning at Goldman Sachs.  The firm notes that with macroeconomic concerns being front and center, shares of the enterprise software giant are down 18% so far in 2008. 

It also notes the forward EPS multiples being a mere 15.8 for 2008 and 12.2 for 2009.  Both multiples are under the industry average by about 20% and are also at a discount to the S&P.  Based on yesterday’s close, Goldman Sachs sees a 23% gain opportunity to its target.

With the acquisition of BEA Systems (NASDAQ: BEAS), Goldman Sachs has issued the following metrics for forward years:

  • 2008 is $1.26 EPS, same as before;
  • 2009 is $1.47 EPS, up from $1.41 before;
  • 2010 is $1.63 EPS, up from $1.60 before.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 8:33 am in Analyst Calls, Software, ,

Apple (AAPL) Misses Movie Rental Target

Apple (NASDAQ:AAPL) is way shy of its movie rental goals.

Apple planned to have 1,000 movies available for its set-top box. According to the The Assocated Press that number is closer to 400.

Steve Jobs said "it’s taking movie studios more time than expected to get approval from various rights holders."

Apple’s run of bad PR continues.

Douglas A. McIntyre

Posted on: March 6, 2008 – 8:27 am in Consumer Electronics,

ViewSonic Kills IPO… Trouble in LCD Land? (VIEW)

If you have been shopping for LCD monitors or LCD TV’s, you’ve probably run across ViewSonic as a brand.  The company had been in the IPO pipeline and was going to trade under the ticker "VIEW" on NASDAQ.  It had tapped JPMorgan and Banc of America as book-runners on the deal.

ViewSonic has now withdrawn its pending IPO, citing market conditions.  The stock market has been in turmoil of course, but anything tied to LCD’s has been hot and sales there have supposedly been holding up.  Maybe its better to be a supplier to these companies, particularly on the glass side, than it is to be in selling these in a very competitive environment.

Either way, a withdrawn IPO in the LCD markets might make you wonder about the overall market for these.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 8:21 am in IPOs,

Urban Outfitters Proves Its Performance (URBN)

Urban Outfitters (NASDAQ: URBN) showed why its stock has done well while others in retail have floundered for much of the last quarter.  The apparel store posted earnings of $0.32 EPS on 29% revenues growth to $465.4 million, and First Call estimates were $0.29 and $463.5 million consensus.  This was also record earnings for the quarter.

The company had already shown comparable sales cumulatively generating an 11% gain, and were broken down as 6% at Urban Outfitters, 18% at Anthropologie, and 19% at Free People.

Shares are trading up 6% initially this morning at $31.18, and that is nearly a 52-week high with a 52-week trading range of $19.20 to $31.32.  If these prices hold on the stock, this will mark more than a 25% share gain since the January lows.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 8:07 am in Apparel, Earnings, Retail,

Top 10 Pre-Market Analyst Calls (CN, CHU, DISH, FLR, IPCM, MDR, MFA, PLD, SKS, WRE)

These are not the only calls impacting stocks, but these are the top ten individual calls that 247WallSt.com is focusing on:

  • China Netcom (NYSE: CN) downgraded to Neutral at Credit Suisse.
  • China Unicom (NYSE: CHU) raised to Outperform at Credit Suisse.
  • DISH Network (NASDAQ: DISH) raised to Neutral at Credit Suisse.
  • Fluor (NYSE: FLR) raised to Buy at Citigroup.
  • IPC The Hospitalist (NASDAQ: IPCM) started as Buy at Jefferies.
  • McDermott (NYSE: MDR) raised to Buy at Citigroup.
  • MFA Mortgage (NYSE: MFA) downgraded to Market Perform at KBW.
  • ProLogis (NYSE: PLD) raised to Top Pick at RBC Capital Markets.
  • Saks (NYSE: SKS) downgraded to Neutral at Banc of America.
  • Washington REIT (NYSE: WRE) started as Outperform at RBC Capital.

Jon C. Ogg
March 6, 2008

Posted on: March 6, 2008 – 7:47 am in Analyst Calls, , , , , , , , , ,

Wal-Mart (WMT) Same-Store Sales Beat The Band

Baby has got to have new shoes. For those who can’t afford the nice ones, there is always Wal-Mart (NSYE: WMT). And that showed up in their same-store sales last month.

Wal-Mart’s same-store numbers moved up 2.6%, well above the .8% that was expected. Sam’s Club did a bit better than the Wal-Mart outlets.

The news supports the theory that some retailers will do much better than others. Wal-Mart is still known for everyday low prices. Macy’s (NYSE:M) and Best Buy (NYSE:BBY) don’t quite fall into that category and neither do higher end retailers like Nordstrom.

This will almost certainly lead to a break in performance between a big-box retailer like Wal-Mart and most other niche or higher end stores. The stock prices of these firms are likely to reflect this. Wal-Mart trades near a two-year high and is likely to move up further. Macy’s, on the other hand, trades near its low.

Investing in retail is likely to get easier now. The stores with the best value at price are taking most of the business.

Douglas A. McIntyre

Posted on: March 6, 2008 – 7:25 am in Uncategorized, , , ,

Intel (INTC) Will Pursue Four New Markets

The PC business is not enough for Intel (NASDAQ: INTC). It want to get into four more businesses according to The InQuirer. The include low-cost PCs, mobile internet devices, consumer electronics, and embedded systems. The big chip company thinks each of these is a $10 billion market.

Whether this will help the company offset falling NAND flash memory prices, at least short-term, is unlikely.

The company’s shares did take a tick up yesterday, but at just over $20, they are still near a 52-week low.

Douglas A. McIntyre

Posted on: March 6, 2008 – 6:51 am in Semiconductor,

Europe Markets 3/6/2008 (DT)(ALU)(SI)

Markets in Europe were off slightly at 6.40 AM New York time.

The FTSE was down .3% to 5,838. British Airways was off 4,3% to 253.5. British Energy was up 4.6% to 572.

The DAXX fell .3% to 6,664. Deutsche Telekom (DT) was off 1.4% to 12.15. Siemens (SI) was off 1.8% to 83.92.

The CAC 40 dropped .4% to 4,737. Alcatel-Lucent (ALU) fell 1.9% to 3.69. EADS dropped 2.5% to 18.08.

Data from Reuters

Douglas A. McIntyre

Posted on: March 6, 2008 – 6:43 am in International Markets, , ,

In The Shadow Of Bankruptcy, Airlines Focus On Mergers (NWA)(AMR)(DAL)

The airline industry has periods when more big carriers seem to be in Chapter 11 than not. Another such period may not be that far off. Right now, the news about the industry centers around combinations like the one being negotiated between Northwest (NWA) and Delta (DAL).

Putting airlines together is no guarantee that they will be more successful. A business combination does not push down oil costs. Unions often use the mergers as a way to leverage additional benefits for helping the marriage go through. This hidden cost of combinations is that customer service is almost always wrecked for a time as reservation computer systems and call centers are combined. In other words, revenue can actually fall as fliers flee to other carriers.

Airline mergers may go off the front pages and be replaced by another series of Chapter 11 filings. While earning at US carriers were modestly positive last year, at most companies operating income was offset by debt service. And, as fuel prices rise, that operating income is likely to fall. This is made worse by an economy where business and personal travel is likely to be down sharply. Refinancing debt in the current environment is also likely to be close to impossible. 

The stocks of a number of airlines are down 30% to 60% over the last year, with AMR (AMR) turning in the worst performance. AMR’s price to sales is now .14x which puts it in a league with over-leveraged car companies and newspaper chains.

Airline mergers are about to get pushed off the front page. And, the news is about to get much more unpleasant.

Douglas A. McIntyre

Posted on: March 6, 2008 – 6:33 am in Airlines, , ,

UBS (UBS): Another Huge Write-Down?

UBS (NYSE: UBS) may have sold a huge portion of its high-risk mortgages at an extremely large write-down. And, that may show up in it Q1 results, driving a big loss.

According to Reuters "Analysts said they believed UBS had sold its Alt-A investments — U.S. mortgages ranked between prime and subprime — to U.S. bond manager Pimco."

The probable action by UBS raises an important disclosure question. Should the Fed force US banks to immediately report liquidations of large positions of securities which have fallen in value? Probably so, since the actions would be viewed by the SEC as "material".

Right now, US banks are unlikely to allow investors to see what they have done with their balance sheets until the end of a quarter. The details may not come out until a 10-Q or 10-K is filed. That puts shareholder well behind the curve in terms of what management knows about its business.

Putting stockholders of big banks and brokerages in the dark only has one advantage. It keeps them from selling shares while banks try to raise more capital. By deferring panic, banks buy time.

But, the investor gets shafted in the process. A bank could sell billions of dollars in subprime or consumer credit-backed paper at $.20 or $.30 on a dollar and the news might not come out until quarterly numbers are reported.

Banks probably have an obligation to report these transactions whether they do so or not. It is not just a legal imperative, it is an ethical one.

Douglas A. McIntyre

Posted on: March 6, 2008 – 6:01 am in Banking,

A Dent In The Resolve At Sovereign Funds

The Treasury and Congress are still trying to get sovereign funds to agree that their investments in US companies are "financial" and not "political". According to MarketWatch Treasury Undersecretary for International Affairs David McCormick said the government-controlled funds may raise "legitimate national security concerns," and may distort markets if not managed properly

Without a shot being fired in anger, one of the largest funds appears to be willing to go along. Temasek Holdings of Singapore says that it understands the US need to look at national security as it examines whether taking in foreign-based capital is OK.

Temasek’s decision does a lot to undermine the positions of funds from China and the Middle East. Now that one sovereign fund has shown a willingness to go along with US policy, it is harder for the others not to follow. Those who are willing to get under the tent will have a pick of the prizes which include troubled US banks and brokerages.

China and Middle East funds may simply turn their backs on the US investment opportunities. With the economy here slowing, their money might be better invested somewhere else. Putting capital into US financial firms may not be a winning game, even long-term, if the housing market slides well into 2009.

Singapore will not be able to take up all of the slack if other countries find the US policy to restrictive. That means capital to keep troubled US companies and banks afloat will have to come from inside American borders. The problem only has two solutions. The one is for the Fed to open its window for lending to US banks even further. Banks have traded paper, some of it probably not worth much, to the Fed for over $50 billion since December. The Fed may simply take more of the bonds, which may end up as wall paper, and, in essence, become de facto shareholders.

The other option, which may look better in a free market economy, would be for the government to give tax incentives to US private capital for putting up cash for companies in the troubled financial sector. This would have the additional benefit of allowing banks to lend more money because their balance sheets would have a stronger foundation.

Who knows? It might even bring brokerages and money center banks back into the auction-rate market.

That may be asking too much.

Douglas A. McIntyre

Posted on: March 6, 2008 – 5:48 am in Private Equity