Daily Archives: April 15, 2008

Intel (INTC): Atlas Holds The World Aloft

After rafts of bad news from every corner of the business arena starting with GE (NYSE: GE) and spreading to Washington Mutual (NYSE: WM) and Wachovia (NYSE: WB), a hard luck report from Intel (NASDAQ: INTC) could clearly have dropped the market another 400 points, pushing it below 12,000.

If an earnings report could be light and cheery, Intel’s was. Although most of its first quarter figures were worse than Q4 07 numbers, they improved, in many cases over the same period last year. Revenue rose 9% to $9.7 billion and operating income was up 23% to $2.1 billion, a sign that the company is running with some real efficiency.

The digits most analysts turn to first is gross margins. For the quarter, that figure was 54%. Women and small children erupted in applause when Intel forecast that the key measure would improve in both Q2 and for the year. The company’s predictions were better than most had hoped.

The most intriguing thing about the Intel numbers is that the company did well in the Americas. with revenue up 17%. Perhaps the region which is home to the US is not economically dead after all.

Intel’s numbers will cascade into forecasts for other companies. AMD (NYSE: AMD), Intel’s smaller rival, may do well. PC and server companies including Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) may get some relief. Wall St. will assume that the increase in chip sales should be good for Microsoft’s (NASDAQ: MSFT) Windows sales.

If it were that easy. investors could walk away from much of the current economic and earnings news with a sublime confidence that the financial world is getting better.

Intel’s customer base is so broad and so deep that, while some of them must be doing well, others may not be. It is just as likely that Intel’s sales hurt AMD and that, while HPQ may be doing well it is at the expense of Dell.

Intel’s earnings are no a sucker trap, but they are not unadulterated good news. The tech market is a patchwork of companies and Intel shoulders are only so broad.

Some of the tech companies are still in the shadows and may be for some time to come.

Douglas A. McIntyre

Posted on: April 15, 2008 – 6:26 pm in Earnings, , , , , , , ,

Search Engine Number For March (YHOO)(GOOG)(MSFT)

According to comScore, Google (NASDAQ: GOOG) continued its climb in US search engine share. The number for Yahoo! (NASDAQ: YHOO) dropped slightly as did the figure for Microsoft (NASDAQ: MSFT).

The comScore numbers for share:

                                            Share of Searches (%)
                                      Feb-08      Mar-08          Point Change
                                                                      Mar-08 vs.Feb-08
Total Core Search            100.0%    100.0%             0..0
Google Sites                     59.2%      59.8%             0.6
Yahoo! Sites                     21.6%      21.3%             -0.3
Microsoft Sites                    9.6%       9.4%             -0.2

Google did even better in terms of its number of search engine queries compared to its rivals:

                                            Search Queries (MM)
                                      Feb-08       Mar-08           Percent Change
                                                                           Mar-08 vs. Feb-08
Total Core Search             9,882          10,771                      9%
Google Sites                    5,855            6,438                     10%
Yahoo! Sites                    2,136            2,296                       7%
Microsoft Sites                   953            1,012                        6%

While there has been significant concern that Google’s advertising effectiveness, the rate at which consumers click on its ads, has dropped over the last two or three months, it is clearly still growing faster than rivals as the preferred place for looking up information on the internet.

The numbers also show that a combined Microsoft/Yahoo! property would run a distant second. If the numbers could simply be added, which is a very gross view of the combination, the new company would have 30.7% of the US search market and 3,300 million search queries. In each case, that is only about half of the Google number.

Douglas A. McIntyre

Posted on: April 15, 2008 – 5:52 pm in Internet, , ,

CV Therapeutics Soars on TPG-Axon Financing (CVTX)

CV Therapeutics, Inc. (NASDAQ: CVTX) has secured a deal with TPG-Axon Capital, where it will receive up to $185 million in exchange for the rights to 50% of CV Therapeutics’ royalty on North American sales of Lexiscan injection. As part of the deal, CV Therapeutics received $175 million on closing of the transaction and is eligible to receive a potential future milestone payment of $10 million.

TPG-Axon Capital is a private equity and public equity investment firm that was spun out of buyout firm Texas Pacific Group, and it is led by the former head of Goldman Sachs’ Principal Strategies Department, Dinakar Singh.  Just on April 10, The FDA approved Lexiscan injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging in patients unable to undergo adequate exercise stress.

"CV" will retain the other 50% of royalty revenue rights from North American product sales and also may receive a royalty on another collaborations with Astellas Pharma US, Inc.  The company is also calling this "non-dilutive financing" and noted that it has multiple product-related revenue streams. 

It also now has the funds to become cash flow positive and meet its putable debt obligation coming in 2010 without additional financing.  It is also pursuing a partner to help commercialize Ranexa and it noted this gives it more independence to be in a position of strength in negotiations.  CV Therapeutics owns the rights for regadenoson outside of North America and expects to submit a marketing application to the European Medicines Agency by the end of this year.

This will likely cause some reduced revenue projections ahead as the company is signing away half of the North American rights.  According to First Call, its revenue estimates for 2008 are $almost $143 million and 2009 revenues are expected to be almost $217 million.  The company had about $179 million in cash and short term securities as of December 31, 2007, but its long-term debt is also listed as $399.5 million.

You can join our open email distribution list to hear about key calls, buybacks, IPO’s, special financings, restructurings and more.

Shares of CVTX closed down almost 4% at $7.45 today, but shares rose 19% to $8.90 in after-hours on this news.  The 52-week trading range is $5.41 to $13.74 and the market cap prior to the pop was listed as $452 million.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 4:46 pm in Biotech, Private Equity, Secondary Offering,

Intel Gets Initial Cheer (INTC)

Intel Corp. (NASDAQ: INTC) posted earnings after the close, and Wall Street is cheering the results so far.  It just posted $0.25 EPS on some $9.67 Billion in revenues.  First Call estimates were $0.25 on non-GAAP EPS on revenues of $9.63 Billion.

Gross margins for last quarter were 53.8%.  Total microprocessor unitswere lower sequentially with an average sale price approximately flat,and it spent $2.5 billion to repurchase 122 million shares of itscommon stock.  NAND revenue was flat as significant price declinesoffset unit growth.

Interestingly enough, the company noted a strengthening core business and solid global market environment on healthy demand for processors and chipsets across all segments.  It also remains optimistic about growth opportunities.

The chip and processor giant also put earnings guidance at $9 to $9.6 Billion in revenues and sees 56% margins.  Estimates for the coming quarter are $0.28 EPS on $9.28 Billion in revenues.  For 2008 the chip giant put guidance of 57% gross margin, plus or minus a few points.

What the street is liking is the positive core business comments coming out of the company.  As long as business is hanging in there, then Wall Street isn’t likely to punish it too much further.

Shares closed up 1% at $20.91 in regular trading and shares are up over 7% at $22.50 in after-hours trading.  The 52-week trading range is $18.05 to $27.99.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 3:25 pm in Earnings, Semiconductor,

Genentech Expands Stock Buybacks (DNA)

Genentech, Inc. (NYSE:DNA) has announced that the biotech giant has authorized the extension of its current stock repurchase program through June 30, 2009 and it amended the current repurchase program.

It is increasing the maximum number of shares that can be repurchased to a total of 150 million shares from an amount of 100 million shares, which in effect is increasing the total value of shares that can be repurchased to $10 Billion from $8 Billion.  These share repurchases can be in the open market or in privately negotiated transactions from time to time at management’s discretion.  It also may used derivative securities to effect repurchases. 

The repurchased stock is meant to offset dilution caused by the issuance of shares in connection with Genentech’s employee stock plans, which is generally less impressive than when companies go out and retire shares or stick them in the treasury for future acquisitions.

You can join our open email distribution list to hear about key calls, buybacks, IPO’s, special financings, restructurings and more.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 3:12 pm in Biotech, Stock Buybacks,

The 52-Week Low Club (BORL)(SIGM)(NVTL)(AFFX)(CROX)

Fremont General  (FMT) Down 50% today. Finally delisted. Hit bottom at $.26 against 52-week high of $13.80.

Avnet (AVT) Warns on profits. Slips to $27.76 from 52-week high of $44.68.

Kinetic Concepts (KCI) Sells convertible notes to fund acquisition. Drops to $40.27 from 52-week high of $66.77.

Northrop Grumman (NOC) Company plans to take first quarter charge. Sells down to $71.39 from 52-week high of $85.21.

Tesoro Corporation (TSO) Bad day for oil refiners. Concerns about margins. Falls to $25.06 from 52-week high of $65.98.

Gannett (GCI) Part of bath newspaper companies are taking. Sells off to $27.26 from 52-week high of $61.68.

Crocs (NASDAQ:CROX) Warns on numbers. Falls to $10.10 from 52-week high of $75.21.

Affymetrix (AFFX) Revised forecast for 2008 down. Drops to $10.08 from 52-week high of $31.95.

Novatel Wireless (NVTL) Company says it will miss Q1 numbers. Sells off to $7.42 from 52-week high of $29.14.

Sigma Designs (SIGM) Analyst says company is losing market share. Drops to $15.31 from 52-week high of $73.

Borland Software (BORL) No news. Project management software company shares move down to $1.40 from 52-week high of $6.22.

Douglas A. McIntyre

Posted on: April 15, 2008 – 3:00 pm in HI/LOW, , , , , , , , , , ,

Covad, Public No More (DVW)

Platinum Equity has announced that the private equity firm has now completed the acquisition of Covad Communications Group, Inc. (AMEX: DVW) in a merger with a total value of approximately $470 million.  An affiliate of Platinum Equity acquired all outstanding shares of Covad stock for $1.02 per share in cash.

This was one we reviewed for our special situation newsletter last year for what would have now netted close to 30% to completion when the spread had widened out to the point it looked at risk.  We determined after speaking with all parties involved that the deal was not in jeopardy, but the sector was in a "shoot and ask questions later" mode as many other deals were failing.

We also just covered this one last month with more than a 10% gain for 3-weeks to completion in our "10 Stocks under $10" weekly newsletter.

This merger looks like it is done, over and out.  You can join our open email distribution list to hear about key M&A, merger speculation, IPO’s, special financings, restructurings and more.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 2:27 pm in Mergers and Buy Outs, , ,

Citigroup Says Auction-Rate Market Dead As A Doornail

The auction-rate market, created in 1985, has fundamentally shut down since February sticking individual investors and corporations with the "near cash" securities. Texas Instruments (NYSE: TXN), Palm (NASDAQ: PALM), and a number of other companies have taken or will take write-offs on the value of the paper which they have been carrying at par. By some estimates the cut on the value of the securities could be 10% to 20%.

Today, Citigroup said the market was dead. The $330 billion auction-rate securities market, which collapsed in February after Wall Street firms stopped using their own capital to prevent failures, will “cease to exist,” a Citi analyst said, according to Bloomberg.

A number of suits are expected to be filed against the banks and brokerage firms which ran the auctions. They withdrew from the market suddenly rather than take excess paper from the auctions onto their balance sheets. They were making money in the process of facilitating the trading.

Other banks will be sued from representing the paper as "cash", when, indeed, without regular auctions, it was not liquid at all, which undermined the value of the asset.

Douglas A. McIntyre

Posted on: April 15, 2008 – 2:14 pm in Banking, ,

Intel Earnings To Dictate Trend of Tech Stocks (INTC, AMD)

After today’s closing bell, we’ll see earnings for Q1-2008 from Intel Corp. (NASDAQ: INTC).  The processor and chip giant estimates from First Call are $0.25 EPS on $9.63 Billion in revenues. 

We’ve already been warned by Intel that Flash Memory was taking down the quarter and it would probably be a shock if the estimates ahead from the company were put conservatively.  Over the last 3-months, analysts have taken down numbers across the board for Q1, Q2, Q3, 2008 and even 2009.

Next quarter estimates are $0.28 EPS on $9.23 Billion in revenues, and Fiscal-2008 estimates are $1.29 EPS on just over $39.7 Billion in revenues.

Options traders appear to be braced for a move of up to $0.69 to $0.76 on on a static basis as of noon.  Analysts have a price target of just over $26.00 on the chip giant.  Intel has already hiked its dividend.

Intel has traded under its 200-day moving average since the start of 2008, and that level on last look was $23.75.  But it has been using the 50-day moving average as a pivot level, and that was listed as $20.86 on last look.  With shares up less than 0.5% at $20.78 currently, that 50-day moving average may be a critical juncture ahead.

While this report will likely translate directly into major revisions for Advanced Micro Devices (NYSE: AMD), we have a fresh warning and layoffs already announced from AMD ahead of its earnings in just two day; AMD also saw its CTO leave the company.  Intel earnings and guidance may set the trend for companies up and down the entire PC and tech infrastructure line from PC’s to software to peripherals to chips to storage to internals.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 11:55 am in Earnings, Semiconductor, ,

Social Networking Goes Adult (PRVT, LNET, NOOF, PLA)

Private Media Group, Inc. (NASDAQ: PRVT) ia announcing a unique launch with Pilgrim Telephone, Inc. for the U.S. and Canada.  This will marry Private’ adult entertainment with Pilgrim’s social networking services for wireless and wire-line subscribers.

The companies are launching Intimate Connections(R) instant voice messaging platform, which is said to be the first step in the development of Private and Pilgrim’s strategic US and Canadian alliance.  Fans will have the opportunity to connect with each other and to hear from Private girls and their friends via both wireless and land line telephones.

As far as who the customers of Pilgrim are, it lists LodgeNet Interactive Corporation (NASDAQ: LNET), On Command, New Frontier Media (NASDAQ: NOOF), Playboy (NYSE: PLA), Club Jenna, Digital Playground and Rogers in Canada.  Private Media doesn’t look like it is a small fry either as it says it’s a leader in adult entertainment distributing premium content globally via a wide range of platforms including more than 900 million mobile telephone handsets, IPTV/VOD, broadband Internet, television, DVD’s, and magazines.

Interestingly enough, this says that callers spend on average some $50per call, and the companies expect this to generate substantialincremental revenue for Private going forward.  It sure sounds like this is a new play on the old 900-numbers fused with a new social networking slant.  Let’s just hope that the clients aren’t using this while they are driving.

Jon C. Ogg
April 15, 2008

Posted on: April 15, 2008 – 11:22 am in Entertainment, , , ,

Survey Finds High Inflation & Spending Cut Winners & Losers (WMT, COST, SHLD, BBBY, M)

There is an interesting report out of ChangeWave, which shows that higher prices combined with tighter consumer pocketbooks are driving customers significantly. A large-scale movement to discount retailers driven by skyrocketing inflation concerns and an overall spending environment that continues to slow.

ChangeWave says that it surveyed 4,735 consumers (completed April 7th) to find a pattern based on the spending focus for the next 90 days.  A quote would pretty much say it all: "In a clear sign the economic downturn isn’t over yet, this is the third-consecutive ChangeWave survey in 2008 showing a recession in consumer spending. The survey found that better than two-in-five U.S. respondents (42%) say they’ll spend less over the next 90 days than they did a year ago – 3-pts worse than ChangeWave’s previous survey in February 2008."  Another 25% say they’ll spend more, unchanged from previously.

The decline in spending continues to cut across all income levels. Going forward, the most disconcerting finding isn’t only tighter spending; it’s the huge and growing toll that inflation is having on consumers.  The long and short is fewer and fewer items at higher and higher prices.

46% of those spending less and that said why they were spending less cited that inflation as their single greatest concern, up 6-points from February 2008; and another 43% cited higher energy costs, up 11-points from the prior report. Also, 30% of those spending less cited debt reduction and 25% cited that they want to save more money.

Other findings from ChangeWave show that 50% think the economy is going to worsen over the next 90 days, compared to just 14% who think it will improve; and 37% now say they are unsatisfied with their personal finances, up from 21% in November 2007.

Sharply lower spending and higher inflation are also noted as being coupled with deteriorating housing values to produce a very cautious American shopper.  The findings are great for Wal-Mart Stores (NYSE: WMT) and Costco (NASDAQ: COST), which sell in bulk to curb per unit costs.

Costco (COST) was ChangeWave’s biggest winner among shoppers.  Wal-Mart (WMT) also showed positive growth, though 1-point less than previously.  Costco and Wal-Mart were also the two biggest winners in ChangeWave’s February survey.

On the downside, Sears (SHLD), Bed Bath & Beyond (BBBY), Linens N Things, and Macy’s (M; -8) showed the weakest trends going forward…. sorry, Mr. Lampert isn’t out of the woods yet.

Consumer electronics is seeing the biggest slowdown of any spending category… 15% say they’ll spend more there over the next 90 days, compared to 37% who say less.  That is an 8-point decline since February and the weakest 90-day outlook ever recorded by ChangeWave.

You can probably guess what follows…. Restaurant Spending and Durable Goods….

Jon C. Ogg
April 15, 2008

Posted on: April 15, 2008 – 10:54 am in Economy, Retail, , , , ,

Earnings Damage Widens Across Industries (CROX)(AFFX)(NVTL)

The latest earnings news is a clear and definite indicator that the earnings damage from the current slowdown is unlike to take prisoner.

Crocs (NASDAQ: CROX), the maker of odd-balls shoes and a former Wall St. darling, is off 37% on a weak first quarter forecast. The company blamed the weak retail environment, which has been showing up in same-store sales for several months. CROX trades at $11.05 now, down from a 52-week high of $75.21. Retail was already dead, but this gave some further confirmation.

Affymetrix (NASDAQ: AFFX), a leader in the technology of genetic analysis, cut its revenue forecast for the year to a range of $510 million to $490 million from a previous range of $505 million to $525 million. It said the drop was due to cut-backs in R&D spending at customers. Shares moved down to $10.76 from a 52-week high of $31.95. The stock is off 34% today.

In the tech and telecom sector wireless modem maker Novatel (NASDAQ: NVTL) cut is Q1 guidance and put in a new CEO. Sales are expected to be $91 million down from previous forecasts of $110 million.:The company said a product delay in Europe hurt its numbers. The stock dropped 20% and trades at $8.05 down from a 52-week high of $29.14.

Three unrelated companies in unrelated sectors.

Douglas A. McIntyre

Posted on: April 15, 2008 – 8:57 am in Earnings Warning, , ,

Economic News: Housing, Producer Prices

According to Bloomberg "U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders."

The news service also reports "Prices paid to U.S. producers rose almost twice as much as forecast in March, reflecting higher fuel and food costs that threaten a pickup in inflation. The 1.1 percent gain followed a 0.3 percent increase in the prior month."

Douglas A. McIntyre

Posted on: April 15, 2008 – 7:40 am in Economy

BlackRock’s Ten Reasons To Invest In US Equities

From Reuters, a list of the ten reasons that investors should put money into US equities:

1) Investor and consumer sentiment measures are very pessimistic, which often marks the bottom of equity market falls.

2) Monetary policy in the United States is being eased earlier and more rapidly than is usual.

3) U.S. households are about to get fiscal stimulus checks from the government.

4) The current earnings recession of negative year-over-year comparisons will last four quarters. Q2 2008 will be the fourth.

5) The cheap U.S. dollar means boom conditions for U.S. exports, a significant offset to the residential real estate recession.

6) The health of the non-financial corporate sector remains strong, with healthy cash flows

7) Credit-related downturns often include the failure of an important financial organization, followed by double-digit growth in the S&P 500 .SPX. The failure of Bear Stearns on March 17 has passed.

8) Credit markets have improved noticeably since Bear Stearns’ failure.

9) Technical factors have also improved since March 17, including the fact that up-day volume has been heavier than down-day volume.

10) The earnings yields of equities compared with 10-year Treasuries are at their best level in 30 years.

Our thanks to the news service for publishing the list. The commentary is also available from BlackRock.

Douglas A. McIntyre

Posted on: April 15, 2008 – 7:24 am in Uncategorized

Google (GOOG) Wants To Be No.1 In China, No Chance

Google (NASDAQ: GOOG) has set its sights on being the No.1 search engine in China. It will have to get ahead of the top search company there, Baidu (NASDAQ: BIDU), which has 60% of the market.

According to The Wall Street Journal, the US company’s top man in the big Asian country said "Certainly, we would like to aspire to be a market leader in five years."

The Chinese may like US goods and service, but they are not likely to give Google any additional edge in the search business. They have effectively spoiled the US software business in the country though piracy, but keeping the American search engines out may be more difficult. But, Baidu has its ways.

Among other things, Baidu is almost certainly more likely to accept Chinese government censorship of search results as a way to remain in favor. Google rarely cooperates with the censorship process unless it must to stay in country.

Baidu also has the advantage of being created to target Chinese language searches. Google began with English and has had to adapt.

What Google wants is China will be very different from what it gets.

Douglas A. McIntyre

Posted on: April 15, 2008 – 6:36 am in China, ,

Capstone Analyst Target More Than Doubled (CPST)

There was an interesting call that came out late yesterday in the alternative energy and green energy sector regarding Capstone Turbine Corp. (NASDAQ: CPST).  Lazard Capital Markets has been positive on this one and had already been deemed aggressive with a call for more than a double, and the new call is for more than a double yet again.

Lazard’s Sanjay Shrestha has reiterated his BUY rating on Capstone, but his $2.50 price target has been jacked up all the way to $6.00.  This reflects higher 2009 targets to reflect growing sales momentum and further penetration in key markets with revised revenue estimates of $50 million, up from $40 Million, after new orders have been coming on strong in the last few weeks.

Shrestha noted, "We believe the company is in the early stages of rapid growth. Capstone is clearly gaining solid traction in its target markets with improving product economics and a growing service revenue component…. We expect the shares to continue to move higher on several near-term catalysts, including additional awards from its target end markets…."

This new target reflects a 25x multiple on a recently increased F2012 EPS estimate of $0.50, discounted by 25% for three years; and it reflects an increased shipment projection for 2012 of 400 MW, up from 200 MW.

Capstone remains an active pick on our own weekly "10 Stocks Under $10" newsletter.  We have been on this one since $1.21 and have only recently noted that investors should take at least a little profit on part of the position, although we want some funds to stay in Capstone as it should head higher.  To date, it is grossly under-followed by Wall Street. Those profits should be rolled into our new "go-to" alternative energy stock that is also in the "under $10" category, and even trial memberships can get access to our new pick in the alternative energy sector.  We had always maintained that Capstone could go to $4.00 or higher rather than $2.50, and our new pick in the group is already up by 17% in the two weeks since we added it to our active list.  Our target on the new call was for a gain of nearly 50% if our price target was hit, although our target was very conservative compared to other existing price targets.

You can join our open email distribution list to hear about key calls, IPO’s, special financings, restructurings and more.

Jon C. Ogg
April 15, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 15, 2008 – 6:08 am in Alternative Energy, Analyst Calls,

As Nissan Links Up With Chrysler, A Lesson For Ford (F)

Nissan and Chrysler will begin joint production of some cars and trucks. It makes sense. Nissan produces small, fuel-efficient cars and the US company is the past master of building pick-ups. So, like Jerry Lewis and Dean Martin, they will play to one another’s strengths.

Nissan will begin to build a small car which Chrysler can sell in the US and Europe. Chrysler will make a full-sized pick-up which Nissan can market in place of its flagging Titan brand.

According to The Wall Street Journal "The manufacturing agreement will keep Nissan and Chrysler working closely together for several years." It is an admission by two of the auto industry’s second-tier players that going it alone in a world of rising fuel costs and higher design and production expenses is no longer realistic. These firms now compete against operations like Toyota (NYSE: TM) which have the balance sheets, sales, and facilities to make and market cars in every large country.

Now, what about Ford (NYSE: F), the failing US car company? Its share price, sitting above $6 trades about where it did two to three years ago when credit agencies said it could default on its debt and head into Chapter 11.

Ford’s US market share is running about 15% and in most months domestic sales are down double digits. While Ford does well in many countries outside the US, it does not have significant market share in China, which many expert think is the future of the car industry.

That leaves Ford in an untenable position. It is a matter of time before losses push it back into financial trouble. It could, however, find a partner. The most likely choice would be Volkswagen. VW, huge and with a strong balance sheet, has one market which it covets and that is the US. It has done poorly here for years. Ford and VW could have a joint venture to design, manufacture, and sell cars in the US. It would utilize Ford production capacity and give VW the entre it wants. In the small car end of the market, the savings of a JV could well offset the per-vehicles losses the US company faces with many of its models .

For Ford, it is just a matter of time.

Douglas A. McIntyre

Posted on: April 15, 2008 – 5:53 am in Autos,

Top 10 Pre-Market Analyst Calls (BBI, DO, NE, EMC, ELX, HP, MEE, MHK, PVA, TEF, VOD, RIG)

These are the early-bird calls that we are looking at pre-market this Tuesday morning ahead of the earnings deluge that is about to start:

  • Blockbuster (NYSE: BBI) Cut to Neutral at JPMorgan.
  • Diamond Offshore (NYSE: DO) & Noble Corp. (NYSE: NE) cut to Hold at Deutsche Bank.
  • EMC Corp. (NYSE: EMC) cut to Hold from Buy at Citigroup.
  • Emulex (NYSE: ELX) Cut to Sell from Buy at Citigroup.
  • Helmerich & Payne (NYSE: HP) Started as Overweight at JPMorgan.
  • Massey Energy (NYSE: MEE) Raised to Overweight from Neutral at JPMorgan.
  • Mohawk Industries (NYSE: MHK) Started as Buy at UBS.
  • Penn Virginia (NYSE: PVA) Started as Overweight at Lehman Brothers.
  • Telefonica (NYSE: TEF) and Vodafone (NYSE: VOD) started as Outperform at Bernstein.
  • Transocean (NYSE: RIG)) cut to Sell from Hold at Deutsche Bank.

Jon C. Ogg
April 15, 2008

Posted on: April 15, 2008 – 5:45 am in Analyst Calls, , , , , , , , , , , ,

Could US Government Lose It “AAA” Rating?

S&P could pull the "AAA" credit rating of the US government. Hard to imagine.

If the US has to bail out Fannie Mae (NYSE: FNM) and Freddie (NYSE: FRE), the consequences could be awful.

According to The Wall Street Journal "While this credit crunch has hurt financial markets, S&P notes that it hasn’t threatened the standing of the nation’s credit quality upon which U.S. Treasurys and debt priced off this government debt depend. But should a protracted recession cause Fannie and Freddie to buckle, the U.S. rating would be in danger."

Anyone can be downgraded.

Douglas A. McIntyre

Posted on: April 15, 2008 – 5:34 am in Analyst Calls, ,

Wal-Mart (WMT) To Move Into Russia And Eastern Europe

Wal-Mart (NYSE: WMT) has hired a new man to help it move into Russia and Eastern Europe. These are two of the large developed regions where the world’s largest retailer has made few in-roads. The other is India, where local laws keep it from having its own stores.

Russia and the part of Europe where Wal-Mart wants to put new stores are part of an expansion born of the company’s slow growth in the US. In the last month reported, the world’s largest retailer said domestic revenue was up in the 5% range while international revenue rose almost 20%.

The excitement over new expansion could cause people to forget that, for all its success in Mexico and China, Wal-Mart loses tons of money in Japan. It has also retreated from the markets in Korea and Germany.

The pattern of Wal-Mart’s success and failure outside the US does not appear to be linked to any one country but is does appear to be a by-product of the demography of the markets where it wants to compete.

Much of the customer base for Wal-Mart in the US is among the lower classes who are drawn to Wal-Mart pricing. Is it any wonder that the company has done well in Mexico and China where disposable income is often modest? On the other hand, in richer countries like German, Wal-Mart has been a flop.

Russia may be a challenge for Wal-Mart. Income in the larger cities is rising as oil money improves the standard of living for many people. This is much less true in Eastern Europe.

In other words, Wal-Mart’s next push overseas will have mixed results.

Douglas A. McIntyre

Posted on: April 15, 2008 – 5:28 am in Retail,