Daily Archives: June 6, 2008

Analyst: Nortel At $23.00… Gutsy or Crazy? (NT)

A Canadian boutique firm called Paradigm Capital Inc. issued a rather extremely bold call on Nortel Networks Inc. (NYSE: NT) this morning.  Paradigm noted how unusually low the valuation is on the stock with a $4 Billion market cap after a near-70% drop over the last year, which he calls low compared to its $11 Billion in revenues.  The call also noted how Nortel is about to get a $2.4 Billion global class action settlement behind it, which he believes will remove a significant overhang.

What is perhaps more gutsy than just coming out with strong comments on strengthening first quarter metrics is the actual formal rating itself.  Paradigm not only issued a BUY rating, but the call is for a $23.00 price target.

We recently called Nortel one of the turnaround stocks that hasn’t turned around.  That doesn’t mean it can’t turn around, but they just haven’t been able to drum up the turnaround.  If Nortel can hit its forward estimates this year or next then he is right about the stock being a cheap one.  But if it lives up to the same status quo and continues to disappoint then this one may stay in the dungeon.

We did put a call into Paradigm Capital and received verbal confirmation about the Buy rating and $23.00 price target.

First Call has Fiscal 2008 estimates at $0.55 EPS on $11.2 Billion in revenues, and 2009 estimates are $0.92 EPS on $11.6 Billion in revenues.

When you see calls looking for a 200% gain in a turnaround stock, its hard not to notice.  This call is either one of the gutsiest calls that could be made…. or one of the craziest.  So far Wall Street isn’t fighting the tape as Nortel shares are down 5.5% at $7.67 right before the close.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 2:58 pm in Analyst Calls, Telecom,

The 52-Week Low Club (GM)(AIG)(BAC)(NCC)(WM)

Washington Mutual (WM) More banking concerns. Hammered to $7.12 from 52-week high of $44.19.

Bank of America (BAC) Death to all bank stocks. Sees $30.56 from 52-week high of $52.96.

National City (NCC) More bank death threats. Down to $4.75 from 52-week high of $34.62.

AIG (AIG) Feds looking into valuations of securities. Sells down to $33.65 from 52-week high of $72.91.

General Motors (GM) People can’t borrow from banks to buy cars. Drops to $16.23 from 52-week high of $43.20.

Douglas A. McIntyre

Posted on: June 6, 2008 – 2:48 pm in Uncategorized, , , , ,

S&P Lifts Mosaic To Investment Grade (MOS)

The Mosaic Co. (NYSE: MOS) has just received an Investment Grade rating from independent ratings agency Standard & Poor’s Ratings Services.  The bond rating service has raised its corporate credit rating on  to ‘BBB-’ from ‘BB+’ and the outlook is "positive."

S&P said the issue-level ratings on Mosaic’s and its subsidiary Mosaic Global Holdings Inc.’s senior unsecured debt ratings were also raised to ‘BBB-’ from ‘BB+’, and it affirmed issue-level ratings on Mosaic’s senior secured credit facility at ‘BBB’ one notch above the corporate credit rating.

S&P has also withdrawn all "recovery ratings" on Mosaic’s and MGHI’s debt now that it is no longer in "junk" status after going above the BB+ hurdle on this last move.

This was based on continued strengthening of Mosaic’s financial profile as its robust operating cash flow has been used to reduce debt and to build a sizable cash balance.  Mosaic’s financial policies should also remain supportive of an investment-grade rating from S&P. With the strong pricing power that fertilizer and potash companies have enjoyed, many may have anticipated this move.

Interestingly enough, S&P also said it could raise the ratings further in coming quarters if credit metrics continue to strengthen and if the company remains prudent with respect to potential dividends, acquisitions, and capital spending.

Total adjusted debt outstanding as Feb. 29, 2008, was $2.2 billion.  It also had roughly $1.6 Billion in cash, equivalents, and long-term investments.  While corporate debt and corporate credit rankings do not translate directly to company stock prices, it does contribute to lower borrowing costs and can contribute further to equity fund analysis where some funds only invest in companies with "investment grade" corporate credit ratings.

Earlier this week the company issued 2009 financial targets, and this move from S&P follows a similar debt and corporate rating upgrade from Fitch earlier in the week.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 1:09 pm in Agriculture, Analyst Calls,

FTC Investigation on Intel No Help Yet for AMD (INTC, AMD)

Intel Corporation (NASDAQ: INTC) has issued a response to the issuance of a subpoena from the Federal Trade Commission in the US.

The processor and chip giant noted that it was served a subpoena on June 4.  The subpoena is related to Intel’s business practices "with respect to competition in the microprocessor market."

Advanced Micro Devices (NYSE: AMD) has been making allegations of unfair marketing practices and many have alleged rebating in the years up to now.

Intel also noted that since 2006 it has been working closely with the FTC on an informal inquiry into competition in the microprocessor market.  It also noted that it has provided the FTC staff with a considerable amount of information and thousands of documents.

This subpoena will allow the FTC will also be able to access information from other parties relating this matter.  For whatever this is worth, there are many investigations and many cases that Intel is involved in.

Intel has noted that it will work cooperatively with the FTC staff to comply with the subpoena and continue providing information.  It also believes its business practices are well within U.S. law.  One issue that Intel has noted is that the prices for microprocessors declined by 42.4% from 2000 to end of 2007.  It also noted, "When competitors perform and execute the market rewards them. When they falter and under-perform the market responds accordingly."

On such a poor market day, it’s hard to imagine that any of the tech stocks involved would win on this news.  Intel shares are down 2.2% at $23.37, which is in-line with the market drop.  Shares of AMD are still down 1.8% at $7.64.  Unfortunately this is going to be quite some time before AMD gets any help from this.  Its trial against Intel is scheduled for next year, or that was the last data we saw.

Unfortunately for AMD and unfortunately for the FTC, as far as the processor market is concerned Intel just has better multi-core chips.  Unless AMD or another company has been hiding its crown jewel, most computers are going to have Intel processors in them because that is what customers want.  Can that change?  Sure.  Is that likely to change any time soon?  No.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 11:20 am in Law, Semiconductor, ,

FTC Rains Antitrust On Intel (INTC)

Intel (INTC) is already the target of several antitrust actions. Now the FTC wants on the wagon.

According to The New York Times "The investigation into accusations that Intel’s pricing policies have been designed to maintain a near-monopoly on the microprocessor market was authorized by William E. Kovacic, the new chairman of the trade commission."

Intel (INTC) is off 2.6%.

Douglas A. McIntyre

Posted on: June 6, 2008 – 11:10 am in Law,

Stock Buybacks This Week (TROW, TECD, TRI, CTS)

This week was pretty light in the week of share repurchase announcements, and most of these were mere add-on buybacks to existing plans.  Here are some of the plan additions announced this week:

  • T. Rowe Price (NASDAQ: TROW) added 15 million shares of stock to its existing buyback plan, close to 6% of its outstanding stock.
  • Tech Data (NASDAQ: TECD) announced $100 million for share buybacks, in addition to its existing plan.  Its market cap is almost $2 Billion, so about 5% of its outstanding stock.
  • One interesting buyback came from Thomson Reuters (NYSE: TRI), which added $500 million to its buybacks.  While this is technically an add-on plan, it is after the Reuters and Thomson merger.
  • A small announcement came from CTS Corp. (NYSE: CTS), which announced it would repurchase up to 1 million shares of common stock.  That is only about $11 million in today’s dollars and its market cap is $365 million.

It seems that share buybacks are getting less and less on the new buyback plans, but that may be dual-imposed function.  The first and obvious cause for the lack of new share buybacks is that this was the most in-vogue announcement that a company could make in 2006 and 2007 with each year seeing massive amounts of cash used to return stock and return capital to shareholders.  The more pressing issue however may be the obvious in that companies may realize they need to start hording cash for what lies ahead.

Some traders prefer share buybacks and some do not.  To 247WallSt.com they make plenty of sense if the buyback is used as a stabilizing factor in volatile times.  But when companies keep buying back stock if there shares are under no pressure we frequently think they are trying to juice their internal EPS growth or that they can’t find many good alternatives for growth.  Obviously that isn’t always the case.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 10:58 am in Stock Buybacks, , , ,

Oil Stocks Not Following Oil (XOM, CVX, COP)

Oil on last look was up huge at $134.36 per barrel, up $6.58 from yesterday’s gains in what is one of the larger two-day moves in recent trading.  Israel’s transportation minister said that if Iran continues with its nuclear bomb-making potential it will attack it.  Morgan Stanley’s call for $150.00 oil probably only contributed to such a rise.

The DJIA is trading down sharply by being down over 260 points in reaction to extraordinary oil moves and every single DJIA component is trading lower.  Interestingly enough, even the major integrated oil companies are down on the day as of 11:16 AM EST:

  • CHEVRON CORP (NYSE: CVX) $99.88 (-$0.04; 0.04%)
  • EXXON MOBIL CORP. (NYSE: XOM)  $88.14 (-$1.17; -1.31%)

Elsewhere, other major oils are lower as well as ConocoPhillips (NYSE: COP) $93.68 (-$0.14; -0.13%).

After one large gain and another even larger gain in black gold, you’d think those stocks would participate.  Maybe T. Boone Pickens was right in his call that oil stocks were trading like oil was at $75.00 rather than over $100.00.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 10:27 am in Oil & Gas, , ,

OGE Energy Files For Debt Sale (OGE)

OGE Energy Corp. (NYSE: OGE) has filed with the SEC for its Oklahoma Gas and Electric unit to sell up to $700 million in senior notes.

The filing says the company may offer from time to time in one or more issuances one or more series of unsecured senior notes.  The aggregate initial offering price of the senior notes that are offered will not exceed $700,000,000 and these will be offered in an amount and on terms to be determined by market conditions at the time of the offering.

OGE Energy closed yesterday at $34.02 and its 52-week trading range is $29.12 to $38.30.  Its market cap is $3.13 Billion.

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

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 8:26 am in Secondary Offering, Utilities,

BGC Partners Prices Secondary (BGCP)

BGC Partners, Inc. (NASDAQ: BGCP) priced its public secondary offering of 820 million shares at $8.00 per share. 

According to the company, 10,000,000 of these are primary shares, 3,926,178 of which are secondary shares being sold by Cantor Fitzgerald, L.P., and 6,073,822 of which are secondary shares being sold by limited partners of Cantor Fitzgerald, L.P., and founding partners of BGC Holdings, L.P.

Joint book-running managers are listed as Deutsche Bank and Cantor Fitzgerald; co-lead managers are Wachovia Securities and BMO Capital Markets; and co-managers are Keefe Bruyette & Woods and CastleOak Securities.  The underwriters were granted an option to purchase up to 3,000,000 additional shares for 30 days after offering.

Its market cap was listed as $589 million.  This is a 1% discount to yesterday’s $8.08 close and down from $9.00 just 5 days ago.  Its 52-week trading range is $7.02 to $12.97.

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

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 7:32 am in Brokerage Firms, Secondary Offering,

The Train Wreck At Gatehouse Media (GHS)(MNI)(GCI)

The next newspaper company to get into real trouble is likely to be Gatehouse Media (GHS). The firm is in bad enough shape that it could be the next Journal Register. JRC, as it was known, hit hard times due to large debt and falling operating income. It was delisted from the NYSE.

It would be difficult for any newspaper shares to be down as much as those of McClatchy (MNI), which is also burdened with debt and owns properties in the economically troubled regions of Florida and California. But, GHS shares are off 80% over the last year compared to 70% for MNI. Shares in industry leader Gannett (GCI) are down 50%.

At the end of the last quarter, Gatehouse had a little over $10 million in cash. Its long-term debt stands at over $1.2 billion. Goodwill is at just below $700 million.

During the last quarter, GHS lost $29 million on revenue of $170 million. Debt service was $24.4 million. Gatehouse has a huge dividend which it will almost certainly have to eliminate, taking away the sole reason for holding the shares.

Watch for GHS to be broken up before the end of the year or to enter Chapter 11.

Douglas A. McIntyre

Posted on: June 6, 2008 – 7:31 am in Old Media, , ,

Trina Solar Beats, Fails To Please (TSL)

Trina Solar Limited (NYSE: TSL) has just posted its quarterly earnings report.  The solar player posted net revenues increased to $120.7 million, up 183.6% year-over-year and 19.0% sequentially; while net income was $12.9 million and earnings per fully-diluted ADS was $0.51.  First call estimates were $0.48 EPS on $116.9 million in revenues.  Gross margin was 25.8% and Operating margin was 16.7%.  Solar module shipments were 29.49 MW, up 180.3% from 10.52 MW in the Q1-2007 and up 23.3% Q4-2007.

In the second Quarter the company expects to ship between 43 MW and 45 MW of PV modules and has revenues in the range of $169 million to $177 million with gross margin between 23% and 25% and estimates operating margin to be between 13.5% to 15%.  First Call’s revenues expectations are $168 million.

For fiscal-2008 it sees revenues in a range of $770 million to $808 million, with PV module shipments between 200 MW to 210 MW, with gross margin between 23% and 25% and believes operating margin between 15% to 17%.  First Call revenue expectations for the year are projected to be $756.46 million.

As of March 31, 2008, the Company had $38.2 million in cash and cash equivalents, which excludes the Company’s restricted cash balance of $126.0 million.  Trina has also noted that it has now secured approximately 95% of its estimated silicon feedstock requirements for 2008.

Trina Solar closed at $49.63 yesterday ahead of earnings, and and shares are indicated down almost $3.00 in very early pre-market trading.  Wall Street may be focusing on those gross margin numbers, or it may have just wanted to see much more compared to forward estimates.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 7:13 am in Alternative Energy, Earnings,

IPO FILING: Acclarent

A company called Acclarent, Inc. has filed to come public via an IPO of up to $86.25 million in common stock.  The company hasn’t selected an exchange or ticker, but noted that it will list on NYSE or NASDAQ.

JPMorgan and Piper Jaffray are listed as the book-runners with Leerink Swann and RBC Capital Markets listed as co-managers.

The company makes the Balloon Sinusplasty for minimally invasive tools used in treating chronic sinusitis.  Revenues in 2007 were $22.187 million and it generated $10.186 million in revenues during the first three months of 2008.  As far as how this compares since it is recent in the commercialization stage, it generated $7.725 million revenues in 2006 and only $177,000 in revenues in 2005. It is not yet profitable.

Net proceeds from this offering are earmarked for sales, marketing and clinical training initiatives, research and development activities, clinical and regulatory initiatives and general corporate purposes including acquisitions.

You can join our open email distribution list to hIPO’s, secondary offerings, mergers, special financings, restructurings, and other special situations.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 6:59 am in IPOs, Medical,

PrivateBancorp Juices Up Secondary Offering (PVTB)

PrivateBancorp, Inc. (NASDAQ: PVTB) has announced that it increased the size of its secondary offering to a proposed 4 million shares and it priced the secondary offering at $34.00 per share. 

As far as underwriters, Keefe Bruyette & Woods acted as sole book manager, with Robert W.
Baird as co-lead manager.  Co-managers are listed as William Blair and SunTrust Robinson Humphrey.  Underwriters have also been given a 30-day over-allotment option for up to 600,000 shares.

Shares closed at $35.21 yesterday, so this represents a discounting of about 3.5%.  Shares were at $38.00 just 5 days ago and its 52-week trading range is $25.41 to $38.74.  Its average daily volume is only about 217,000 shares.  The $136 million in gross proceeds compares to a market cap of $1.01 Billion before any extra shares or dilution.

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

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 6:41 am in Banking, Secondary Offering,

Top 10 Pre-Market Analyst Calls (BBY, CLMS, FDRY, GHL, HUGH, JEF, LM, MCK, MXB, PNRA)

These are ten of the analyst calls we are focusing on this Friday morning:

  • Best Buy (NYSE: BBY) Cut to Hold from Buy at Deutsche Bank.
  • Calamos Asset Management (NASDAQ: CLMS) Cut to Underperform at Credit Suisse.
  • Foundry Networks (NASDAQ: FDRY) Cut to Neutral from Buy at Bank Of America.
  • Greenhill (NYSE: GHL) Cut To Market Perform from Outperform at Wachovia.
  • Hughes Communications (NASDAQ: HUGH) Started as Overweight at Lehman Brothers.
  • Jefferies Group (NYSE: JEF) cut to Market Perform at KBW.
  • Legg Mason (NYSE: LM) Raised to Neutral at Credit Suisse.
  • McKesson (NYSE: MCK) started as Market Outperform at JMP Securities.
  • MSCI Inc. (NYSE: MXB) started as Buy at UBS.
  • Panera Bread (NASDAQ: PNRA) Raised to Buy from Neutral at Piper Jaffray.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 6:29 am in Analyst Calls, , , , , , , , , ,

UBS Cuts Communication Towers (AMT, CCI)

UBS has downgraded the US communications towers sector this morning, in a similar move seen just two days ago from RBC Capital.  The firm has downgraded Crown Castle (NYSE: CCI) and American Tower (NYSE: AMT).  UBS had both companies covered with Buy ratings and the new ratings are now Neutral.  As one cellular carrier gets rolled up into another, it lowers the number of customers for the communication towers operators.  Even though they likely keep the same number of end users, the transfers to a larger carrier ultimately generate lower "per user" revenues.

Jon C. Ogg
June 6, 2008

Posted on: June 6, 2008 – 6:19 am in Analyst Calls, WiMAX, Wireless, ,

GM (GM): We Have Made Our Bed, But Will Not Sleep In It

There was nothing wrong with relying heavily on pick-ups and SUVs for the bulk of GM’s (GM) sales. That is what CEO Rick Wagoner told the FT. The fact that "light trucks made up 52 per cent of GM’s US vehicle sales last month, compared with 34 per cent for Toyota." should be ignored.

Wagoner believes that the Japanese went after the light truck market just as much as his company did, but that they were late to the game. That is good for Toyota (TM). By the time it got close to being a contender for SUV sales, the market collapsed. It had only one foot in the door when the house fell in. GM was not so lucky.

GM wants history to recall that it did what was necessary to make money, catering to the American buyer who wanted the big truck with the bigger engine and the sports car which got 10 miles per gallon but went zero to sixty in under six seconds.

But, the claim of past intelligence is false. Toyota spread its bets widely across the board. It and its Japanese counterparts stayed in the small sedan business. GM and Ford (F) nearly exited that end of the market.

No matter what Wagoner wants to remember, his memory is convenient.

Douglas A. McIntyre

Posted on: June 6, 2008 – 5:30 am in Autos, , ,

Credit Problems Hit Europe Banks Harder Than US Counterparts

The bankers in Europe are bigger suckers than the bankers in the US. At least that is what the FT claims. It says "Of the $387bn in credit losses that global banks have reported since the start of 2007, $200bn was suffered by European groups and $166bn by US banks."

The Institute of International Finance has discovered the reason for this. Salesmen from US financial institutions where able to dupe banks in the EU more than they were able to finesse domestic banks.

The greater fool theory still seems to be at work.

Douglas A. McIntyre

Posted on: June 6, 2008 – 5:20 am in Banking

Detroit Bloodbath Improves Productivity (GM)(TM)

Tautology has raised it ugly head in Detroit where car company executives insist that the more people they fire, the more productive they become. So they fire more people each month and repeat the rationale.

The programs seem to be working, at least at the most superficial level. According to The Wall Street Journal "Detroit’s massive job cuts in the past two years have leveled the playing field for the Big Three auto makers and all but eliminated the substantial labor-cost advantage their Japanese rivals once enjoyed." It now takes GM (GM) about thirty-two hours to build a car versus thirty hours over at Toyota (TM).

That data has its faults and they are significant.

First, since Detroit makes cars no one wants, making them more efficiently does not gain much. Building the odd SUV or pick-up which will never be bought or will be sold at a humongous discount hardly gains the US car companies an edge.

In addition, and perhaps more important, Japanese car companies are increasing their production capacity even as they gain in worker efficiency. Detroit is destroying much of its manufacturing, which is a surrender to the future. It assumes that domestic auto firms will never gain back market share. It makes a mockery of the argument that their new models are so good that they will sharply increase sales.

A company cannot sell in great volume what it cannot make in great volume.

Douglas A. McIntyre

Posted on: June 6, 2008 – 5:12 am in Autos, ,

Sovereign Funds Plan To Invade US Companies

Someone, or some entity, may have to sack the sovereign funds from the Middle East and Asia before they take over the Fortune 500. According to The Wall Street Journal "Despite their reputation as passive investors who buy small stakes, sovereign-wealth funds generally buy controlling interests in the companies they target." Which makes them like Carl Icahn and Nelson Peltz without the foreign accents.

A study from an operation which calls itself Monitor Group shows that, of the 420 publicly reported equity investments by these funds since 2000, more than half involved taking a controlling interest.

Congressman and activist groups with unknown motivations are worried that large overseas capital pools will try to influence companies into which they put money. Perhaps this influence will favor the needs of the governments which often manage the sovereign funds.That really does not make them different from other activist investors, unless they want to ship the plans for the latest US fighter plane to Kazakhstan, which the CIA World Factbook says has over eight million people fit for military service. 

What Carl Icahn will do with Yahoo! (YHOO) is not clear. He probably will not sell a controlling interest to Russia, unless the country is the top bidder. That makes all the difference.

Douglas A. McIntyre

Posted on: June 6, 2008 – 4:57 am in International Markets,

AIG (AIG): Betters Earnings Through Lying?

It is beginning to look like the Feds think AIG (AIG) may have misled investors when it valued some of the securities it held. Is it OK to cover-up earnings numbers? Perhaps AIG thought it would work if they didn’t get caught.

According to The Wall Street Journal, the SEC is looking into whether AIG "overstated the value of contracts linked to subprime mortgages." Now the Justice Department wants to have a look.

It is understandable that AIG would want to have its paper look as good as possible. It did loses $20 billion in the last quarter.

It is not clear who within AIG may have been involved in handling the valuations and the calculations which led to them. Sometime, somewhere, that is almost certain to come out.

AIG now faces a new category of threat. It will have to argue that its management was unusually stupid or defend itself against shareholders who may claim that the firm committed fraud.

Being stupid is better.

Douglas A. McIntyre

Posted on: June 6, 2008 – 4:39 am in Financial Stocks,