Daily Archives: April 23, 2008

New Solar ETF Outperforms Main US Components So Far (TAN, FSLR, STP, WFR, SPWR)

On April 15, the Claymore/MAC Global Solar Energy Index ETF (NYSE: TAN) was launched on ETF leader, the NYSE Arca. Under the ticker “TAN,” the ETF tracks 25 solar power industry companies globally for a total market cap of $5.8 billion.

The majority of the businesses are tied to solar in the ETF and are in the U.S., China, and Germany. The active stocks that trade in the U.S. on NYSE or NASDAQ are First Solar Inc. (NASDAQ: FSLR), MEMC Electronic Materials Inc. (NYSE: WFR), and Suntech Power Holdings (NYSE: STP).

Claymore believes that recent "green" trends, favorable government policy, increasing volumes of venture capital investments, and improving technology industry will drive growth and returns for the fund.

It was launched at $25.84 on April 15 and shares closed at $26.90 today. The fund has reached as high as $27.50 (also today) and hasn’t closed below the initial launching price.  That puts the solar ETF up 4.1% since the lauch, aven after a drop of 0.7% today. 

Of the top four constituents that trade actively in the U.S., the performance based upon todays closed and compared to the open on April 15 for exact comparison is as follows (with the percentage of the ETF for representation):

  • First Solar Inc. (NASDAQ: FSLR) is over 8% of the ETF weighting, up 0.8% since the ETF opened; .
  • Suntech Power Holdings (NYSE: STP) is 6.24% of the ETF weighting, up 0.78% since the ETF opened;
  • MEMC Electronic Materials Inc. (NYSE: WFR) is 5.1% of the ETF weighting, actually down 0.4% since the ETF opened;
  • SunPower Corp. (NASDAQ: SPWR) is 4.7% of the ETF weighting, actually down by 0.4% since the ETF opened.

Read More »

Posted on: April 23, 2008 – 6:47 pm in Alternative Energy, ETF, , , , ,

Cramer’s Green Picks For Each Presidential Candidate (FSLR, COMV, SGR, NRG, COMV)

On CNBC’s MAD MONEY this evening, Jim Cramer said that as part of his green week and in picking alternative energy stocks, he wanted to identify which stocks would win under the alternative energy projects under each presidential candidate.

On the Democratic side, he said he wanted to identify which stocks would win under both Hillary Clinton and under Barack Obama.  He noted how the alternative and renewable energy policies are pages and pages on their websites. These were the following:

  • For solar power, he’s still gung-ho booyaah-ing First Solar (NASDAQ: FSLR).
  • For a smart electric grid play, he thinks Comverge (NASDAQ: COMV) is the play.
  • Lastly, he thinks agriculture stocks are the winners with all their lobbying.  But…. these aren’t green companies.

On the Republican side, Cramer identified the picks he thinks will do well under John McCain.  He also noted that his policy on alternative energy is less detailed and only one web page on his website.  These picks are as follows:

  • McCain has been a pro-nuclear fan, and his main pick is Shaw Group (NYSE: SGR) as the builder and designer of nuclear facilities.  His second pick was NRG Energy (NYSE: NRG) as the main nuclear power promoting utility in the U.S.
  • Cramer also said that McCain also believes in a smart grid, and that pick is also Comverge (NYSE: COMV).

Last night, Cramer went over his picks that he thinks will win in natural gas and on Monday night he returned to talk about his old picks in alternative energy stocks with Buy, Hold, or Sell recommendations on those.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 5:36 pm in Alternative Energy, Cramer, , , ,

Investors Brace For Potash Earnings (POT, MOO)

Thursday morning, we’ll get to see earnings out of Potash Corp. of Saskatchewan, Inc. (NYSE: POT). The estimates for the potash producer from First Call are $1.52 EPS on $1.67 billion in revenues.  Next quarter estimates are $2.27 EPS on $2.34 billion in revenues. Estimates for fiscal Dec-2008 are $8.62 EPS on $8.29 billion in revenues.

Analysts have an average price target north of $200.00, and the 52-week trading range is $58.87 to $214.84.  Shares closed down $10.71 today at $204.12.  With all the upgrades seen in late 2007 to early 2008, it’s either time for analysts to increase targets or make their "valuation" comments now that shares are above many price targets even though the ratings are still very positive.

These potash and fertilizer stocks have run up with such fervor that investors will not accept any "weak economy" comments or any in-line guidance, particularly after the recent huge price hikes were announced to China.

Its conference call will not be until 1:00 PM EST Thursday, which gives it little competition among investors since most post-earnings conference calls will be completed by then.

We’ve already seen competitor earnings, but this is one of the key stocks out of the potash group.  The Market Vectors Global Agribusiness ETF (AMEX: MOO) is what we’ll be watching most closely for the secondary effect.

We recently featured a hidden asset play that may actually be its own company after a spin-off IPO in the fertilizer sector to subscribers of our Special Situation Investing Newsletter as a bonus issue.  It isn’t a potash play as the company has a low-cost advantage for nitrogen fertilizer products, but anything tied to fertilizer in the U.S. has seen shares rocket over the last 12 months. 

Stay tuned as this has been the hottest sector around. 

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 4:58 pm in Agriculture, Earnings, ,

Microsoft Kisses 200-day Moving Average Ahead of Earnings (MSFT)

Microsoft Corp. (NASDAQ: MSFT) is set to report earnings after the close Thursday, and First call has estimates at $0.44 EPS on $14.5 Billion in revenues.

The software giant is also expected to post $0.48 EPS and $15.56 Billion in revenues next quarter, which also marks its June-2008 fiscal year end.  For fiscal June-2009, estimates are $.10 EPS on $66.5 Billion in revenues.

Based upon what we saw out of Q1 PC shipments last week, and based on comments out of IBM, Intel, and other key technology stocks, we expect the earnings to be a very strong report.

Shares closed at $31.45 today, and the reason these aren’t at $35.00 or higher is because of the potential Yahoo! (NASDAQ: YHOO) acquisition share dilution.  Investors are going to be looking at this Yahoo! merger commentary quite closely.

Analysts are still positive and the average target from analysts is almost $39.00.  Its 52-week trading range is $26.87 to $37.50.

We do want to note the levels will be different tomorrow, but the stock is at critical levels that should act as pivot points.  Its 50-day simple moving average is $28.61 and its 200-day simple moving average is $30.71.  With a gain of almost 4% and a $31.45 close today, that new 200-day moving average in the morning is going to be very important at earnings.

We’ll follow up with an updated information round ahead of the report tomorrow.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 4:33 pm in Earnings, Software, ,

NutriSystem Very Acceptable Earnings, Kept at Bay by CEO Departure (NTRI)

After today’s close we saw earnings out of NutriSystem Inc. (NASDAQ: NTRI) with $0.42 EPS on $216.468 million in revenues.  The estimates from First Call were $0.41 EPS on $214.52 million in revenues. 

The company gave guidance of $180 to $190 million for the quarter ahead, with adjusted EBITDA of $36 to $40 million. Next quarter estimates are $0.60 EPS on $183.29 million in revenues.  As far as fiscal-2008 guidance, the company put revenues at $700 to $720 million, with adjusted EBITDA of $125 to $135 million.  Estimates for fiscal Dec-2008 are $2.23 EPS on $718.89 million in revenues.

Joseph Redling, President & COO, will succeed Michael J. Hagan as Chief Executive Officer, effective May 1, 2008; Hagan will stay on as non-executive Chairman. 

The company also repurchased and retired 3.3 million shares, or approximately 10% of total outstanding shares for $44,557,000. NutriSystem also declared the its first quarterly dividend of $0.175 per share, payable May 15, 2008 to shareholders of record as of May 5, 2008; although this will be subject to determination each quarter ahead.

Shares closed up 3.2% at $21.13 in normal trading today, and shares are down modestly at $21.00 in after-hours trading.  This CEO departure is keeping shares from running most likely. 

We recently ran a large list of stocks that could double from their lows by the end of the recession, and NutriSystem was one of those stocks.  This stock has one of the more crowded short sale trades out there with19.23 million shares (60% of float) listed as being short. After a near 70% drop so far over the last 52-weeks, these numbers would otherwise be very acceptable.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 3:56 pm in Earnings, Food, Management Change,

Apple Way Ahead This Quarter, In-Line Guidance (AAPL)

After today’s close we got to see earnings out of Apple (NASDAQ: APPL).  Steve Jobs & Co. posted $1.16 EPS and $7.51 Billion in revenues. The estimates from First Call were $1.07 EPS on $6.96 billion in revenues.  Gross margin was 32.9%, down from 35.1% a year ago and international sales accounted for 44% of the quarter’s revenue. More specifically, the following metrics were given for individual sales of its products:

  • Apple shipped 2,289,000 Macintosh,
  • sold 10,644,000 iPods,
  • iPhone sales were 1,703,000

The company also gave guidance of $1.00 EPS on $7.2 Billion in revenues.  Next quarter estimates are $1.10 EPS on $7.16 million in revenues.

Shares closed up 1.7% at $162.89 in regular trading and shares are up less than 1% at $163.00 in after-hours reaction.  So far, this is the lowest reaction in after-hours trading on this stocks earnings.  It is very surprising to see such a small reaction.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 3:38 pm in Earnings, PC Companies,

Starbucks (SBUX) Falls Apart, Completely: Shares Down 11%

Starbucks (SBUX) is now dead, just not buried.

The company warned on earnings for the quarter and the year. Howard Schultz’s attempt at a turnaround never made it out the door. He was too late firing his old CEO and management and the company’s tremendous growth and success slipped away from him. No matter how wealthy he is now, his shareholders have lost half the value of their stock in just over a year.

For the second fiscal quarter ended March 30, 2008, SBUX now expects revenue to increase 12 percent and earnings per share to be $0.15, compared with $0.19 per share for the same period a year ago. The language used to explain some of the short-fall cannot be found in the any dictionary available at local libraries in most cities. "Starbucks estimates that costs associated with the implementation of its transformation agenda, and charges related to the rationalization of its store portfolio, negatively impacted EPS by approximately $0.03 per share in its fiscal 2008 second quarter." The CFO and someone in PR actually approved that.

Starbucks now expects same-store sales in the US to be down "middle digits" for the quarter just ended. Because of weakness in the company’s home market Starbucks now expects full-year fiscal 2008 EPS to be somewhat lower than the $0.87 reported in fiscal 2007.

How humiliating.

Douglas A. McIntyre

Posted on: April 23, 2008 – 3:30 pm in Food,

Amazon (AMZN) Makes Wall St. Cry

For Amazon (AMZN) the performance can never be good enough. The firm posted a net sales increased 37% to $4.13 billion in the first quarter. Net income increased 30% to $143 million in the first quarter, or $0.34 per diluted share, compared with net income of $111 million, or $0.26 per diluted share, in first quarter 2007.

North America segment sales, representing the company’s U.S. and Canadian sites, were $2.13 billion, up 31% from first quarter 2007. International segment sales, representing the company’s U.K., German, Japanese, French and Chinese sites, were $2.01 billion, up 44% from first quarter 2007.

Second quarter guidance seemed adequate. Net sales are expected to be between $3.875 billion and $4.075 billion, or to grow between 34% and 41% compared with second quarter 2007.

It seemed like a good quarter. But, shares traded down 2.5%.

Douglas A. McIntyre

Posted on: April 23, 2008 – 3:19 pm in Earnings,

Qualcomm (QCOM) Squeezes By, Just

Qualcomm (QCOM) the tech company involved in more intellectual property litigation that any other, posts just OK earnings.

Revenue hit $2.61 billion, up 17 percent year-over-year. Net income inched higher to $766 million, up 6 percent year-over-year. And diluted earnings per share moved to $0.47, up 9 percent year-over-year.

For the next quarter the company said revenue would rise 8% to 16% compared with $2.33 billion last year. Qualcomm expects CDMA/WCDMA device shipments for the quarter will rise to over 105 million from 86 million from a year ago and that prices will rise slightly.

The company said "The fundamental drivers of our business remain strong, and based on the current business outlook, we are raising fiscal 2008 revenue and earnings per share guidance."

None of that seemed to help much with investors. The stock was up a little over 1% after hours.

Douglas A. McIntyre

Posted on: April 23, 2008 – 3:10 pm in Earnings,

The 52-Week Low Club (ABK)(ARW)(MNI)(CAL)(NWA)(TSFG)(DAKT)

Ambac (ABK) Big loss for quarter. Falls to $3.08 from 52-week high of $96.10.

Arrow Electronics (ARW) Drop off in first quarter profit. Sells down to $26.58 from 52-week high of $44.95.

McClatchy Newspapers (MNI) Newspapers keep losing ground. Drops to $7.93 from 52-week high of $34.32.

Continental Airlines (CAL) Big losses from more airlines. Dips to $15.82 from 52-week high of $40.91.

Northwest (NWA) Another airline casualty. Sells down to $7.06 from 52-week high of $26.50.

South Financial Group  (TSFG) First quarter loss. Drops to $7.75 from 52-week high of $24.79.

Daktronics (DAKT) Cuts outlook on delayed bookings. Sells down to $13.88 from 52-week high of $32.37.

Posted on: April 23, 2008 – 2:51 pm in HI/LOW, , , , , , ,

Biotech Business Daily (BIIB, GSK, ILMN, IVGN, LJPC, SIRT, STEM)

Biogen Idec (NASDAQ: BIIB) is sliding marginally despite reported earnings today that showed a 23% increase in earnings riding on sales growth on Avonex and Rituxan. The earnings beat estimates and the company raised its outlook. Shares are down $1.06 to $63.56 on a 52-week range of $45.77 to $84.75.

GlaxoSmithKline (NYSE: GSK) is up a marginal 1.5% to $44.42 on a 52-week range of $40.51 to $59.15. Today, the company showed a 13% decline in profit due to increased generic purchases that cut into sales on anti-depressants and heart medications. Yesterday, the company offered to purchase Sirtris Pharmaceuticals for $720 million.

Illumina Inc. (NASDAQ: ILMN) shares are up $8.12, 11%, after solid first quarter earnings that beat estimates and a strong positive outlook. The company posted earnings of $13.4 million after showing a loss of $298 the same quarter last year. Shares are trading at $80.59 and the 52-week range is $31.66 to $79.90.

Invitrogen Corp. (NASDAQ: IVGN) is up 7% after first quarter earnings showed doubled profit on sales increases, beating estimates. The company posted earnings of $58.7 million and $1.19 EPS. Shares are trading at $93.73 on a 52-week range of $65.00 to $99.15.

La Jolla Pharmaceutical Co. (NASDAQ: LJPC) reported positive results on interim antibody data on Riquent for treatment of lupus. Lupus is a condition in which antibodies attack tissues. The results showed that higher dosages of the treatment reduced levels of antibodies more effectively. The late stage trial is expected to close in the second half of 2009. Shares are up 18% to $2.15 on a 52-week range of $1.45 to $7.10.

Sirtris Pharmaceuticals, Inc. (NASDAQ: SIRT) is seeing shares up a whopping 82% after GlaxoSmithKline (NYSE: GSK) offered to buy the company yesterday for $22.50 per share, an 84% premium to Tuesday’s close, for a total value of $720 million. Sirtris focuses on enzymes that affect the aging process and is developing a type-II diabetes treatment. Sirtris shares are up $10.07 to $22.30. The 52-week range is $9.50 to $21.99.

StemCells (NASDAQ: STEM) received a patent for neural stem cells from all tissue sources. This patent will require all other third parties seeking to commercialize neural stems cells to obtain a license from StemCells.  Shares are up $0.18 to $1.55, a 13% jump. The 52-week range is $1.00 to $2.83.

Rachel Lopez
April 23, 2008

Posted on: April 23, 2008 – 11:55 am in Biotech, , , , , , ,

Apple’s Run Ahead of Earnings; Stock May See $150 or $180 After News (AAPL, DELL, HPQ)

After today we’ll get to see earnings out of Apple (NASDAQ: APPL). The estimates for the computer and portable device giant from First Call are $1.07 EPS on $6.96 billion in revenues.  Next quarter estimates are $1.10 EPS on $7.16 million in revenues. Estimates for fiscal Sept-2008 are $5.16 EPS on $31.68 million in revenues.

If you wanted to describe the enthusiasm for Apple stock, it would be "on fire, again" as shares are literally up $40.00 since early March.  This stock has also gone well above its 200-day moving average now, which is now $152.19.

Interestingly enough, options traders appear to be pricing in a move of some $9.75 to $11.35 in either direction.  While this sounds like a big move, there are many days where the stock moves $6.00 to $8.00  up or down just on analyst commentary or on tertiary news.  For many reasons, we think the move might be an exaggerated move depending on the report and guidance.  Analysts have an average price target north of $195.00.

The issue we would focus on was Apple’s guidance it gave at the last earnings report.  Steve Jobs is known for being conservative, but it looked outright light on the last report.  We also weren’t as eager on the MacBook Air notebook at $1,800.00 for starters based on where the economy was heading, particularly as other PC makers are heading into the tablet and smaller "access devices" as well.  We’ll find out today if the trends in that direction are hurting Forrest Gump’s favorite fruit company or not.  iPod sales should also be a sideshow to iPhone sales and iMac sales. 

Just yesterday, we also noted how some trends are showing that Mac is finally heading further onto the desks at small businesses.  The recent sales trends from third party research also show the company gaining market share in total computer sales against Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ).  Dell looks like it was catching back up to H-P and passing it on some metrics, but the real ramp so far has come from Steve Jobs & Co. 

It’s not possible to predict technology stock reactions ahead of the news, but for many reasons outlined above it sure looks like all the enthusiasm and the recovery in many parts of the stock market could easily move Apple shares up or down by more than those options traders are bracing for.

Shares are up 2.6% today at $164.50 in late morning trading ahead of the numbers.  Apple’s 52-week trading range is $91.30 to $202.96, so neither $180 nor $150 would be way out of the norm.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 23, 2008 – 10:52 am in Earnings, PC Companies, , ,

Eaton’s Secondary Pricing Reflects Discounting (ETN)

Eaton Corp. (NYSE: ETN) priced a common stock offering for 17.5 million shares at $84.00 per share for gross proceeds of $1.43 billion this morning. Its market cap is roughly $12.4 billion.

Joint book-running managers, Citi, JPMorgan, and Morgan Stanley, and other co-managers were granted 1.75 million shares for over-allotments.  Banc of America, KeyBanc Capital Markets were also in the syndicates and the smaller co-managers are as follows: Barclays Capital, BNP Paribas, BNY Capital Markets, Deutsche Bank Securities, Goldman Sachs, and Merrill Lynch.

The proceeds for the electrical systems manufacturer will be used for debt repayments from two previous acquisitions.   

Shares had been sliding ahead of this pricing, with levels of over $90.00 seen just last Friday.  Eaton shares are down this morning by $0.77 to $84.12. The 52-week range is $66.27 to $104.12. Based on that huge haircut shares have seen ahead of the pricing, this looks like the dilution has been mostly factored in.

You can join our open email distribution list to hear about other key financings, secondary offerings, IPO’s, and other special situation previews.

Rachel Lopez
April 23, 2008

Posted on: April 23, 2008 – 10:05 am in Secondary Offering,

Safeco Acquired, Another P&C Insurer Disappears (SAF)

Liberty Mutual has agreed to acquire Safeco Corp. (NYSE: SAF) for some $6.12 billion this morning. Liberty offered to purchase all outstanding common shares at $68.24 per share, representing roughly a 50% premium to the closing price on Tuesday.

Safeco sells $5.9 billion worth of insurance policies annually, compared to Liberty Mutual selling some $20 billion annually. The deal will create the country’s fifth largest property insurer with a combined 15,000 independent agencies. Safeco will join Liberty Mutual’s Agency Markets business unit.

Safeco operates in personal insurance, business insurance, surety, and "P&C Other."

The boards of both companies have approved the merger and the deal is expected to close by the end of the third quarter upon regulatory and shareholder approval.

Safeco shares jumped almost 50%, or $20.88, in early morning trading to $66.11. The 52-week range is $41.09 to $67.32.

Maybe not all insurance carriers and not all financial companies are carrying the financial asbestos on their books.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 9:44 am in Financial Stocks, Mergers and Buy Outs,

Foundation Coal Reverses Coal Sector Gains (FCL, BTU, ACI, KOL)

On Monday, Peabody Energy (NYSE:BTU) announced strong first quarter results: 15% increase in revenue to a record $1.28 billion and EPS from continuing operations of $0.26. Peabody raised its full-year target by $500 million, and its EPS from continuing operations to $2.20 – $3.00. This boosted the whole coal industry by about 4%.

On Tuesday, Arch Coal (NYSE:ACI) announced a 22% increase over 2007 in first quarter revenue to $699.4 million, and EPS of $0.56, compared with $0.20 in 2007. The company raised its guidance for 2008 EBITDA to $745 – $845 million, and its EPS expectations to $2.40 – $2.80. That gave back the industry’s previous day’s gain.

But… Maybe not all good things run in three’s.  Today, Foundation Coal (NYSE:FCL) announced a clear miss on its report of $0.13 EPS, and excluding items the number was $0.19 EPS. While this was down from $0.53 last year, First Call estimates were $0.32 EPS. Revenue of $406.9 million exceeded estimates averaging $403.49 million, and improved on 2007 first quarter revenue of $386.2 million. The company did not change its guidance for the remainder of 2008.

Foundation’s net income for the first quarter of 2008 totaled $6.1 million, compared with $24.6 million a year ago. What happened? Higher diesel fuel costs, higher royalty payments, and higher labor costs accounted for a $17 million increase in the cost of sales. Another $14 million was attributed to a botched arbitrage transaction in which FCL had to buy about 300,000 tons of coal to meet existing commitments, expecting to sell new production on the spot market at a higher price. It didn’t work out that way.

FCL stock was down $1.64 in pre-open trading, and shares are down slightly more at $61.91 after 45 minutes of trading. Peabody has fallen by 3.7% to $66.01, and Arch (ACI) is down 1.5% at $58.15 so far. What goes up doesn’t always stay up.

What is evident is that the coal industry is not necessarily a series of unified parts.  Transportation costs can impact results, equipment shortages and accidents can impair companies, and we’ve even seen inability to transport materials out of the line affect coal shares in recent years.

To show how the overall sector is doing, the key ETF for the group is the Market Vectors Market Vectors Coal ETF (NYSE: KOL).  It has many international components in it, with five of the top ten components being outside the U.S.  To prove that, this ETF is actually UP by 0.5% at $45.50 on somewhat thin trading volume.  This ETF has just not yet caught on with investors.

Paul Ausick
April 23, 2008

Posted on: April 23, 2008 – 9:28 am in Commodities, , , ,

American Water Works, Open For Trading (AWK)

American Water Works Co. Inc. (NYSE: AWK) has opened for trading.  The first real open-print was $20.60 for some 6.62 million shares.  Unfortunately, this is going to gear down some of the water expectations on the utility side.

The $21.50 pricing was well under expectations, and those expectations had been trimmed already.  At $20.60 it is already trading as a busted IPO.  We’ll give this one some time before calling this one by any name.

Despite the weakness, we actually think this will be huge for the water industry in general.  That underwriting group was so large that this will create much more in water coverage from Wall Street analysts.  Since opening, shares have weakened and are down to $20.45.

For whatever it is worth, one of the most defensive stocks that investors can flock to when they get worried about earnings and the market and the economy is in water utilities.  This is the largest water utility in the US.

You can join our open email distribution list to hear about other IPO’s, secondary offerings, special financings, spin-offs, and other special situations.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 9:05 am in IPOs, Water,

Immelt Targets More Cuts at GE Annual Meeting (GE)

Jeff Immelt will get to explain the recent General Electric Co. (NYSE: GE) earnings SNAFU all over again today.  Frankly, all we really care about at 247WallSt.com is what lies ahead rather than rehashing what we already saw.

We probably won’t be hanging on for every single comment this morning, but there was at least some addressing of the current climate and some remedies it seeks.  For starters, the company is now targeting for $3 Billion in cost cuts rather than $2 Billion.  The company also said it will more frequently review its entire portfolio, which translates to the possibilities that the company can have more spin-offs or divestitures down the road.

What is interesting here is that cost cutting is getting harder and harder to achieve.  GE already has one of the longest pay cycles to suppliers in the world.  Last time we checked, prices of energy, metals, transportation, and everything tied to raw materials that it needs for manufacturing are sharply higher. 

These cost cuts unfortunately may only be in layoffs.  Worker productivity is going to get harder and harder to milk.  Investing in technology works, but robots aren’t yet able to work for humans in every task.

The good news for the rest of the economy is that GE’s portion of disappointment was actually worse than what many other companies are seeing.  Maybe GE is no longer representative of the entire economy now that it has spun off so many units.

Shares are up after the open, but only by $0.05 to $32.38.  You can look over our determination of a fair value for GE in 2008, which came to $33.75 for year-end, and that translates to $31.25 to $31.83 today depending on how you discount for time value and ROI expectations. 

Unfortunately, the old goal of 20% return on capital is just going to be asking for too much.  It’s a different climate right now, and Wall Street has already brought its expectations lower after the company did.  Without stating the obvious, the company needs to make sure that its forecasts from two weeks ago can be met.  Another unexpected major disappointment won’t be responded to with any praise from Wall Street.
Here is a link to listen to the webcast.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 23, 2008 – 8:55 am in Conglomerates,

Earnings, What Earnings? Ambac Loses More Than Total Share Price (ABK)

Ambac Financial Group Inc. (NYSE: ABK) saw yet another huge loss today, and as this is still key for system-wide "counterparty risk" concerns this is a drag on the market.

On an operational basis, Ambac’s losses came to -$6.93 EPS; First Call was at -$1.51. 

For the first quarter, Ambac lost $1.66 billion or a whopping $11.69 per share.  It posted $1.73 billion in losses on a book of contracts promising to cover missed payments on complex investments backed by home loans.  It has also set aside $1 billion preparing to pay claims on defaulted mortgage debt. 

About the only positive thing is that Ambac has access to about $16 billion in cash to pay potential claims.  The sad thing is that the company might need all of it.

When you see losses like this that get larger than a company’s actual share price, your best bet is in more senior securities than the common stock.

Ambac shares are down over 18% at $4.90 in pre-market trading.  While the low over the last 52-weeks is $4.50, its high is $96.10.

Jon C. Ogg
April 23, 2008

Posted on: April 23, 2008 – 8:13 am in Earnings, Financial Stocks,

EMC Follows VMware Higher On Earnings (EMC, VMW)

Shares of EMC Corp. are running up after earnings.  The company’s net income of $268.8 million came to $0.13 EPS GAAP and $0.16 EPS non-GAAP while revenues were $3.47 Billion.  First Call had estimates of $0.16 EPS and $3.45 Billion in revenues.

Storage systems posted a gain of 10% revenue gain, and that is its largest group.  Software license and maintenance revenue rose 18%.

CEO Joe Tucci also noted that the company is off to a strong year and that the company is on track to meet targets set at the beginning of the year.

The company also spent approximately $557.2 million to repurchase approximately 36 million shares of EMC common stock, which comes to roughly $15.47 per share.

EMC shares are up 5% at $15.39 in pre-market trading; and the 52-week trading range $14.01 to $25.47.  After VMware’s earnings last night, its shares are up 12.5% at $65.27 in pre-market trading.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 23, 2008 – 7:48 am in Earnings, Software, Technology Companies, ,

Level 3 Guidance Sends Short Sellers Covering (LVLT)

Level 3 Communications (NASDAQ: LVLT) is out with earnings, and the short sellers are getting out of the way.  The company posted -$0.12 EPS on $1.09 Billion in revenues, while First Call estimates were -$0.11 EPS and $1.06 Billion in revenues.

James Crowe, CEO, has noted that telecom strength has helped in the last several quarters and that core communications services pricing continues to be positive.  The company has also substantially increased available installation capacity. 

Level 3 has also reaffirmed its two primary goals for 2008.  The first is to reach free cash flow breakeven on a run rate basis during 2008, and the second is to increase sales and installations to rates that match customer demand for services.  More specifically, the company noted that performance has exceeded earlier expectations and it expects to be "free cash flow breakeven" for the remaining three quarters of this year.  Deferred communications revenue decreased slightly to $918 million at the end of Q1-2008, compared to $939 million in Q1-2007 and $929 million in Q42007.

This is key for Level 3 in our opinion.  With a long-term debt of $6.831 Billion and cash and short-term securities of $568 million (including $8M restricted), their ability to remain cash flow breakeven is acceptable.  We have just covered Level 3 in our weekly "10 Stocks Under $10" as one that we expect some longer-term recapitalization as part of that debt starts to come closer to maturity, but on a short term basis we expected a short-covering rally into earnings.  That last short interest was massive at 243.9 million shares.

Shares are up over 10% at $2.62 in pre-market trading this morning, and the 52-week trading range is $1.68 to $6.42.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Posted on: April 23, 2008 – 7:27 am in Earnings, Internet, Telecom,