Mattel, Inc. (NYSE: MAT), American Water Works Company, Inc. (NYSE: AWK), Exxon Mobil Corp. (NYSE: XOM), and Gap Inc. (NYSE: GPS) are all probably shoe-ins to raise their dividends in 2010.  There are two picks we have in the BioHealth arena which need to start paying dividends. Those are Warner Chilcott plc (NASDAQ: WCRX) and Amgen Inc. (NASDAQ: AMGN) and we have longer explanations about why these companies should start paying a dividend.  3M Co. (NYSE: MMM) should be in here as well as we assumed it would keep up with tradition, but the company boosted its payout on Tuesday night as the edits on this were being completed.  Interestingly enough, this 3M dividend hike is likely to bring General Electric Co. (NYSE: GE) back to the higher dividend payout sooner rather than later.

This is not the first dividend picking session.  Just listed on Monday were ten key large companies we expect to see dividend hikes in 2010.  While General Electric Co. (NYSE: GE) was one of those, JPMorgan Chase & Co. (NYSE: JPM) is likely to be back at the dividend table sooner than Jamie Dimon might have led you to believe.  If you think dividends haven’t been getting bumped up, just take a look at Time Warner Inc. (NYSE: TWX) and a slew of other large companies that just juiced up their dividend rates in recent trading days.

We have examined company finances, dividend histories, share prices, and yields to make several determinations.  Dividend coverage is key, because for companies to grow they cannot pay out 100% of their income.  It isn’t as though any of these are REITs.  In most of these predictions there is even a new dividend target given as a bogey.

Mattel (NYSE: MAT) pays an annual dividend of $0.75 per year, which has been the same rate since 2007.  This may seem telegraphed because Hasbro Inc. (NYSE: HAS) recently did so well with earnings after it beat its earnings projections.  But things are back on track here with Barbie and it claimed strong ‘wheels performance’ from HotWheels.  Year-end cash on hand was $1.1 billion, up from about $618 million at the end of 2008.  After its rival boosted its dividend, the only obvious risk is a hard double-dip recession.  Mattel even noted in the conference call recently that dividends are more important than share repurchases. As long as the world doesn’t fall back over the cliff, Mattel may need to hike its dividend just to keep up with the Jones family… or to stay ahead of them.  Hasbro’s dividend pre-hike had ‘only’ been steady for about two years rather than the three years calendar years at Mattel.  Thomson Reuters has 2010 Mattel targets at $1.61 EPS, so the annual dividend hike has much room to go up.  Because of the current sentiment change and the possibilityof a double-dip recession, the dividend hike here may only go to $0.80 or $0.85 from the $0.75 currently paid.

American Water Works Company, Inc. (NYSE: AWK) is still a  recent IPO after the Germans bought it out from under us through RWE.  The initial dividend was $0.20 first then went up to $0.21.  This last dividend announced was the seventh dividend, so we’d expect to see a hike in about two quarters if all goes remotely well.  The dividend coverage is ample at an estimated 65% of income paid and would come to $0.945 annualized versus a higher rate of $0.22 per quarter or $0.88 per year. That being said, we think the dividend will go to $0.22 or $0.23 per quarter on the next hike if the company sees no issues in making 2010 guidance.  Estimates from Thomson Reuters are $1.28 EPS in 2010 and that figure is $1.44 EPS for 2011.  What group of stocks was always known for big dividends?  Yep, utilities.

Exxon Mobil Corp. (NYSE: XOM) is due to raise its dividend whether it closes XTO Energy Inc. (NYSE: XTO) or not… with a caveat.  That merger is still up in the air and we are not so sure it has all the friends needed to close the deal.  But Exxon has raised its annual payout  each year and we have seen four straight quarters of $0.42 dividends… This last dividend hike was its most conservative dividend hike in at least five years as far as a percentage jump.  ExxonMobil’s dividend payments to shareholders have also grown at an average annual rate of 5.7% over the last 27 years.  XTO is a factor here, that we have to admit. Those pesky refining operations which every oil refiner under the sun is getting killed by are also going to be a drag on how much Big Oil wants to juice its dividend payments.  But the yield is only 2.6% now and could go much higher.  The company has roughly 4.727 billion shares outstanding.  The company retired 5% of its stock in 2009 and distributed a total of $26 billion to shareholders, with about $18 billion to purchase shares in excess of dilution.  The company noted that it was going to buy $2 billion in stock this quarter, although that could be less due to trading restrictions after the filing of the XTO Energy merger proxy.  Oil prices are always a huge wild card here in calculating earnings, but Thomson Reuters has estimates of 5.79 for 2010 and $7.33 EPS for 2011.  At $1.68 in annual dividends today, Exxon could almost double its payout as long as the near-term socio-economic policies in Washington D.C. do not go off the deep end.  Exxon may take a bit longer to announce its higher payout, but we have little to no doubt it that Big Oil will break tradition here.

Gap Inc. (NYSE: GPS) has paid the same $0.085 per quarter payout since April 2008, and before that it paid out a quarterly payment of $0.045.  The stock has been dead money for years and years, and to call this a struggling turnaround would be an understatement.  But if you look at what the new CEO Glenn Murphy has been able to carry out you might want to plant a kiss on his face.  We are not even calling one of its brands by the insulting name of ‘Old Lamey’ any longer because the company has finally gotten back on track.  Its price points may make it a recession winner, but the damage that was done over years to the brand seems to have subsided and the company is still making closures and select openings as needed.  We do not have the Jan-2010 earnings behind us yet nor do we have Jan-2011 guidance, but Thomson Reuters sees estimates of $1.56 EPS for this past year and $1.69 for the year ending in Jan-2011.  The annual dividend is only $0.34 per year, and that gives off a yield of 1.7% today.  It may be a safe bet that the company will take the payout to $0.10 per quarter, which at today’s share price would yield just over 2%.  If Gap wanted to be even more competitive in its dividend yields it could bump that up to $0.12 per quarter… but let’s not get carried away.  There is still much work to be done at Gap despite the huf improvements that have been made.

Warner Chilcott plc (NASDAQ: WCRX) may have quietly and rapidly emerged as one of the greatest drug companies on the scene in years.  If all goes well and according to plan, the company may be one of the best value stocks out there in the land of pharma and biotech.  The company pays no dividend, but after we get a couple of more quarterly adjusted balance sheets behind us it seems as though the company will want to join the yield payout of Big Pharma.  Perhaps not as much as the 4% from Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE), but it will likely want to get on the map.  Many investors still do not even really know the company.  It completed the acquisition of the global branded pharmaceutical business from The Procter & Gamble Company (NYSE: PG) on October 30, 2009, and the stock has done very well since.  Its most recent guidance is as follows for 2010: Adjusted total revenue for 2010 after the impact of its distribution agreement with LEO Pharma A/S in range of $2.9 to $2.95 billion; Adjusted gross margin of 88% to 89%; Total SG&A expenses in the range of $1.2 to $1.25 billion; total R&D in the range of $180 to $200 million; net income of $190 to $215 million; adjusted cash net income in the range of $842 to $867 million; and using 255 million ordinary shares adjusted cash net income per share of $3.30 to $3.40 per share for the full year 2010.  Again, we expect a couple more quarters to pass before a dividend is launched, but barring any other mergers we would expect the company to get on the map with a dividend.  With shares close to $25.00, a 4% yield would be about $1.00 per year of that $3.30 to $3.40 per share in 2010 earnings. An estimated guess is that the dividend will start at about $0.60 to $0.75 per year, for now.

Amgen Inc. (NASDAQ: AMGN) is not a likely “dividend booster” on the surface and not just because it wants to be thought of as a biotech that does not pay dividends.  So far, the company has chosen to conduct share buybacks to deploy cash and it is not in a hurry to begin paying a dividend.  In the investor Q&A of its investor relations site, the phase is there: “Amgen does not pay a dividend on stock, and does not foresee doing so in the immediate future.”  There is an issue though and that is that the expected earnings growth leaves more and more room for Amgen to begin rewarding its shareholders.  It recently announced a $5 billion share buyback, on top of the $1.2 billion remaining at the time still authorized for buybacks.  But share buybacks were the shareholder-friendly actions of 2007 to 2009.  In the new normal, the dividend may matter more to holders who want to get money back from companies.  We do not want to say that Amgen has been dead money for five years, but it has been very quiet money.  For more than 3 years the stock has had a hard time staying above $60 for very long.  And for some time we have noted that Amgen is effectively valued more like a Big Pharma stock than a biotech stock.  With $5 billion in cash flow and with a mountain of cash, it can afford a dividend on top of its debt and on top of its buyback plans.  Both Merck & Co (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) yield close to 4%, and Amgen could easily afford to pay close to 2% or $1.00 per share for its initial dividend rate.  A big acquisition is likely to take its stock lower as we have seen in most buyer situations.  Amgen could always pay down some of its debt, which would be viewed as favorable.  But initiating a dividend, and a noticeable one, might be the best effort the company could make.

As for the ten other dividend growth predictions, those can be found here; while the other large companies that have already declared dividend increases can be found here.

JON C. OGG

Abbott Laboratories (NYSE: ABT), Altria Group Inc. (NYSE: MO), American Water Works Company, Inc. (NYSE: AWK), Burger King Holdings Inc. (NYSE: BKC), Energy Conversion Devices, Inc. (NASDAQ: ENER), Genzyme Corp. (NASDAQ: GENZ), Kroger Co. (NYSE: KR), Orbital Sciences Corp. (NYSE: ORB) and Wal-Mart Stores Inc. (NYSE: WMT).  Two similar situation stocks that are Leap Wireless International Inc. (NASDAQ: LEAP) and MetroPCS Communications Inc. (NYSE: PCS) were all the underperformers of the time.

We have broken these into two groups with the first being the ones that have managed to spark a recovery and rallied more than the markets.  Since the cut-off date of October 9 used for these prices, the DJIA is up 5.3% and the S&P is up 3.2%.  The first group is the winners and we won’t spend much time there other than how they have performed since the October 9 cut-off date:

Abbott Laboratories (NYSE: ABT) has actually outperformed the market since October 9 with gains of 8.2%, but this still is lagging some key peers in performance.  This is on top of what was a 10% rally in the month before our October cut-off.  Because estimates were raised by analysts, Abbott now trades at only 10.6-times 2010 earnings.  This has still been a success, because guess which stock hit a 52-week intra-day high on Friday at $37.50.

Altria Group Inc. (NYSE: MO) participated in the gains as well.  Shares are up 6.9% since  October 9 and is now up over 35% from the March lows. The Big-Mo is actually still cheap at 10.3-times 2010 earnings and its dividend yield is about 7%.  The Big-Mo is now only 1% under a 52-week high, but still lags if you go back about 15 months.

American Water Works Company, Inc. (NYSE: AWK) has recovered by over 11% since October 9, one of the better performers.  Despite being dead money since its IPO, the largest US water utility is only about 3% shy of 52-week highs and still yields 3.9%.  It also seems as though it needs much gain in earnings power to justify a considerable run further from here as it trades at over 15-times 2010 earnings estimates. Still, not bad at all… particularly as RWE unloaded more shares since the past reference.

Wal-Mart Stores Inc. (NYSE: WMT) had been just sitting quiet despite being the go-to retail winner and champion of America during the recession.  On October 9, its shares were at $49.97, but they now have rallied 8.5% to $54.24. The stock would have to run close 10% more before a 52-week high alert would go off like we saw with other major retailers in November.  The stock is technically still ‘left behind by the rally’ because it is still down 1.6% for all of 2009.  It is hard to call this an overall market catcher-upper, but it has risen by a better rate than the DJIA and the S&P 500 since the October 9 period.  Analysts have an average target of roughly $60.00 on the stock and its 13.7-times Fiscal Jan-2011 earnings estimates is actually still mid-range compared to competitor valuations today (18.4-times for Costco and 12.8-times for Target).

There is still the lot of underperformers or those which have lackluster returns.  It seems that the stocks that the rally left behind may still have value investing rewards ahead.  But there are some with added risks as well.  We wanted to re-review forward valuations based on Thomson Reuters consensus, relative performance to the market and peers, and what each prospects seem to be for the coming months or out into 2010.

Burger King Holdings Inc. (NYSE: BKC) is probably not that exciting with a 4.6% gain since October 9 with shares now at $18.27.  It is still a gain, but lackluster even if compared to market averages.  The stock is still down 40% from post-IPO highs and is technically back close to its IPO price.  This fast-food chain is supposed to be among the winners, yet that crazy looking king character in commercials isn’t luring in investors.  Burger King would have to run over 50% before it makes many of the post-IPO investors whole again.  The good news is that it trades at only 11.5-times 2010 estimates and its 1.4% dividend yield has a lot of room to be raised.  Problems aside, this still has much room to go if it can get back to earnings upside and if it decides to get more shareholder friendly.

Energy Conversion Devices, Inc. (NASDAQ: ENER) is down another 6% from the October 9 cut-off, yet the stock immediately ran up over 20% after we covered it the first time.  It seems that the woes here are not going away nor are they getting better. Analysts now expect Fiscal 2010 (June) AND Fiscal 2011 to have losses, much worse than before.  We think the only issue that may help the company is if oil prices suddenly rocket or if any of those buyout rumors can resurface.  This is down by about two-thirds from a 52-week high with shares now at $10.17, but this was an $80 stock at the peak of the solar bubble.  Yes, it was a bubble.  And internal opportunities seem few.

Genzyme Corp. (NASDAQ: GENZ) has remained a serial disappointment as shares are only about 6% off the 52-week lows and at $49.98.  While the stock has recovered, it rolled back over and is now down over 10% from October 9.  Serious manufacturing and contamination issues are not what a biotech drug companies wants to be trying to correct, and now there IS more likely competition.  The stock still trades at a deep discount to large biotech stocks and it would now take more than 50% gains before it reached its 2008 highs. Earnings estimates have continued to be brought down, and the stock now trades at under 14-times normalized 2010 earnings.  There are continued risks here, and we’d probably wait to see if one more shoe drops.  It is cheap, for a reason.

Kroger Co. (NYSE: KR) had just recovered almost 10% before that October 9 cut-off and shares did go another 10% up before coming back down.  Shares were at $22.22 at the time and are still $22.50 as of Friday. That is a 1% gain compared to a gain in Safeway (NYSE: SWY) of over 4%; and Kroger is still up only about 16% since March’s lows.  The stock trades at 10.6 times Fiscal Jan-2011 earnings estimates and it would still have to rally over 30% before its 52-week highs came back into play.  The rally left it behind, but it seems investors do not care one way or the other.  The stock is cheap for value investors and probably has very limited downside based on all of the available data, but there is just no excitement to be found here.

Orbital Sciences Corp. (NYSE: ORB) is one of the key stocks for investors who want to invest in the development of outer space.  Yet something isn’t working here.  On October 9, this was at $14.73, yet shares are down over 11% since then at $13.05.  This stock is also the riskiest of all these underperforming stocks as its main operations are in small space and rocket systems, as well as GEO satellites for communications and broadcasting and LEO spacecraft that perform remote sensing and scientific research.  Orbital is now only up 7.7% from the March lows and it would have to run 50% to hit 52-week highs and could still double before hitting highs of 2008.  Earnings estimates have come down substantially, on what appears to be based upon guidance from its last earnings.  Loral Space & Communications (NASDAQ: LORL) is a comparable stock, and it is up both exponentially from recent lows and almost at 52-week highs.

Leap Wireless International Inc. (NASDAQ: LEAP) and MetroPCS Communications Inc. (NYSE: PCS) are thought of in almost the same light by the investment community.  The market has not favored telecom stocks, and both are in the prepaid or no-contract segment of the economy.  Based upon how many people have made poor and/or cash- strapped over the last 24 months, both companies should have a mountain of subscribers to fight over.  Yet there is now major carrier competition and they are probably dwindling each other in some markets.  Leap’s shares were at $16.15 on October 9, and they are down over 5% at $15.28 now.  MetroPCS is even worse as shares were at $8.07 on October 9 and are now at $6.60 for an added 18% loss.  There was a merger attempt here once which failed, and it seems that price might need to get a gut-check.  A stock-for-stock deal would keep holders from being forced into a loss position if the merger were all-cash.  This may be a time of need rather than a time of choice for these two.

You can join our open email distribution list to hear more news on key analyst calls, top day trader alerts, mergers and acquisitions, Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG
December 7, 2009

We have detailed information on the size, use of funds, underwriters, and performance on each below.

At Fortinet (NASDAQ: FTNT) and the priced 12.5 million shares in IPO at $12.50, the deal breakdown is as follows for the $156 million offering: 5,781,683 shares are being sold by the company and 6,718,317 shares are being offering by selling stockholders. Morgan Stanley, J.P. Morgan, and Deutsche Bank are joint book-runners; Robert W. Baird, RBC Capital Markets, ThinkEquity, and JMP Securities, and Signal Hill Capital Group LLC are co-managers. In addition, Fortinet has granted the underwriters a 30-day option to purchase up to an additional 1,875,000 shares of common stock to cover over-allotments.  Fortinet is in the field of network security and unified threat management solutions, and it priced above the $9 to $11 indicated range.

American Water Works Company, Inc. (NYSE: AWK), the largest water utility in the U.S., priced a 37.35 million shares at $21.63 per share after a closing bell price of $21.63 yesterday for a sale of close to $800 million.  This stake is entirely from RWE AG, the former parent and majority/largest holder, so none of the $784 million in gross proceeds go to American Water itself.  BofA Merrill Lynch, Credit Suisse, and Morgan Stanley are joint book-runners.  Shares are up 0.3% at $21.71 after a $21.63 close yesterday.

Boise Inc. (NYSE: BZ) 17 million shares priced at $4.85, and all shares here are also being sold by shareholders and insiders in the $82+ million raise.  Goldman Sachs was the sole book-runner.  Boise Cascade Holdings, L.L.C. (and trusts affiliated with Jason Weiss) will now ‘only’ hold about 25% of Boise’s common stock after the offering.  Shares are down 3.3% at $4.92 after a $5.09 close yesterday.

Longtop Financial Technologies Limited (NYSE: LFT) is actually trading way up this morning after it priced 3.7 million shares (ADS’s) at $31.25 per share, for more than $115 million raised.  Longtop is into software development and solutions which target the financial services industry in China.  The use of the net proceeds of the offering are earmarked for potential acquisitions and for general corporate purposes.  Deutsche Bank and Morgan Stanley were the joint book-runners.

Smith International Inc. (NYSE: SII) priced 28 million shares priced at $26.50 in a $730 million approximate raise.  Oddly enough, Citigroup just raised the rating on Smith International.  The net proceeds from the offering will be used for debt repayment, general corporate purposes, and funding of potential acquisitions or investments.  J.P. Morgan Securities Inc. is the book-running manager for the deal.  Shares are actually up 4% at $27.97.

We are seeing a whole new slate of S-3 secondary filings and still seeing plenty of S-1 IPO filings at the SEC each day.  If the market holds up, there will be many more days where the stock market has to absorb the $1.86 billion absorbed by the market this morning in new shares on the market.

You can join our open email distribution list to hear more news on IPOs, secondary offerings, key analyst calls, top day trader alerts, mergers and acquisitions, Buffett and other investment gurus, private equity, and more.

JON C. OGG
November 18, 2009

But almost as always, there are still some key very large and/or very active stocks which have not recovered anywhere close to the same amounts with the overall stock markets.  Some of these lagging stocks are Abbott Laboratories (NYSE: ABT), Altria Group Inc. (NYSE: MO), American Water Works Company, Inc. (NYSE: AWK), Burger King Holdings Inc. (NYSE: BKC), Energy Conversion Devices, Inc. (NASDAQ: ENER), Genzyme Corp. (NASDAQ: GENZ), Kroger Co. (NYSE: KR), Orbital Sciences Corp. (NYSE: ORB) and Wal-Mart Stores Inc. (NYSE: WMT).  Two similar situation stocks that are Leap Wireless International Inc. (NASDAQ: LEAP) and MetroPCS Communications Inc. (NYSE: PCS).  We wanted to explore the forward values and relative performance, and the consensus estimates based upon Thomson Reuters data.  Only two of these stocks have market capitalization rates under $1 billion, and almost all are very actively traded and well known in their sectors.

Abbott Laboratories (NYSE: ABT) is on deck to report earnings this week and it was surprising how far it has lagged to some of the large peers.  The good news is that it has started to participate in the rally with a 10% gain over the last month.  Saying it has ‘only’ recovered by 21% from its April-May lows shows how well the market sentiment is and how well other stocks have performed.  But shares are only about 10% higher from the early March inflection point lows.  Abbott trades at about 12.2-times normalized 2010 earnings estimates of $4.12 and the stock carries a 3.2% dividend yield.  Guidance was spotty before and obviously the sector has political risks into 2010 and beyond because it is tied to healthcare.

Altria Group Inc. (NYSE: MO) might not be a shock that it has lagged if you believe that smoking is a dead industry in the future.  But the one recognition that has always been the case is that Big Tobacco has always survived.  Things are even good enough that it recently juiced up its dividend and appears to have enough earnings power for plenty of dividend coverage for the future.  It is hard to bash a stock that has risen 28% from the March lows, but this greatly lags the performance of Philip Morris International, Inc. (NYSE: PM), Reynolds American Inc. (NYSE: RAI) and Lorillard, Inc. (NYSE: LO).  The Big-Mo trades at just under 10-times a normalized estimate of $1.85 EPS for 2010 and its dividend yield is almost 7.5% now that it has been hiked.  This only needs to rally about 14% to hit 52-week highs, so this is just representative more of nearly-dead money rather than anything that looks or feels sinister.

American Water Works Company, Inc. (NYSE: AWK) is in that long-discussed great sector of water, but as a utility.  It may just be more shares sold and the risks of more shares being sold, but this one has effectively been dead money ever since it came public (again).  At almost $20.00, shares are up about 23% from the absolute lows. That looks to be well under all of its larger peers here in the U.S.  This stock and sector does have a premium considering the utility status, but analysts are looking for growth from 2009 to 2010.  This one trades at less than 14-times normalized earnings estimates of $1.46 EPS for 2010.  America’s largest water utility did hike its dividend for August and it now yields about 4.2%.

Burger King Holdings Inc. (NYSE: BKC) is supposed to be in a class of eating-out that wins in recessions via fast food and very casual dining.  It seems like that crazy looking king character in commercials that scared so many kids has also scared investors.  This company has only recovered some 13% from its recent 52-week lows despite only trading at about 12.2-times its Fiscal-2010 (June) earnings estimates.  Its market cap is just under $2.4 billion.  The much larger, and far better-run, McDonald’s Corp. (NYSE: MCD) has not exactly been a performing beast this year, but its shares are up 25% from lows.  The Big Whopper would also have to rally almost 50% before hitting 52-week highs.  Unfortunately, its dividend yield is only about 1.4%.  For this to start performing again, management is going to have to do a better turnaround plan than what it has managed so far.

Energy Conversion Devices, Inc. (NASDAQ: ENER) is one where the figures are actually a tad better than what is reflected because of the solid gains seen on Monday.  Before Monday, this one was not even 10% above its 52-week lows and shares are still under the inflection point lows in the market during March.  Despite this being one of the old top solar stocks for traders, it has failed miserably to bounce when you consider the bounce of the major solar players.  First Solar, Inc. (NASDAQ: FSLR) is up over 75% and Suntech Power Holdings Co. Ltd. (NYSE: STP) is up almost 200% from its absolute lows over the last year.  Unfortunately this is expected to post a loss for all of its Fiscal 2010 (June) and estimates are $0.28 for its following Fiscal 2011 (June).  There is no dividend and this is likely to trade around how well oil prices do and on its own guidance and not its trading based on how the market does.  This is down from a 52-week high north of $48 and down from a peak of $80 back in the Summer-2008 highs.  No dividends are to be found here.

Genzyme Corp. (NASDAQ: GENZ) did recover from lows in August.  This troubled biotech giant is up about 20% from the absolute lows in August and ‘only’ up about 16% from its lowest close of $48.19 in August.  The reason here is simple.  Serious manufacturing issues resulted in contamination issues, and the company is effectively under a red flag warning by the FDA.  But this also trades at a much deeper discount than most of the large biotech stocks.  It would take close to a 50% rally for this to challenge its old 2008 highs.  The question that exists here is not over whether it still has an addressable market, but whether it can get its house entirely back in order before competition comes on in 2010.  Like most biotech companies, it has no dividend.  Earnings estimates are now all over the place, but it trades at roughly 14-times normalized 2010 earnings.  Even if you take a median estimate over an average estimate for 2010, that forward multiple is only around 15-times 2010 earnings.  Of course there are still risks here, but that is why the stock is already down so much on its woes.

Kroger Co. (NYSE: KR) was also up on Monday as an analyst upgraded the stock on valuation.  But the stock is still a laggard compared to rival Safeway (NYSE: SWY).  The company’s latest earnings report kept it from rallying because it was still experiencing difficult pricing and that has kept its shares from rallying.  We have barely seen a 15% gain since March’s lows.  Its 2010 ends in January 2011, but it trades at 10.4-times the $2.14 estimate.  This is representative of a mature grocery sector and the discount to Safeway is small but still there:  Safeway is up 24% from its lows and trades at 11-times the comparable forward earnings.  Analysts are still looking for growth and this would have to rally over 30% before its 52-week highs came back into play.

Orbital Sciences Corp. (NYSE: ORB) may seem the riskiest of all these underperforming stocks as its main operations are in small space and rocket systems, as well as GEO satellites for communications and broadcasting and LEO spacecraft that perform remote sensing and scientific research.  But effectively, the company is a pure-play on space operation and exploration, including deep space.  This stock is still down about one-third from a year ago and is ‘only’ up 22% from its lows in March.  Earnings estimates have come down over the last quarter but there has not been a significant downgrade worth noting from analysts of late.  With the government purse being tight and with the Obama administration reportedly considering privatizing much space exploration, a wild card exists here.  Loral Space & Communications (NASDAQ: LORL) is considered its top comparable stock, and that one has risen exponentially from its lows.

Wal-Mart Stores Inc. (NYSE: WMT) is supposed to be the winner in the recession, right?  Yet don’t go looking for it to be the golden child of stock performance.  And its 2.2% dividend yield might not sound like much.  Wal-Mart is under $50.00, and is only about 8% above its 52-week lows.  It would also take ‘only’ a 20% gain for Wal-Mart to challenge its 52-week highs.  And year-to-date the stock is down 10%.  It seems that its policy of dropping guidance and its same store sales reporting has not been as rewarding as it would hope.  Now the valuation question for the world’s largest retailer.  This trades at about 13.7-times a normalized 2010 earnings (actually Jan. 2011) estimate of $3.92.  Wal-Mart is still growing.  It would also seem as though that as long as there is an army of unemployed and as long as the notion of thrift is semi-secular, then this is lagging and cheap. Target Corp. (NYSE: TGT) trades at about 14.5-times 2010 comparable estimates, but Target has also almost doubled from its absolute lows.  Costco Wholesale Corporation (NASDAQ: COST) has rallied 50% from its lows, despite a much higher forward multiple.

Leap Wireless International Inc. (NASDAQ: LEAP) and MetroPCS Communications Inc. (NYSE: PCS) are two very similar companies that have been gross disappointments.  Despite the overall wireless sector being a tough space and despite fairly low performance even from the leaders, these two have been an outright disappointment by every single measurement besides being great performers for short sellers.  As there once was a merger on the table (which was blocked) and as these are both in the no-contract or pre-paid wireless sector, we are only going to mention the performance metrics.

• Leap Wireless is down close to 40% year to date.  The stock is up about 15% from its 52-week low.
• MetroPCS is down over 45% year to date.  The stock is also not even 10% off of its 52-week lows.

Leap is now expected to lose money in 2010, and if the $0.69 estimate is right on MetroPCS then it trades at about 12-times 2010 estimates.  Unfortunately, that is 20-times a 2009 estimate for MetroPCS.  We won’t go as far as to predict a merger here, but a proposed merger this time around could be out of need and not out of greed.

Again, the estimates are based on Thomson Reuters estimates and share performance is based from the weekend when a static snapshot existed equally among all.  Many of these estimates will change throughout this earnings season.  Despite the rally, there are still some very large or very active stocks which have just not participated.

JON C. OGG
OCTOBER 12, 2009

Details are as follows:

American Water Works Co. (NYSE: AWK) is on deck with German-parent RWE selling another 30 million shares via Bank of America Merrill Lynch, Citigroup and Goldman Sachs.  With shares close to $19.00 today, this generates a $570 million estimates take.

Great Lakes Dredge & Dock Corp. (NASDAQ: GLDD) is on deck with some 12.5 million shares being sold through Barclays Capital and Bank of America Merrill Lynch.  This should come to roughly $75 million being raised based on today’s price.

U-Store-It Trust (NYSE: YSI) is set to sell 22 million shares through  Bank of America Merrill Lynch and Wells Fargo and this deal is expected to raise close to $110 million based on today’s price.

Then there are the regional and community banks that we have seen from Dandler O’Neill.  The Bancorp Bank (NASDAQ: TBBK) is on deck to sell roughly $50 million worth of shares through Sandler O’Neill.  Hampton Roads Bancshares Inc. (NASDAQ: HMPR) is expected to sell some 32 million shares through Sandler O’Neill and should raise roughly $140 million based on today’s price.  Seacoast Banking Corp. of Florida (NASDAQ: SBCF) is expected to sell about 28 million shares also through Sandler O’Neill and will bring in close to $70 million based on today’s prices.

Two more banking deals are also on deck that will either come tonight or perhaps next week.  Cadence Financial Corp. (NASDAQ: CADE) is expected to sell 31.5 million shares through FBR Capital Markets in an effort to raise roughly $55 million based upon today’s price.  Be advised, Cadence is extremely think trading volume.  Umpqua Holdings Corp. (NASDAQ: UMPQ) is expected to sell some $175 million in common stock via JPMorgan and others including KBW.

When we tally all of this up, it comes to more than $1.6 billion in secondary offerings just between today and what may come tomorrow.  That cash has to come from somewhere and generally has to stay in the stock for at least a little bit of time.

You can join our open email distribution list if you like to hear about secondary offerings, IPOs, Warren Buffett and other guru activities, mergers, key daily analyst reports, and other top trading and investing issues.

JON C. OGG
AUGUST 13, 2009

• American Water Works (AWK) Started as Buy at Brean Murray.
• CardioNet (BEAT) Cut to Hold at Citigroup; Cut to Hold at boutique firm Roth.
• Checkpoint Software (CHKP) Cut to Neutral at JPMorgan.
• IAC/Interactive (IACI) Started as Outperform at Oppenheimer.
• Marvel Entertainment (MVL) Raised to Overweight at JPMorgan.
• Myriad Genetics (MYGN) down on downgrades from RBC, Oppenheimer, Citigroup, Morgan Joseph, and more.
• Novo Nordisk (NVO) Raised to Buy at Goldman Sachs.
• Symantec (SYMC) Started as Outperform at JMP Securities.
• Werner Enterprises (WERN) Raised to Overweight at JPMorgan.

After today, we’d expect analyst coverage to start getting this until at least next Tuesday because of the shortened week.  We have already seen the effects of fewer participants this week, particularly after such a stellar quarter that just ended yesterday.

Jon C. Ogg
July 1, 2009

Aqua America Inc. (NYSE: WTR) operates regulated utilities which offer community-wide water or wastewater services for residential, commercial, and industrial customers in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, New York, Florida, Indiana, Virginia, Maine, Missouri, and South Carolina.  The stock has recovered substantially off of  its lows.   It had roughly 3 million customers.  The company  has a $2.6 billion market cap, and with a $19.30 price it trades an an implied forward P/E ratio of 22.7 against 2009 expected earnings.  Its 52-week trading range is $12.20 to $22.00.

American States Water Company (NYSE: AWR) offers water and electric service utility operations for residential and commercial customers.  The difference is that this is not as geographically diverse and it serves many areas which have been hit by the woes of the declining real estate market on top of other issues.   It also distributes electricity in 1 customer service area and 3 water service regions operating within 75 communities in 10 counties in California, as well as provides water service in 21 customer service areas with close to 250,000 water customers and about 23,000 electric customers in California, and it operated 2,724 miles of pipeline of water transmission and distribution systems; it also served 13,488 water-service customers in Arizona and operated 184 miles of pipeline of water transmission and distribution systems.  The $650 million market cap based on a $37.53 stock price gives it an implied forward P/E ratio of 21.4 times expected 2009 earnings. Its 52-week trading range is $27.00 to $42.00.

California Water Service Group (NYSE: CWT) provides water utility and other related services in California, Washington, New Mexico, and Hawaii.  California Water Service Group provides service to approximately 463,000 customers in 83 communities (2007 data).  With a $42.80 stock price, this trades at an implied 20.8-times forward 2009 expected earnings.  Its 52-week trading range is $27.68 to $48.28.

Where this gets interesting is that the bulk of these four trade much closer to their highs than to lows, with the exception of American Water Works.  But it also trades at the largest discount to its forward 2009 earnings estimates.  Part of the problem is that it is a recent IPO after the Germans sold it back to the US public markets.  All of the other stocks in these four are expensive if you consider a mere forward-P/E ratio compared to the market today.  That is because of the defensive nature of the stocks and probably also because of inherent regional monopolies they hold.  Have you ever inquired to see if you could get a new water company of competitive quotes for water service?  You can get a new water provider, if you move to a new market.

Again, this is just four of the companies we cover in the domestic utility side of the water sector equation.  This is also one of the most defensive stock sectors for US investors.  The sector never really gets “cheap” if you are just using P/E ratio comparative analysis.  Traditionally, these might not rally as much as the markets if we go into a bull market mode.  Again, that is “traditionally” and you will be surprised if you look at just how much these have recovered since the lows of October and November of 2008.  We will be looking separately as filtration, infrastructure, and other services in different pieces this week.

Jon C. Ogg
March 23, 2009

• American Water Works (AWK) Started as Buy at Societe General.
• Black & Decker (BDK) Raised to Buy at UBS.
• Energy Recovery (ERII) Started as Buy at Piper Jaffray.
• Fred’s (FRED) Raised to Outperform at William Blair.
• Lennar (LEN) Raised to Buy at UBS.
• Public Storage (PSA) Raised to Buy at Goldman Sachs.
• Wal-Mart (WMT) Raised to Outperform at William Blair.

Jon C. Ogg
November 25, 2008

The company attributed the increase in earnings to "higher revenues inits Regulated Business," which contributed about 60% of net income.American Water’s president and CEO noted that the company continues "tomake progress in our regulatory filings." That’s the nub of the waterbusiness: convincing regulators to make customers pay more.

Aqua America (NYSE:WTR) reported very similar results for the very same reasons, so we’ll skip the details.

Investors weren’t impressed by American Water’s earnings. The stockprice fell more than 3% in after-hours trading. American Water’s shareprice is off about 18% from its 52-week high. Aqua America fared alittle better, rising nearly 2% after hours. But the stock is still offmore than 20% from 52-week highs.

Paul Ausick
November 6, 2008

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