Daily Archives: March 13, 2008

Did Zumiez Finally Bottom? (ZUMZ)

Zumiez Inc. (NASDAQ: ZUMZ) saw shares rocket in after-hours trading after the company posted earnings.  The apparel and equipment retailer for young adults in extreme sports )snowboarding etc.) posted earnings of $0.42 EPS on $126.6 million in revenues, while First Call estimates were $0.38 and $126.1 million.

It has also predicted that its 2008 profits would see $0.90 to $0.93 EPS, while First Call has estimates at $0.92; it also see a low-single digit same store sales gain.  2007 came in at $0.86 EPS on same store sales gains of 9.2%.

Zumiez didn’t try to hide recent woes as it did address near-term environment as challenging.  But the hope here is that since shares have fallen by more than two-thirds from high to low is that even a maturing Zumiez with less than 10% EPS growth and a low-single d-git same store sales growth represents value here.

At $0.86 EPS for 2007, it now has a trailing P/E ratio of 16.4 based on the close of $14.10.  Its forward P/E ratio at the mid-point of guidance would be 15.4 based on that $14.10 close, but with shares up at $16.40 after the close its forward P/E ratio at the mid-point of guidance would be 17.9.  That isn’t grossly expensive and it isn’t grossly cheap.

The "cheap" aspect is that this one can show incredible outperformance when it does beat, and Wall Street may be giving the company the benefit of the doubt and hoping for very conservative guidance being the case.  The other energizer is the short interest as this had 7.45 million shares in the short interest, which is around 40% of the free float and almost 12-days to cover.

All in all, it’s probably a safe bet that the worst has been seen so long as it doesn’t disappoint ahead.  Just don’t go out on a limb looking for the old growth days and the old performance in the near-term.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 6:48 pm in Apparel, Earnings, Entertainment,

Data Differentiates Newspaper Vs. Online News Reader Characteristics (SCOR, JRC, MNI, NYT, JRN, GCI)

If you have read any of our commentary or probably most other commentary online, you know that newspapers are not exactly the next growth engine in the economy.  In fact, they are probably losing the same percentage of their client base at the same rate as Southern California loses smokers.  Tonight we saw a report out of comScore (NASDAQ: SCOR) that outlines some of the differences between online news readers and newspaper readers.  You can read that full report from comScore here.

We actually run a newsletter called the "Old Media/New Media Newsletter" here that our own Doug McIntyre produces each week.  We make the case for or against certain media properties such as newspapers, radio, cable, television, and the internet.  Believe it or not, we actually just covered some newspapers that we identified as survivors.  Sure some we covered as likely funeral candidates as well.  This went out Sunday night to our readers and we’ve just taken it off embargo if you would like to read a copy. 

Companies mentioned in the report are Journal Register (NYSE: JRC), McClatchy (NYSE: MNI), Journal News (NYSE: JRN), Gannett (NYSE: GCI), The Washington Post (NYSE: WPO), and the New York Times (NYSE: NYT).  Not all of those are buys, but some will actually survive the secular trend working against the sector.  Take a Test ride.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 5:20 pm in Media, , , , , ,

Transition Therapeutics Scores Lilly in Diabetes Pact (TTHI, LLY)

Transition Therapeutics Inc. (NASDAQ: TTHI) is seeing shares surge in after-hours activity.  It has signed a pact with Eli Lilly and Co. (NYSE: ELY) where Lilly will acquire exclusive rights to its Gastrin-based therapies program for the treatment of Diabetes.  This is a licensing and collaboration pact that grants Lilly with the exclusive worldwide rights to develop and commercialize Transition’s gastrin-based therapies.  This includes the lead compound TT-223, which is currently in early Phase II study testing. Gastrin based therapies have been shown to provide sustained improvement in glycemic control to help avoid complications and symptoms of diabetes.

Under the terms, Transition will receive a $7 million payment and it may also receive up to $130 million milestone payments as well as royalties.  Both companies will participate in the planned phase II clinical trial for type 2 diabetes.  Lilly will then be responsible for later R&D and sales of all gastrin based therapeutic products worldwide. Other terms of the deal were not disclosed.

Shares rose almost 8% today to $11.11 and the 52-week trading range was $8.73 to $14.09.  Shares are up over 30% to $14.75 in after-hours trading, although we would warn traders that this one sees around 20,000 shares per day on average.

Just last week, Canaccord Adams started coverage with a Buy rating.  Hats off to them, great call.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 4:51 pm in Biotech, ,

Level 3 Insiders Nibble On Stock (LVLT)

After the close, there were several SEC Filings that showed insiders at Level 3 Communications Inc. (NASDAQ: LVLT) bought shares of the company.  These buys may sound like a lot for the public, but they are not massive when you consider this is still under $2.00.  Either way, it’s always better to see insiders buying their stock rather than selling it.  Here are the buys:

  • John Reed, Director, bought 29,000 shares at roughly $1.83 on March 11.
  • Albert Yates, Director, bought 10,000 shares at $1.84 on March 11.
  • Douglas Eby, Director, bought 250,000 shares at prices from $1.91 to $1.96 on March 11.

Level 3 Communications is one we have had under review for our weekly "10 Stocks Under $10" letter and we will wait to see if more insiders line up to buy before we take off our prior negative bias. There may be more filings that show insider buying and selling than these three so stay tuned.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 4:33 pm in Insider Activity, Telecom,

The 52-Week Low Club (CHTR)(SIGM)(GM)(F)(BSC)(VM)

Virgin Mobile (NYSE VM) Quaterly loss takes shares down. Falls to $1.90 from 52-week high of $15.69.

Bear Stearns (NYSE: BSC) Market still believes that company has severe balance sheet problems. Sells down to $50.58 from 52-week high of $159.36.

Ford Motor  (NYSE: F) Research firm downgrade coupled with high gas prices. Drops to $5.12 from 52-week high of $9.70.

General Motors (NYSE: GM) Chrysler is closing down for two weeks. All industry news is bad. All the way down to $19.15 from 52-week high of $43.20.

Sigma Designs (NASDAQ: SIGM) Outlook for next quarter well below expectations. Down to $20.10 from 52-week high of $73.

Charter Communications (NASDAQ: CHTR) Cable company has over $19 billion in debt and just placed another $1 billion in junk bonds. Sells off to $.61 from 52-week high of $4.93.

Douglas A. McIntyre

Posted on: March 13, 2008 – 2:58 pm in HI/LOW, , , , , ,

The Barney Frank and S&P Rally

House Financial Services Committee Chairman Barney Frank announced new legislation Thursday that would increase the involvement of the Federal Housing Administration in the current crisis to help fight the rise of foreclosures.  The legislation is still in draft form and may change before any formal proposals.

Program would permit FHA to provide up to $300 Billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages in a move that could potentially refinance between 1 and 2 million loans.  Eligibility is for primary residences whose loans were made or refinanced between January 1, 2005 to July 1, 2007. It would also remove any incentive for borrowers to purposely default and borrower would need to have had a mortgage debt-to-income ratio of no less that 40 percent as of March 1, 2008.

There are many more details that you can see at the committee site here, but we’d note that this is perhaps the first real government intervention legislation.

This is a partial bailout and many free market pundits will accuse it of being a total handout and a government put.  Frankly, if it saves a large portion of the resets and keeps people from walking away from their homes we’d accept it as an expensive cost of doing business and paying for a half decade of financial sins and shenanigans.

Add this together with S&P calling "the end in sight" over subprime CDO and ABS writedowns at large banks, and all of a sudden you have a rally.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 1:41 pm in Economy

Schwab Kicks Up Buybacks (SCHW)

The Charles Schwab Corporation (NASDAQ: SCHW) has authorized share repurchases of up to an additional $500 million of its common stock through open market or via privately negotiated transactions.

Schwab notes that as of December 31, 2007, it had 1.2 billion weighted average common and common equivalent shares outstanding.  Based on a buyback approval from April 25, 2007, Schwab has repurchased some 19 million shares for a total of $381 million.  Year-to-date, its has repurchased 16 million shares for $326 million.  In short, they have been involved in an accelerated buyback plan compared to share repurchases in 2007.

Including the $119 million remaining under the existing plan, Schwab now has authority to repurchase a total of $619 million in shares of its common stock.  With shares trading at roughly $20.00+ you would expect that to be a combined 30 million shares on a rounded basis at today’s prices.  It trades an average of more than 12 million shares per day.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 1:22 pm in Brokerage Firms, Stock Buybacks,

Chrysler To Shut Entire Company For Two Weeks

Chrysler LLC is planning to shut down the entire company for two weeks this summer as a cost saving move to accelerate Chrysler’s recovery and transformation.  Chief Executive Robert Nardelli sent employees a memo, as reported by Dow Jones New Service and then on CNBC.  Mr. Nardelli told employees they will have to take vacation for the weeks of July 7 and July 14.  WSJ.com has the full story.
Posted on: March 13, 2008 – 11:16 am in Autos

S&P Thinks Subprime Writedowns End In Sight, Well Sort Of

S&P has issued a report today noting that the subprime writedowns could reach $285 Billion, which is higher than the $265 Billion it noted before.  But there is a silver lining to the report and that is that S&P noted that the writedowns are past the half-way mark.  The stock market is still in negative territory, but not down as much as before.

It also notes that the end for huge writedowns is in sight at the big banks. This pertains to the asset-backed securities, noted primarily as collateralized debt obligations of ABS but also subprime residential mortgage-backed securities. 

In a companion report from S&P, it notes that the bulk of the write-downs of subprime securities may be behind the banks and brokers that have already announced their results for full-year 2007.  While there may be more mark-to-market actions, it is their opinion that the magnitude of some write-downs is actually greater than any reasonable estimate of ultimate losses.  In short, they think the amounts being given writedowns are more than the real losses will ever be.  This also notes that credit spreads and the repricing of credit risk will hit financial institutions the hardest.

We ultimately think the writedowns may be more than this.  We recently noted a $325 Billion figure.  A report out of Morgan Stanley is based a subprime-related housing market drop of some 30%.  Frankly, the ultimate number isn’t as material as the as the number of institutions that can be taken down by this.  The deleveraging is happening across the board.  That was before the extra $100 Billion gift from the Fed, making a total of $200 Billion. 

As writedowns continue, the real issue is going to be how the market reacts to the next wave of major writedowns.  At some point it will ultimately boil down to which firms will obviously survive and which ones are at risk.  The second half of this writedown cycle will be the hardest for investors to grasp.  It still seems that the beatings will continue until morale improves.

If the FHA will step in or if the government will ultimately absorb some of this, then this report will prove true and we might not see the worst case scenario come to pass.  But that makes for a total bailout package and rewarding bad behavior, and it also puts another slug in the free markets into a "free markets, with a put option" into the mix.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 11:04 am in Banking, Economy, Financial Stocks

Shares in Ford (F) And GM (GM) Collapse

The wheels finally came off in Detroit. GM (NYSE: GM) is down 8% to $19.13, a new 52-week low. The stock bounced around that level in late 2005 and early 2006 when there were rumors of a bankruptcy.

Ford (NYSE: F) is off almost 10% to $5.15, well below levels the stock hit when Chapter 11 rumors were in the media.

It has finally occurred to Wall St. that the two companies will not have profitable North American operations in 2009, as they had planned. It may well be that they will not be profitable at all, ever. The dynamics of the business have turned so profoundly against the companies that they may never be able to be changed.

Rising oil and rising metal prices are destroying the domestic car industry. Lehman Brothers says that increasing commodities costs will add over $350 to the cost of each car. Gas, heading above $4, will fracture the sales of the big profitable SUVs and pick-ups, driving the few buyers left into small, less profitable sedans.

Car loan interests rates are not coming down. Banks won’t pass along what the Fed is giving them. The recession, which has already begun and is deepening, will keep buyers out of car dealers for months to come.

When the UAW contracts were settle, plants were closed and tens of thousands of workers were bought out or fired, the industry cut itself to its core. Any more cuts and the businesses will disappear down their own throats.

At a market cap of under $12 billion, Ford is almost worthless. GM is the same at $11 billion.

The US car companies are, to a large extent, lost. They may make money overseas but they have ceased to the rulers of the market where they were founded and made their bones.

Douglas A. McIntyre

Posted on: March 13, 2008 – 10:04 am in Autos, ,

IPO FILING: Salient Surgical Technologies, Inc. (SLNT, MDT)

Salient Surgical Technologies, Inc. has filed to come public via an initial public offering and has applied to trade on the NASDAQ under the ticker "SLNT."  The company lists that it will sell up to $86.25 million in securities for filing purposes.  Co-lead managers are listed as Bear Stearns and Piper Jaffray, and Wachovia Securities in listed as a co-manager.

This company offers what it refers to as clinical applications of Transcollation(tm) technology for the sealing of blood vessels and other collagen-based structures.  These are for medical procedures such as liver resection, spine surgery, total hip athroplasty, and total knee athroplasty. Transcollation technology has been used in over 165,000 surgical procedures to date. Its principal Transcollation product is called the Aquamantys System and it was launched commercially in March 2006, and it is comprised of single-use handheld devices and a radio frequency energy generator system.

Unlike many medical technology companies that have filed to come public, this one is now operational with at least some revenues. As of December 31, 2007, it claimed to have some 437 active customer accounts in the United States, a 44% increase over the comparable period in 2006.  It also notes that its target market remains substantially underpenetrated and it believes the current accounts represent only an approximate 10% of hospitals in the United States which perform its targeted procedures.  Revenues for the year ended December 31, 2007 were $29.5 million, a 75% increase from 2006.

While most of the Dover, NH-based company’s backers are VC’s, it does note that entities affiliated with Medtronic, Inc. (NYSE: MDT) are listed as being a 8.8% owner of the company.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 9:25 am in IPOs, Medical, ,

AmTech Notes PC Seasonality & Memory Oversupply (INTC, AMD, NVDA, MU, QI)

Doug Freedman at American Technology Research has issued a call in the PC and memory sector this morning.  The firm notes that the March quarter is tracking in-line with normal seasonality for most parts of the technology and hardware supply chain.

Channel checks suggest that Intel (NASDAQ: INTC) server parts are being well-received and selling well into a market absent a competitive part.  AmTech also noted that continued upside to dual processor configurations have been cited.  Intel may have offset strong high-end server and notebook sales with a slightly more aggressive promotion in retail.  As far as Advanced Micro Devices (NYSE: AMD), the ATI data points are tracking positive, in-line with expectations, with AMD chipsets and drivers for ATI cards gaining traction with low-end enthusiasts and more mainstream markets.

Freedman also noted that notebook checks are in-line with expectations and seasonality for the most part. The first half of March DRAM pricing continued to show strength, and AmTech expects a downturn in second-half contract pricing in-line with the recent trend in spot prices and continued pressure on NAND ASPs.

While some channel checks have reported weakening consumer demand, AmTech noted that it cannot say it is outside of normal buying patterns.  It also noted that large OEMs have gained against smaller tier two and tier three suppliers.

Freedman notes, "While general sentiment has been negative, not-withstanding this week’s rally, we believe the market normally misinterprets seasonally weak periods as evidence of protracted downturns. We do not see evidence to support this thesis yet with generally healthy channel inventories supporting distributor flexibility and re-order rates."

American Tecnology Research has reiterated its BUY ratings on Intel (NASDAQ: INTC), Advanced Micro Devices (NYSE: AMD) and on Micron Tech (NYSE: MU).  It is also maintaining its NEUTRAL ratings on both NVIDIA (NASDAQ: NVDA) and Qimonda AG (NYSE: QI).

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 9:05 am in Analyst Calls, PC Companies, Semiconductor, , , , ,

SPAC IPO Filing: BHG ACQUISITION CORP.

BHG ACQUISITION CORP., another special purpose acquisition company, or SPAC, has filed to come public via an IPO.  It plans to sell some 35 million units for $10.00 per unit, with each unit representing one share of common stock and one warrant with a $7.50 strike price.  It will also give underwriters an overallotment of 5,250,000 units.  Credit Suisse and Deutsche Bank are the two underwriters.

This blank check company was just formed on  February 26, 2008.  No stock ticker has been assigned, although it does note an AMEX listing.  The filing notes that no businesses have been identified and that no restrictions to industry will apply, but the company will focus on sound businesses with strong competitive positioning, ones with strong and stable cash flow, and with experienced management teams.  As this doesn’t even list an "initial efforts" for any industry, this is a true blank check company.

Chairman, chief executive officer, president and secretary is Clifton S. Robbins, founder and Chief Executive Officer of Blue Harbour Group, L.P., an investment management firm based in Greenwich, Connecticut.  He has served on boards of directors of companies including RJR Nabisco, Inc., The Stop & Shop Companies, Inc., Newsquest plc., IDEX Corp., ESPN, Inc., Kindercare Learning Centers, Inc., and Borden, Inc.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 8:36 am in IPOs

Neutral Tandem Insiders Scramble To Sell Into Lock-Up Expiration (TNDM)

Neutral Tandem, Inc. (NASDAQ: TNDM) has filed to sell 4.5 million shares of stock in a secondary offering this morning via underwriter Morgan Stanley.  The use of proceeds is zero for all practical purposes for the company as all of the shares being sold are by selling shareholders.

This represents 14.3% of total common stock outstanding based on a 31.3+ million share count listed.

The company provides tandem interconnection services to competitive carriers, including wireless, wireline, cable and broadband telephony companies.  As of December 31, 2007, Neutral Tandem had 78 major competitive carriers and non-carriers connected to its network.

The insiders and original backers aren’t wasting any time here.  The company has only been public since November 2007, so they are lining up to sell the most they can under the 6-month lock-up agreement.  Shares closed at $20.18 yesterday, and the post-IPO trading range is $16.51 to $23.00.  This was actually a fairly hot IPO at the time as it priced 6.6+ million shares at $14.00 per share on its IPO.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 8:11 am in Secondary Offering, Telecom,

Would GE Consider Being The Next Vulture Over Distressed Assets? (GE)

Yesterday we saw the annual report out of General Electric Co. (NYSE: GE), along with the letter from CEO Jeff Immelt.  While we noted many issues that were broken down by segment with recent growth initiatives, there was one area noting the malaise in the current credit markets.  Immelt noted that GE has no exposure to losses to CDO’s and SIV’s.

But here is where it gets interesting.  Immelt noted, "We have retained a Triple-A rated balance sheet and generate substantial cash flow, so we can invest while others pull back."  This was listed in the same area as the financial aspects of the business, so it would be interesting to know if GE wants to pick diamonds out of all the dirt that has been out.  Additionally, Immelt noted that GE’s pension plans have $67 Billion of assets, with a surplus of $15 Billion.

If the company wants to use its surpluses, it could create an entity that could act as a serious vulture fund if it wanted to.  Obviously it can’t go plunk down all of its surpluses and capital, but it could create an entity that could invest "very selectively" in distressed assets that may have a significant payoff down the road.  Having one entity that it owns or even that it partners with wouldn’t jeopardize its Triple-A rating as long as it isn’t too aggressive and isn’t too large.  With roughly a $340 Billion market cap, the question would ultimately boil down to how large an entity like that would have to be for it to be worth the time and effort.

Some people don’t like the vulture term, but it just so happens that we happen to like vultures despite any connotations.  The company has its retail webcast today and we’ll be trying to get a question in around this.

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 7:13 am in Conglomerates,

LDK Solar: Fully Booked Up, Stock Still In Gutter (LDK)

LDK Solar Co., Ltd. (NYSE: LDK) came out with projections showing thats backlog for its solar wafer capacity is fully booked for 2008 and more than 90% booked for 2009. 

The company confirmed that it increased its inventory levels to $380 million at the end of 2007.  It also noted that inventory in transit was the most significant portion of the increase, growing from 263 metric tons to 752 metric tons during the quarter as LDK purchased silicon material from manufacturers around the globe.

LDK also gave an "environmental update" showing its methods of maintaining ecologically friendly processes, which is after reports that its supplier has dumped toxic waste and after previous headline issues.  The company does have plants under construction, so it better hope everything runs on time and that no emergencies or accidents come up.  The stocks is way off of highs now.  Shares closed at $20.43 yesterday, yet the 52-week trading range is $19.69 to $76.75.

This almost trades as a value stock, assuming there are no problemsthat haven’t yet come out.  This one has been under fire and has morethan one critic, so those "values" might have an asterisk behind them.  Analysts have an average target north of $50.00.  If estimates are accurate, First Call has 2008 EPS targets at $1.74 EPS and 2009 targets at $3.80. 

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 6:47 am in Alternative Energy,

Top 10 Pre-Market Analyst Calls (AIG, AZN, GLUU, GSIC, HOLX, HUM, JASO, LEAP, MON, WBD)

These are not the only analyst calls this morning, but these are 10 impact calls we are reviewing this Thursday morning:

  • American International Group (NYSE: AIG) Cut To Equal-weight at Morgan Stanley.
  • AstraZeneca (NYSE: AZN) raised to Neutral from Sell at UBS.
  • Glu Mobile (NASDAQ: GLUU) cut to Sell from Hold at Deutsche Bank.
  • GSI Commerce (NASDAQ: GSIC) raised to Buy at Jefferies.
  • Hologic (NASDAQ: HOLX) Started as Overweight at Morgan Stanley.
  • Humana (NYSE: HUM) raised to Neutral from Sell at UBS.
  • JA Solar (NASDAQ: JASO) Raised to Overweight at Lehman.
  • Leap Wireless (NASDAQ: LEAP) Raised to Market Perform at Wachovia.
  • Monsanto (NYSE: MON) raised to Buy at Banc of America.
  • Wimm-Bill-Dann Foods (NYSE: WBD) Raised to Outperform at Credit Suisse,

Jon C. Ogg
March 13, 2008

Posted on: March 13, 2008 – 6:24 am in Analyst Calls, , , , , , , , , ,

Europe Markets 3/13/2008 (BCS)(DB)(SI)(RTP)

Markets in Europe were off sharply at 6.30 AM New York time.

The FTSE fell 2% to 5,662. Barclays (BCS) fell 3.9% to 443. British Air fell 5.5% to 229.25. Rio Tinto (RTP) fell 2.8% to 5292.

The DAXX dropped 2.5% to 6,437. Commerzbank was down 5.3% to 18.41. Deutsche Bank (DB) was off 3.2% to 70.97. Siemens (SI) was off 3.1% to 80.06.

The CAC 40 was off by 2.5% to 4,580. Credit Agricole was off 4.3% to 17.7. BNP Paribas was down 4.6% to 56.81.

Data from Reuters.

Douglas A. McIntyre

Posted on: March 13, 2008 – 5:38 am in International Markets, , , ,

DirecTV (DTV): New Threat To Cable And Telecoms

DirecTV (NYSE: DTV) has hundreds of channels and can offer high-definition programming, but, because satellite signals do not work two-way, getting into the "on demand" business has been impossible. That has given an edge to cable firms like Comcast (NASDAQ: CMCSA) and telecom companies like Verizon (NYSE: VZ) with fiber-based TV.

The business landscape for "on demand" TV is about to change. DirecTV has a new product that downloads popular movies to a set-top box where they sit on the storage drive until a consumer wants to access them. Other films will be streamed to the box over broadband from DTV servers. It is an inelegant system, but it works.

According to The Wall Street Journal "More than just offering video on demand, this arrangement will let DirecTV tap what some analysts think could be a big growth area for TV providers — selling highly targeted ads."

"On demand" TV and the ability to target customers with marketing has belonged to the cable companies. Fiber-TV is very new and Verizon and AT&T (NYSE: T) are just getting their systems up. As these come online to challenge cable, stocks in the industry, especially Comcast, Time Warner Cable (NYSE: TWC), Cablevision (NYSE: CVC), and Charter (NASDAQ: CHTR), have taken a beating.

Now cable has not one "on demand" competitor, but two.

For cable shareholders, that is two too many.

Douglas A. McIntyre

Posted on: March 13, 2008 – 5:27 am in Satellite, , , , , ,

Target (TGT) Tries To Dump Piece Of Credit Card Business

Target (NYSE: TGT) has a huge credit card business. In the current economy, that may not be perfect positioning. The value of the portfolio at the unit is $8 billion. A financial buyer may pay $4 billion for half.

Target said the proposed deal could provide "substantial liquidity" for use in store expansion, debt retirement or share repurchases, according to The Wall Street Journal.

Given that default rates on almost all consumer credit are highly likely to rise and that traffic to Target’s stores will fall due to the weak economy, the offer has to live in a place beyond the retailer’s wildest dreams. The news is almost too good to be true, an indication that it will probably change before a deal is struck. To put a point on it, regardless of what the company says, it won’t get the current proposed price.

But, on the very off chance that Target can close a $4 billion arrangement to off-load part of a business that is likely to be damaged over the next year, it should get the documents printed and signed as soon as possible.

Never give a sucker an even break: never wise up a chump.

Douglas A. McIntyre

Posted on: March 13, 2008 – 5:04 am in Retail,