Daily Archives: July 1, 2008

Apollo Earnings Shocker (APOL)

Apollo Group Inc. (NASDAQ: APOL) is seeing shares surge in after-hours after the company posted better than expected earnings.  The for-profit and online education company earned $139.1 million after an 11% enrollment increase. 

On an earnings per share, it posted $0.85 EPS on $835.2 million in revenues.  First Call had estimates pegged at $0.78 EPS on $806.9 million in revenues.

The owner of the University of Phoenix Online also noted that enrollment increases have increased its deferred revenues, as of May 31, 2008, to $206 million from $167.3 million at August 31, 2007 and an increase from $150.0 million at May 31, 2007.

Shares closed up over 4.5% at $46.26 in normal trading hours today.  But we are now seeing a 14% rise to $52.95 in after-hours trading.  Its 52-week trading range is $37.92 to $81.68.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 3:46 pm in Earnings,

Michael Dell Loads Up On Stock (DELL)

As you will see below from a Form 4 filing with the SEC, Mich Dell bought some 4.5 million shares of Dell Inc. (NASDAQ: DELL) over the last 3 trading days at levels from $21.89 to $22.39.  This comes up to right at $100 million in net purchases.  Below are the transactions:

SECURITY               DATE      SHARES       PRICE
Common Stock     06/27/2008  2,230,000     $22.3933      
Common Stock     06/30/2008  100,000        $21.94      
Common Stock     07/01/2008  2,173,600     $21.8902    

This takes his direct ownership to some 220,664,682 shares.  4.5 million shares may not seem like much on the surface in comparison, but a $100 million purchase is hard not to notice.   

Shares closed up 1.3% at $22.18 today, but shares are up even more up at $22.65 in after-hours trading.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 3:20 pm in Insider Activity, PC Companies,

Another Defeat For Starbucks (SBUX)

Howard Schultz, the CEO for life at Starbucks (SBUX) recently told Portfolio magazine all about his plans to turn around the company. The editors should not have bought a word of it.

In the face of a disintegrating US business, the company announced that it would close approximately 600 underperforming company-operated stores in the U.S. market. The PR spin on the news was astonishingly transparent. SBUX called it part of a "multi-faceted plan to transform the company."

The decision will cost the company on the bottom line. Pre-tax charges related to the store closings include approximately $200 million of asset write-offs to be recognized in the third quarter of fiscal 2008. A projected $120 to $140 million for lease termination costs and future lease obligations are currently expected, nearly all of which will be recognized in the fourth quarter of fiscal 2008 and the first half of fiscal 2009.

The stock, already near a 52-week low at $15.60, moved down further after hours. The Schultz show is not playing on Wall St.

Douglas A. McIntyre

Posted on: July 1, 2008 – 3:14 pm in Food,

The 52-Week Low Club (CAR)(AMR)(UAUA)(CC)(FO)

Avis Budget (CAR) Part of the collapse of the travel industry. Down to $6.93.

Fortune Brands (FO) Poor results dog the stock. Down to $51.59 from 52-week high of $90.80.

AMR Corporation (AMR) Another brutal day for airlines. Sells down to $4.58 from 52-week high of $29.32.

UAL (UAUA) Ditto. Down to $4.44 from 52-week high of $51.60

Circuit City (CC) Weak retailer in weak retail market. Drops to $2.47 from 52-week high of $15.33.

Douglas A. McIntyre

Posted on: July 1, 2008 – 2:56 pm in HI/LOW, , , , ,

Does Bank Of America (BAC) Need $10 Billion In New Capital?

KBW, the bank research firms, thinks Bank of America (BAC) will have to raise $10 billion in new capital. Its mix of real estate, LBO, business, and consumer credit debt still faces substantial write-downs.

The figure is part of a report from KBW that says American money center and regional banks will have to come up with $30 billion to make their balance sheets right. According to the AP, "Among the banks reviewed by KBW, 10 are large-capitalization banks that would account for $21 billion in capital necessary to cover potential losses."

For BAC, which is already trading poorly in the market due to general malaise in the bank industry and its ill-advised purchase of Countrywide (CFC), the dilution from raising $10 billion would be close to 15%.

That could take its stock from $23, near a 52-week low, to $18. And, that is if there is no other bad news.

Douglas A. McIntyre

Posted on: July 1, 2008 – 2:43 pm in Banking, ,

With June Worse Than Expected, Question Arises Whether GM (GM) And Ford (F) Can Stay Independent

The June numbers for domestic vehicles sales were worse than expected. Most of the car companies posted 30% or greater declines in light truck and SUV units. For Ford (F), total units dropped 28.1% to 174,091 from 242,029 in June 2007. Truck sales fell 35.6% to 101,981

Toyota (TM) which has been doing so well in the US for the last decade was also damaged by its truck line. The world’s largest car company reported a 21.4% drop in June U.S. sales to 193,234 vehicles. Truck sales dropped 38.8% to 61,268 vehicles. Toyota has the global sales and balance sheet to weather the storm. Its US counterparts do not.

GM (GM) did slightly better than the balance of the large car companies. In June, sales moved down 18.2%. GM’s truck sales were off only 16%.

GM’s truck numbers seemed to give the stocks in the sector some relief.

The good news about its truck sales sent GM’s shares up 7%. Ford was down sharply after putting out its numbers, although it recovered as the day went on.

But, even if both Ford and GM stocks end the day in the plus column, they are facing losses that will put them in terrible financial trouble. With market caps around $10 billion, raising the money they will need to make it though 2009 will cause substantial dilution and more pressure on the stocks. The US market could produce total vehicle sales as low as 13.5 million this year. In 2007, that number was 16.1 million.

At some point, VW or Renault/Nissan will make an offer for one of the US companies. In doing so, they have a chance to get a large portion of the US market inexpensively and take out billions of dollars in duplicate costs.

Nothing short of a merger of two of the domestic companies will stop that.

Douglas A. McIntyre

Posted on: July 1, 2008 – 1:34 pm in Autos, , ,

AT&T (T) Pricing For Apple (AAPL) iPhone Kills Sprint (S)

Whether AT&T (T) makes a lot of money on the new Apple (AAPL) iPhone may not matter to Sprint (S).

What does matter is that the market thinks the No.3 cellular provider in the US is going to lose more subscribers.

Even with its new Samsung Instinct, investors clearly believe that AT&T is offering an iPhone subcriber plan attractive enough to take customers from Verizon Wireless and Sprint. Because Sprint’s base has been eroding since the NexTel merger and the company is know for its poor customer service, it may have to cut prices on the Samsung product just to stay competitive.

Sprint is down 8% on the AT&T pricing news.

Douglas A. McIntyre

Posted on: July 1, 2008 – 1:14 pm in Telecom, , ,

AT&T (T): A Dangerous Price Plan For The Apple (AAPL) iPhone

AT&T (T) announced its pricing plan for the Apple (AAPL) iPhone today. The plan is extremely confusing. That may make it harder to sell to the average customer, both for those who currently use the AT&T’s wireless service and those it might get from competitors like Sprint (S).

The Apple 3G iPhone will be available for $199 for the 8GB model and $299 for the 16GB model. These prices require two-year contracts will be available to some customers. Those who sign up before the phone comes out on July 11 and some current AT&T subscribers will fall into that bucket.

Customers who are not eligible will pay $399 for the 8GB model or $499 for the 16GB model. Or, someone who does not want to do business with AT&T can walk in off the street and buy and iPhone without a service contract for as much as $699.

AT&T is taking a substantial and dangerous bet that the iPhone will sell in unusually high volumes. According to MarketWatch, "The heavier subsidies could cost AT&T up to $1 billion alone in 2008." Assuming the average iPhone two year service plan brings AT&T less than $1,000 over its life, the return would have to take two or three years.

With Sprint (S) in the market with its own iPhone clone and RIM (RIMM) becoming more aggressive with new versions of its Blackberry aimed at consumers, AT&T is not a lock to hit the super-high volume levels it will need to make the 3G iPhone launch a success.

At least Apple will make a lot of money.

Douglas A. McIntyre

Posted on: July 1, 2008 – 12:26 pm in Technology Companies, , , ,

What Happens To Oil Prices When Refiners Stop Producing? (VLO, WNR, TSO)

As we’ve pointed out earlier, oil refining is not the business to be in these days. Refiners have been hit hard by skyrocketing crude oil prices because they are unable to pass along those price increases to consumers. Because they generally have no E&P division, they are forced to purchase crude at the ever-increasing spot price, whereas integrated oil companies can take advantage of long-term supply contracts from their E&P divisions to help moderate the price that their refining and marketing divisions have to pay.

How bad are things? Today, Western Refining (NYSE:WNR) announced that it had abandoned all covenants on its credit facilities for the quarter just ended. The covenants will be reinstated at the end of the third quarter, with no change to the amounts available under the credit facilities. However, Western has agreed to eliminate quarterly dividends on common stock through the end of 2009, and has added a new revolving credit facility for $75 million to the $800 million in revolving credit that it already has. In early trading, the stock is down about $0.25, more than 80% off its 52-week high.

The story is unfortunately no better for Valero (NYSE:VLO) or Tesoro (NYSE:TSO). Tesoro is off about $0.45, just a buck above its 52-week low, and down about 70% from its 52-week high. Valero is off $0.78 for the day, off almost 50% from its 52-week high and near its 52-week low set in May.

Read More »

Posted on: July 1, 2008 – 11:28 am in Oil & Gas, , ,

Desalination IPO On Deck: Energy Recovery (ERII)

A company called Energy Recovery, Inc. is set to come public via an initial public offering this week. If pricing does not occur tonight or in the wee hours of Wednesday morning then the offering might have to sit and wait until next week. Assuming we actually get the pricing on a holiday shortened week, the last data we saw on this was a 14 million share IPO with a range of $7.00 to $9.00 per share.

While this sounds like an oil well play, the company is actually a desalination play that turns salt water into fresh water.  The company is a developer and manufacturer of efficient energy recovery devices utilized in the rapidly growing water desalination industry.  It operates primarily in the sea water reverse osmosis segment of the industry.

The deal is set to come from Citigroup and Credit Suisse and will trade under the "ERII" stock ticker on NASDAQ.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 10:12 am in IPOs, Water,

Occidental To Try Enhanced Oil Recovery in Permian Basin (OXY, KMP)

Occidental Petroleum (NYSE:OXY) plans to spend $1.1 Billion on a natural gas processing plant and related pipelines. The company expects the enhanced oil recovery (EOR) program to increase it’s Permian Basin production by a "minimum" of 50,000 b/d within five years. The project ups Oxy’s developed reserves in the Permian Basin from 1.2 barrels of oil equivalent (boe) to approximately 1.7 billion boe. A very nice jump indeed.

The new processing plant will produce about 500 million cubic feet of CO2 per day, and a new pipeline will connect the plant to the Denver City, Texas, CO2 hub. That’s important, because it gives Occidental access to additional commercial supplies of CO2 if needed.

Occidental is not the only company pushing EOR in the Permian Basin. Kinder Morgan Energy Partners (NYSE:KMP) has for several years been transporting CO2 to properties it owns or operates in the Permian from its McElmo and Bravo Dome CO2 projects, which straddle the Colorado-New Mexico border. In 2007, Kinder Morgan produced almost 55,000 b/d from its Permian Basin properties, and pumped more than 600 billion cf of CO2 into the region. The company is expanding its CO2 operations, and expects to produce another 200 million cf/d. This is about five times the amount of CO2 that Oxy plans to produce.

However, Occidental’s reserves in the Permian Basin are much larger than Kinder Morgan’s, and the investment that Oxy is making now will reduce its per barrel production costs to levels similar to Kinder Morgan’s — $16.22/boe in 2007. That makes for very handsome profit margins with crude over $130.00 per barrel.

Paul Ausick
July 1, 2008

Posted on: July 1, 2008 – 9:18 am in Oil & Gas, ,

CIT Gets a Kitchen Pass (CIT)

CIT Group Inc. (NYSE: CIT) is going to be one of today’s winners in the financial services sectors.  So it looks as of this morning.  The company has sold two home lending units for roughly $1.8 Billion.  Wall Street is glad to see the company get this off the books.

Lone Star Funds will pay $1.5 Billion and will take on $4.4 billion in CIT’s debt, and Vanderbilt Mortgage & Finance will buy CIT’s mobile home mortgage business for roughly $300 million.

Calling CIT a struggling financial services provider might be an understatement even if it is starting to feel like a norm on a system-wide basis.  CIT had to drain $7.3 Billion from its credit line earlier this year. In its restructuring and shrinking efforts, it has also already closed its student loan business.

The company has noted that these sales complete CIT’s exit from all home lending businesses, removing the uncertainty surrounding this asset class, and advances its strategic transformation into a pureplay company focused entirely on commercial finance.

Unfortunately in all of these financial stocks, it has paid over and over to be a doubting Thomas.  Every "last chapter" we read about keeps having new chapters appear.  The market is scoring this as a win with shares up over 12% at $7.64 right after the open of trading.  Its 52-week trading range is $6.45 to $57.97.  Over a year ago this traded briefly over $60.00.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 8:37 am in Financial Stocks,

Upgrades & Downgrades in Oil & Gas (BHI, SII, HAL, NOV, SLB, WFT, BJS, SE, TTES, NBF)

These are some of the top analyst calls in oil and gas stocks we have seen in the early hours of trading this Tuesday morning.

Citigroup picked up new coverage on many stocks today.  Its new HOLD rated positions are as follows: Baker Hughes (NYSE: BHI) and Smith Intl (NYSE: SII).  Its new BUY rated stocks are as follows:  Halliburton (NYSE: HAL), National Oilwell Varco (NYSE: NOV), and Schlumberger (NYSE: SLB).  Citi also made two downgrades as both Weatherford (NYSE: WFT) and BJ Services (NYSE: BJS) were downgrades to HOLD from BUY ratings.

UBS has also made a select call on Spectra Energy (NYSE: SE) as it was started as a BUY rating.

Jefferies started coverage on T-3 Energy Services Inc. (NASDAQ: TTES) as a BUY rated stock. Jefferies also downgraded Nova Biosource Fuels (AMEX: NBF) to HOLD from BUY.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 7:38 am in Analyst Calls, Oil & Gas, , , , , , , , , ,

Upgrades Come to Financials (AXP, COF, CMA, DFS, LEH, PRSP)

These are some of the top analyst calls for the financial services group we have seen in the early hours of trading this Tuesday morning:

  • American Express (NYSE: AXP) raised to Neutral at UBS.
  • Capital One (NYSE: COF) raised to Neutral at UBS.
  • Comerica (NYSE: CMA) raised to Outperform at KBW.
  • Discover Financial Services (NYSE: DFS) raised to Neutral at UBS
  • Lehman Brothers (NYSE: LEH) raised to Overweight with $31 target at Morgan Stanley, although this was technically a late-Monday call.
  • Prosperity Bancshares (NASDAQ: PRSP) raised to Outperform at BMO Capital Markets.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 7:14 am in Analyst Calls, Banking, Financial Stocks, , , , , ,

Oilsands Quest: Speculation vs. Value (BQI)

Hi commodity prices beget high stock prices of companies that deal in those commodities.  At least speculation isn’t at play in the markets, after all the speculators even say they aren’t responsible.  This notion is arguable either way on too many fronts too poke holes in, but what is for sure is that speculators are hanging out in many smaller oil and gas stocks that they think will have a shot at becoming the next giant.

Oilsands Quest Inc. (AMEX: BQI) is one such company where speculation has led to greater and interest.  Remember that speculation itself isn’t bad, and in fact leads to a more efficient and liquid market.  This company recently raised about $50 million in a private placement.  It has also started the initial drilling of two projects in Northern Saskatchewan in Canada and has bought rights to more nearby properties; Alberta is also listed by the company.  It has also been adding in its top talent to bolster its management and operations.  As of the last data, we have a market cap right under $1.4 Billion, although the recent securities sale may not be included in that.

But there is still so far almost an entirely unknown bet that has yet to be quantified.  Oilsands Quest and its engineering consultants have embarked upon preliminary engineering of the first 30,000 barrels per day commercial project planned for the development of Axe Lake in the specific area where the first series of reservoir tests are being conducted.  If you look at the company’s last internal update it outlines the current plans and shows some preliminary estimates on roll-out dates.

We won’t really go out beyond what the company itself has not been able t.  The opportunity is huge.  Living up to it will be something that takes time.  This stock closed up over 9% on Monday at $6.50 and the yearly range is $2.49 to $6.95. 

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 6:57 am in Oil & Gas,

Will Sirius-XM Cut Talent Costs? (SIRI, XMSR)

We already saw the first projections yesterday from Sirius Satellite Radio Inc. (NASDAQ: SIRI) and XM Satellite Radio Inc. (NASDAQ: XMSR).  We also saw the resounding thud that the markets greeted the company’s with.

What is interesting is what is going to happen to costs cuts not just at the base level.  We have been trying to calculate the future values, which are very different from the values of 2005, regarding the content from the top talent that both XM and Sirius have generated.

The first such talent question boils down to Howard Stern with his lavish contract.  It is 100% attributable that he did garner much of the growth of Sirius.  But Sirius has also lost money every quarter along the way.  What about Martha Stewart or Oprah?  Fortune has a similar piece discussing the contract cost ramifications of a combined Sirius-XM with its top talent.

We already know that the companies have to refinance their existing debt.  And Goldman Sachs isn’t alone in believing new monies have to be raised.   

The time for this merger to close and get consummated has finally come.  Unfortunately there are still more questions than there are answers.

Jon C. Ogg
July 1, 2008

Posted on: July 1, 2008 – 6:26 am in Satellite, ,

A Billionaire’s Consensus On A Deep Recession

Eli Broad, one of the richest men in the world, says the current economy is the worst he has seen in his lifetime, the worst since WWII. According to Bloomberg, he also says a housing market recovery remains “several years” away.

Fellow billionaires George Soros and Warren Buffett also think this downturn will be long and very bad. Soros is concerned about the credit market. Buffett’s poison is high debt and inflation. Each man is touching the elephant from a different direction, but not one of them questions what the elephant is.

The very rich are often wrong. They believe that because they are rich, they are usually right. Today, the stock market and rising price of commodities and oil favor the billionaire’s consensus.

They are rich enough to be right about a horrible recession, but almost no one else is.

Douglas A. McIntyre

Posted on: July 1, 2008 – 5:25 am in Economy

Nokia (NOK) Takes On Apple (AAPL)

If any company has the chance to take on the Apple (AAPL) iTunes/iPod franchise it is Nokia (NOK). It has started its own music store and recently signed up Warner Music (WMG).

According to the FT, "Warner’s participation means Nokia, the world’s largest mobile phone maker, has enlisted three of the four largest record groups,"

Nokia controls 40% of the global market in handsets, selling over 400 million units per annum. That gives it a significant amount of leverage in terms of what software and services run on its phones. The company has decided that as the price of handsets drops, being in the business of providing wireless customers with products like music downloads is a way to keep its profits up.

Apple iTunes already has 75% or more of the digital music distribution business. With that high ground, it may never be dislodged. Nokia could move into a strong second place. But, for a company its size, having 10% of the market does not do it much good.

Nokia is better off trying to build its own iPhone. At least Apple does not have a huge advantage in the handset business. Yet.

Douglas A. McIntyre

Posted on: July 1, 2008 – 5:13 am in Consumer Electronics, , ,

Does Starbucks (SBUX) New Coffee Taste Like Dishwater?

Starbucks (SBUX) hoped one of the ingredients of getting turned around was its new Pike Place Roast coffee.

The java chain brought the new product to market because it tastes more like Maxwell House, which is what most Americans like. It is an inexpensive drink by Starbucks’ standards, which means it costs less than $4 a cup. By many accounts Pike Place has brought more customers into the company’s stores.

According to The Wall Street Journal, introducing the new cup of joe to market has "touched off a debate about what customers think Starbucks should stand for: bold coffee for connoisseurs or a tamer brew for the masses?"

For the last two years, Starbucks founder and CEO-for-life Howard Schultz has said that the company needs to get back to its roots. In other words, the firm’s store need to be intimate places with coffee that does not taste like the swill at the local Dunkin Donuts. The Pike Place program seems to cut against the fabric of that plan.

The Starbucks turnaround has so far been characterized by a lot of running around without direction. The company "re-trained" many of its store personnel. It brought in AT&T as its WiFi provider, kicking out T-Mobile. Sometimes it sells Apple (AAPL) iTunes, and sometimes it doesn’t.

Selling cheap and crummy coffee is probably not the solution to Starbucks troubles. It may simply want to cut costs on some of the products people like. That would cost it money for a time, but it would bring back some of the faithful along with people who don’t already stop in from time-to-time.

Starbucks’ real issue is that everything it sells is too expensive. During robust economic times, that may be fine. In a recession, it is not. With its shares at a 52-week low, Pike Place is not the answer.

Douglas A. McIntyre

Posted on: July 1, 2008 – 4:55 am in Uncategorized, ,

Merging Ford (F) And Chrysler

It has been over a year since hedge fund Cerberus bought Chrysler and installed Home Depot (HD) pariah Robert Nardelli as the car company’s unlikely CEO. Cerberus coughed up $7.4 billion for the privilege of owning the third largest auto firm in the US.

The day after the deal was done. the auto industry began its precipitous decline. That trend has accelerated ever since. Nardelli has spent most of his time firing people and closing plants. The betting in Las Vegas is that Chrysler lost over 30% of its sales in June when compared to the same month last year. That would put its US market share well below 10%.

Cerberus keeps saying that it is happy with its investment in the car company, but hedge fund managers are poor liars and if the deal could be undone, Cerberus would do it.

Across town at Ford (F), matters are just as bad. The company’s stock has fallen so far that its market cap is only $10 billion. Wall St. assumes that the company will have to raise more money. Billionaire Kirk Kerkorian has taken about 6% of the company. He is too old to be patient.

The US car companies have cut costs about as far as they can. There may be a plant or two to be shut down, but the big saving came in the last two years and were topped off with new and improved contracts with the UAW.

A merger of two of the US car companies is a must now. The other option is that Ford or Chrysler are bought by an overseas company like VW. If they want to stay independent, they need to get more scale and further cuts.

Merging two public companies in the industry would be hard. The question of who runs the company and who gets board seats could kill a deal between Ford and GM (GM). But, Chrysler does not have that problem. Cerberus has the only vote that counts.

Kerkorian and Cerberus both need a way out. Putting together Ford and Chrysler may well be the ticket. Consolidating two large car companies does offer more opportunity for cuts. One set of managers can be let go. Product development and advertising costs can be bought down. Weak brands like Dodge and Mercury can be shuttered. Ford has a successful overseas operation which could help Chrysler products get distribution.

Cerberus also has access to capital. Ford, and perhaps Chrysler, will need to restructure debt to give the company’s time to get though the current rough period. Cerberus almost certainly has the muscle to do that. With Kerkorian’s ability to bring in money,  the restructuring of a merged operation would be even more likely.

Putting the two companies together would allow them to have a 20% to 25% piece of the domestic market. That would put Ford/Chrysler on a footing with GM and Toyota (TM).

Without a merger, one of the companies goes away.

Douglas A. McIntyre

Posted on: July 1, 2008 – 4:36 am in Autos, , ,