24/7 Wall St. » COL

24/7 Wall St. Closing Bell — April 19, 2013: After a Mixed Open, Markets Climb Slowly

Paul Ausick — Fri, 19 Apr 2013 20:06:24 +0000

U.S. equity markets opened mixed this morning as the DJIA was slammed by a number of weak earnings reports both last night and before markets opened this morning. The was no economic data out in Asia today, where markets closed higher. In Europe, Germany’s producer price index came in lower than expected, but industrial production reports from both Italy and Spain were weaker than forecast. There was no economic data released in the U.S. today. Events in Boston today dominated U.S. news.

The U.S. dollar index is trading up 00.22% today, now at 82.736. The GSCI commodity index is up 0.8% at 606.01. WTI crude oil closed up 0.3% today, at $88.01 a barrel, but closed the week down 3.6%, a third consecutive weekly loss. Brent crude trades up 0.2% at $99.69 a barrel. Natural gas is up 0.2% today at about $4.40 per million BTUs. Gold settled up 0.2% today at $1,395.60 an ounce, but posted a loss of 7% for the week, the fourth week in a row that the yellow metal has dropped.

The unofficial closing bells put the DJIA up about 10 points to 14,547.51 (0.07%), the NASDAQ rose nearly 40 points (1.25%) to 3,206.06, and the S&P 500 rose 0.88% or nearly 14 points to 1,555.25.

There were a several analyst upgrades and downgrades today, including Varian Medical Systems Inc. (NYSE: VAR) cut to ‘sell’ at Citigroup; Toll Brothers Inc. (NYSE: TOL) raised to ‘buy’ at Keefe Bruyette & Woods; Nokia Corp. (NYSE: NOK) raised to ‘market perform’ at BMO Capital Markets; Texas Instruments Inc. (NASDAQ: TXN) cut to ‘market perform’ at Raymond James; and Coach Inc. (NYSE: COH) cut to ‘neutral’ at R.W. Baird.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading: Advanced Micro Devices Inc. (NYSE: AMD) is down 2.3% at $2.45; Capital One Financial Corp. (NYSE: COF) is up 6.7% at $56.31; Chipotle Mexican Grill Inc. (NYSE: CMG) is up 10.9% at $364.03; E*Trade Financial Corp. (NASDAQ: ETFC) is up 3.1% at $9.84; Google Inc. (NASDAQ: GOOG) is up 4.5% at $800.35 (more coverage here); International Business Machines Corp. (NYSE: IBM) is down 8% at $190.54 (more coverage here); Microsoft Corp. (NASDAQ: MSFT) is up 3.4% at $29.76 (more coverage here); General Electric Co. (NYSE: GE) is down 4% at $21.78 (more coverage here); Honeywell International Inc. (NYSE: HON) is up 3.8% at $74.17; McDonald’s Corp. (NYSE: MCD) is down 2.1% at $99.73 (more coverage here and our ‘Company of the Week’ story here); Rockwell Collins Inc. (NYSE: COL) is up 2.4% at $61.08, and Schlumberger NV (NYSE: SLB) is down 2.1% at $69.51 (more coverage here).

Before markets open Monday morning we are scheduled to hear earnings reports from Caterpillar Inc. (NYSE: CAT), Check Point Software Technologies Inc. (NASDAQ: CHKP), Halliburton Co. (NYSE: HAL), Hasbro Inc. (NASDAQ: HAS), and NVR Corp. (NYSE: NVR).

Some standouts among heavily traded stocks today include:

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) is up 58.9% at $84.00 after posting a new 52-week high of $85.90 earlier today. The biopharmaceuticals maker reported positive mid-stage data on a treatment for cystic fibrosis.

SeaWorld Entertainment Inc. (NYSE: SEAS) is up 25% at $33.76. The theme park company held its IPO today, going out at $27 a share for 26 million shares. More coverage here.

Dell Inc. (NASDAQ: DELL) is down 3.7% at $13.44. The PC maker’s share price fell below the offer price from Michael Dell and Silver Lake Partners after Blackstone Group LP (NYSE: BX) announced that it would not make a bid for the company. More coverage here.

Stay tuned for Monday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Chicago Fed national activity index
10:00 a.m. – Existing home sales
11:30 a.m. – 3- and 6-month bill auctions

Have a safe weekend!

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: AMD, BX, CAT, CHKP, CMG, COF, COH, COL, DELL, ETFC, GE, GOOG, HAL, HAS, HON, IBM, MCD, MSFT, NOK, NVR, SEAS, SLB, TOL, TXN, VAR, VRTX

24/7 Wall St. Closing Bell — April 18, 2013: Markets Cool on Jobs, Manufacturing Data

Paul Ausick — Thu, 18 Apr 2013 20:05:32 +0000

U.S. equity markets opened slightly higher this morning following the report on U.S. jobless numbers (more coverage here). In Europe, the only data out today showed that U.K. retail sales fell 0.7%, slightly better than expected. In Asia, house prices in China gained 3.6% in March, pushing Shanghai to a higher close. In the U.S., the leading indicators came in lower than expected (more coverage here) and the Philly Fed index posted a surprisingly low number (more coverage here). The lower open this morning simply continued sliding until the last hour of trading.

The U.S. dollar index is trading down 0.14% today, now at 82.563. The GSCI commodity index is down 1.5% at 600.97. WTI crude oil closed up 1.2% today, at $XX a barrel. Brent crude trades 1.77% at $100.39 a barrel. Natural gas is up 4.8% today at about $4.40 per million BTUs, after the weekly storage report showed a smaller-than-expected build in inventories (more coverage here). Gold settled up 0.7% today at $1,392.50 an ounce.

The unofficial closing bells put the DJIA down more than 79 points to 14,539.14 (-0.54%), the NASDAQ fell more than 38 points (-1.20%) to 3,166.36, and the S&P 500 fell -0.67% or more than 10 points to 1,541.63.

There were a several analyst upgrades and downgrades today, including Qiagen NV (NASDAQ: QGEN) started as ‘sell’ at Citigroup; Potash Corp. of Saskatchewan (NYSE: POT) started as ‘overweight’ at HSBC; HollyFrontier Corp. (NYSE: HFC) raised to ‘buy’ at BofA/Merrill Lynch; American International Group Inc. (NYSE: AIG) started as ‘outperform’ with a price target of $50 at BMO Capital Markets; and FedEx Corp. (NYSE: FDX) cut to ‘underperform’ at RBC Capital Markets.

Earnings reports since markets closed last night resulted in some price moves today, including these as of the last half hour of trading: American Express Co. (NYSE: AXP) is up 1.7% at $65.20 (more coverage here); SanDisk Corp. (NASDAQ: SNDK) is down 6.7% at $52.00 (more coverage here); eBay Inc. (NASDAQ: EBAY) is down 5.6% at $52.98 (more coverage here); Kinder Morgan Inc. (NYSE: KMI) is up 0.4% at $37.95 (more coverage here); AutoNation Inc. (NYSE: AN) is up 1.7% at $43.22 (more coverage here); Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) is up 0.3% at $28.09; Morgan Stanley (NYSE: MS) is down 4.7% at $20.47 (more coverage here); Nucor Corp. (NYSE: NUE) is down 0.4% at $XX; Peabody Energy Corp. (NYSE: BTU) is up 8.2% at $20.58 (more coal coverage here); PepsiCo Inc. (NYSE: PEP) is up 2.8% at $81.08 after posting a new 52-week high of $83.44 earlier today (more coverage here); Philip Morris International Inc. (NYSE: PM) is down 2.5% at $91.65 (more coverage here); and Verizon Communications Inc. (NYSE: VZ) is up 3% at $51.01 after posting a new 52-week high of $51.67 (more coverage here).

Before markets open tomorrow morning we are scheduled to hear earnings reports from Advanced Micro Devices Inc. (NYSE: AMD), Capital One Financial Corp. (NYSE: COF), Chipotle Mexican Grill Inc. (NYSE: CMG), E*Trade Financial Corp. (NASDAQ: ETFC), Google Inc. (NASDAQ: GOOG), International Business Machines Corp. (NYSE: IBM), General Electric Co. (NYSE: GE), Honeywell International Inc. (NYSE: HON), McDonald’s Corp. (NYSE: MCD), Rockwell Collins Inc. (NYSE: COL), and Schlumberger NV (NYSE: SLB).

Some standouts among heavily traded stocks today include:

Nokia Corp. (NYSE: NOK) is down 12.6% at $3.13. The mobile phone maker posted weak first quarter results. There’s no mercy in the markets. More coverage here.

Rite Aid Corp. (NYSE: RAD) is up 6.2% at $2.39. The drug store chain accepted the resignation of board member Jean Coutu, who has been reducing his group’s stake in the company. More coverage here.

Apple Inc. (NASDAQ: AAPL) is down 2.7% at $392.06. The tech giant’s shares will close below $400 for the first time in more than a year.

Stay tuned for Friday. Fed Governor Jeremy Stein is giving a speech. There are no other events on tomorrow’s schedule.

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: AAPL, AIG, AMD, AN, AXP, BTU, CMG, COF, COL, EBAY, ETFC, FCX, FDX, GE, GOOG, HFC, HON, IBM, KMI, MCD, MS, NOK, NUE, PEP, PM, POT, QGEN, RAD, SLB, SNDK, VZ

Forensic Accounting ETF Names New A and F Graded Stocks (FLAG, HD, F, COL, TRIP, LMT, ANF, BRCM)

Jon C. Ogg — Wed, 13 Mar 2013 16:15:12 +0000

The Forensic Accounting ETF (NYSEMKT: FLAG) is still new and trying to gain traction in an ETF marketplace that is very crowded. What makes this one unique is that it “flags” accounting issues to seek to invest in the company’s with strict accounting measurements through time. It is also somewhat actively managed due to key changes that can occur through time. The exchange traded fund has made some recent changes to its portfolio based on the underlying accounting metrics.

What is interesting is that DJIA component Home Depot Inc. (NYSE: HD) was among the changes in the portfolio to the downside. The Forensic Accounting ETF team gave it an “F” rating. Other new “F” ratings were handed out to the likes of Ford Motor Co. (NYSE: F), Rockwell Collins Inc. (NYSE: COL) and even to the high-growth Trip Advisor Inc. (NASDAQ: TRIP). The fund said:

Home Depot’s revenue increase of average 6% doesn’t justify the stock’s 23-plus P/E ratio.

Ford has high and increasing cost of goods sold putting pressure on margins, which are declining.

Rockwell Collins was listed as having its cost of goods sold and selling, general and administrative expenses combined at nearly all-time highs and putting pressure on its margins while declining total shares suggests that the earnings per share figure is being artificially boosted.

Trip Advisor’s selling, general and administrative expenses are seen as rising rapidly rising and there are indications the company is having difficulty collecting monies due.

Conversely, Lockheed Martin Corp. (NYSE: LMT), Abercrombie & Fitch Inc. (NYSE: ANF) and Broadcom Corp. (NASDAQ: BRCM) were given “A” ratings.

Lockheed Martin was shown as having beaten earnings in the last four quarters and cost of goods sold is down 1% year over year while inventories and payables are low.

Abercrombie is experiencing strong margin expansion as a result of impressive growth, and EBITDA is the highest in two years.

Broadcom’s revenue trend was called positive and receivables as a percentage of revenue are declining.

We would note that this new Forensic Accounting ETF (NYSEMKT: FLAG) is still fighting to gain market share. Some might argue that it is fighting to become relevant as well, since trading volume is still sometimes under 10,000 shares per day. We applaud the effort for an ETF manager to go out and make picks and pans based on a designated set of accounting metrics. As a reminder, this one has only traded since the end of January, so the verdict on how successful it will be is still to be determined.

Filed under: Accounting, Active Trader, Corporate Governance, ETFs & Mutual Funds Tagged: ANF, BRCM, COL, F, featured, FLAG, HD, LMT, TRIP

24/7 Wall St. Closing Bell — January 18, 2013: Markets Make Small Moves Today (INTC, MT, CS, RIMM, LVS, V, AXP, COF, GE, JCI, MS, COL, SLB, STI, DAL, FCX, JNJ, KSU, RF, VZ, NCLH, AMD, JRCC)

Paul Ausick — Fri, 18 Jan 2013 21:09:36 +0000

U.S. equity markets opened mixed this morning, with the Nasdaq Composite lower on a weak quarterly earnings report last night from Intel Corp. (NASDAQ: INTC). The big news for today came out of China, where the government reported 2012 GDP growth of 7.9%, slightly better than the estimate of 7.8% (more coverage here). Fixed asset investment and industrial production also finished the year with growth slightly above expectations. In Europe, new industrial orders slipped into negative territory in Spain and Italy, where both had been expected to post small positive gains. Retail sales in the U.K. were also slightly negative compared with expectations of a small increase. In the U.S., the consumer sentiment index took a nose dive as well (more coverage here).

The U.S. dollar index rose 0.44% today, now at 79.992. The GSCI commodity index is up 0.8% at 658.12, with commodities prices mostly higher today. WTI crude oil closed up 0.1% today, at $95.56 a barrel to close the week up 2.1%. Brent crude trades up 0.8% at $111.90 a barrel. Natural gas is up 2.2% today at about $3.57 per million BTUs. Gold settled down 0.2% today at $1,687.00 an ounce, and closed the week up 1.6%.

The unofficial closing bells put the DJIA up more than 53 points to 13,649.70 (0.39%), the NASDAQ fell more than 1 point (-0.04%) to 3,134.71, and the S&P 500 rose 0.34% or about 5 points to 1,485.98.

There were a several analyst upgrades and downgrades today, including ArcelorMittal (NYSE: MT) raised to ‘neutral’ at Goldman Sachs; Credit Suisse Group (NYSE: CS) raised to ‘overweight’ at Morgan Stanley; Research in Motion Ltd. (NASDAQ: RIMM) raised to ‘buy’ at Jefferies; Las Vegas Sands Corp. (NYSE: LVS) raised to ‘outperform’ at Wells Fargo; and Visa Inc. (NYSE: V) cut to ‘neutral’ at Baird.

Earnings reports since markets closed last night resulted in several price moves today, including these: American Express Co. (NYSE: AXP) is down 1.9% at $59.59 (more coverage here); Intel Corp. (NASDAQ: INTC) is down 6.8% at $21.13 (more coverage here); Capital One Financial Corp. (NYSE: COF) is down 7.7% at $56.84; General Electric Co. (NYSE: GE) is up 3.9% at $22.13 (more coverage here); Johnson Controls Inc. (NYSE: JCI) is down 3.2% at $30.94; Morgan Stanley (NYSE: MS) is up 8% at $22.40 after posting a new 52-week high of $22.46 earlier (more coverage here); Rockwell Collins Inc. (NYSE: COL) is down 1.9% at $59.04 after posting a new 52-week high of $61.84 earlier today; Schlumberger Ltd. (NYSE: SLB) is up 4.1% at $76.39 (more coverage here); and SunTrust Banks inc. (NYSE: STI) is down 1.8% at $29.03.

U.S. markets are closed Monday in observance of the birthday of Martin Luther King Jr. Before markets open on Tuesday we are scheduled to get earnings report from Delta Air Lines Inc. (NYSE: DAL), Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), Johnson & Johnson (NYSE: JNJ), Kansas City Southern (NYSE: KSU), Regions Financial Corp. (NYSE: RF), and Verizon Communications Inc. (NYSE: VZ).

Some standouts from today include the following stocks:

Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) is up 31.5% today at $24.98. The cruise ship operator held its IPO today. Move coverage here.

Advanced Micro Devices Inc. (NYSE: AMD) is down 10.2% at $2.46. The semiconductor maker is down sharply in sympathy with Intel.

James River Coal Co. (NASDAQ: JRCC) is up 10.1% at $3.16. The coal mining stocks are getting a bounce today from the strong GDP growth report out of China.

U.S. markets are closed Monday. Stay tuned for Tuesday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Chicago Fed national activity index
10:00 a.m. – Existing home sales
10:00 a.m. – Richmond Fed manufacturing index
11:30 a.m. – 3- and 6-month Treasury bill auctions

Have a great weekend!

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: AMD, AXP, COF, COL, CS, DAL, FCX, GE, INTC, JCI, JNJ, JRCC, KSU, LVS, MS, MT, NCLH, RF, RIMM, SLB, STI, V, VZ

24/7 Wall St. Closing Bell — January 17, 2013: Markets Open Higher and Continue Climbing (VVUS, YUM, ADTN, GLW, MDT, EBAY, KMP, BAC, BLK, C, PNC, UNH, AXP, COF, GE, JCI, MS, COL, SLB, STI, CBS, KSWS, LEAP)

Paul Ausick — Thu, 17 Jan 2013 21:03:03 +0000

U.S. equity markets opened higher this morning following the report that new claims for unemployment benefits had fallen by 37,000 to a level not seen since 2008 (more coverage here). The government report on new housing starts also rose sharply in December, adding more fuel to a good start to the trading day (more coverage here). There was little data from both Europe and Asia, although Japan’s economy minister walked back his comments from yesterday regarding the yen’s value, causing the yen to fall again versus the U.S. dollar.

The U.S. dollar index fell 0.2% today, now at 79.651. The GSCI commodity index is up 0.2% at 653.31, with commodities prices mostly lower today. WTI crude oil closed up 1.3% today, at $95.49 a barrel on the strong U.S. economic data, among other things (more coverage here). Brent crude trades up 1.1% at $110.89 a barrel. Natural gas is up 1.5% today at about $3.49 per million BTUs after a sharper than expected drop in U.S. inventories (more coverage here). Gold settled up 0.5% today at $1,690.80 an ounce.

The unofficial closing bells put the DJIA up about 85 points to 13,596.09 (0.63%), the NASDAQ rose more than 18 points (0.59%) to 3,136.00, and the S&P 500 rose 0.56% or more than 8 points to 1,480.93.

There were a several analyst upgrades and downgrades today, including Vivus Inc. (NASDAQ: VVUS) cut to ‘sell’ at Brean; Yum! Brands Inc. (NYSE: YUM) cut to ‘hold’ at Argus; ADTRAN Inc. (NASDAQ: ADTN) cut to ‘sell’ at UBS and raised to ‘neutral’ at Citigroup; Corning Inc. (NYSE: GLW) cut to ‘sector perform’ at RBC; and Medtronic Inc. (NYSE: MDT) raised to ‘outperform’ with a $50 price target at Credit Suisse.

Earnings reports since markets closed last night resulted in several price moves today, including these: eBay Inc. (NASDAQ: EBAY) is up 2.6% at $54.28 after posting a new 52-week high of $54.88 earlier today (more coverage here); Kinder Morgan Energy Partners LP (NYSE: KMP) is up 0.3% at $88.18 (more coverage here); Bank of America Corp. (NYSE: BAC) is down 4.5% at $11.25 (more coverage here); BlackRock Inc. (NYSE: BLK) is up 4.5% at $232.29 after posting a new 52-week high of $234.46 earlier today; Citigroup Inc. (NYSE: C) is down 3.1% at $41.15 (more coverage here); PNC Financial Services Group Inc. (NYSE: PNC) is up 4.3% at $62.33; and UnitedHealth Group Inc. (NYSE: UNH) is up 1.3% at $54.38 (more coverage here).

Before markets open tomorrow morning we are scheduled to hear from American Express Co. (NYSE: AXP), Capital One Financial Corp. (NYSE: COF), General Electric Co. (NYSE: GE), Johnson Controls Inc. (NYSE: JCI), Morgan Stanley (NYSE: MS), Rockwell Collins Inc. (NYSE: COL), Schlumberger Ltd. (NYSE: SLB), and SunTrust Banks inc. (NYSE: STI).

Some standouts from today include the following stocks:

CBS Corp. (NYSE: CBS) is up 8.5% today at $41.18 after posting a new 52-week high of $42.55 earlier. The entertainment company will convert its outdoor advertising business to a REIT. Move coverage here.

K-Swiss Inc. (NASDAQ: KSWS) is up 47.7% at $4.71 after posting a new 52-week high of $4.73 earlier today. The athletic shoe maker is being acquired by a Korean firm for $170 million ($4.75 a share).

Leap Wireless International Inc. (NASDAQ: LEAP) is down 7.5% at $5.85. The wireless communications company was cut to ‘sell’ at Jefferies.

Stay tuned for Friday. We have noted the following event on the schedule (all times Eastern):

9:55 a.m. – University of Michigan/Thomson Reuters consumer sentiment index

Filed under: 24/7 Wall St. Wire, HI/LOW, Market Close Tagged: ADTN, AXP, BAC, BLK, C, CBS, COF, COL, EBAY, GE, GLW, JCI, KMP, KSWS, LEAP, MDT, MS, PNC, SLB, STI, UNH, VVUS, YUM

Boeing Buoyed by 737 Plans

Paul Ausick — Thu, 15 Nov 2012 19:42:44 +0000

Boeing Co. (NYSE: BA) stock isn’t moving much today even though the company has made a couple of statements that are fairly positive. First, the company says it has completed the ‘Firm Concept’ stage in the development of its 737 MAX aircraft. The single-aisle plane is scheduled for a first delivery in 2017, and is being designed to achieve a 13% savings in fuel consumption.

General Electric Co.’s (NYSE: GE) Aviation division and its 50-50 partner Snecma, part of France’s Safran, will build the plane’s engines. Today, Boeing said Honeywell International Inc. (NYSE: HON) and Rockwell Collins Inc. (NYSE: COL) will supply subsystems for the planes, although new subsystems will be kept to a “limited” number.

The other announcement from the aircraft maker today is that it will begin building 42 new 737s in the second quarter of 2014 and the 737 MAX will begin production in 2015 on a new line to be set up at Boeing’s Renton, Washington, facility. That third production line will eventually be used to boost 737 production again.

There’s really no big news here, except that Boeing has apparently met its first self-imposed deadline for the 737 MAX. Given the company’s history of delays and flubs getting the 787 into production, this could be the beginning of a counter-trend. We’ll see.

Right now, Boeing’s stock has the delivery date for the new 737 MAXes priced in, and the production increase is still more than a year away. The two bits of information essentially cancel one another out as far as the stock price is concerned. Of more importance, is what will happen to the U.S. defense budget at the end of the year, and what impact that will have on Boeing. The defense division’s sales were down 4% in the third quarter, as sales of military planes decreased.

Shares of Boeing’s stock are down about 0.1% today at $71.20 in a 52-week range of $62.12 to $77.83.

Paul Ausick

Filed under: 24/7 Wall St. Wire, Aerospace & Defense Tagged: BA, COL, featured, GE, HON

Lockheed Martin Dividend Hike, Now Yields 5%!!!

Jon C. Ogg — Thu, 27 Sep 2012 17:12:55 +0000

Lockheed Martin (NYSE: LMT) has just joined the dividend hike brigade. We have previously written that this would likely be the case and the hike was right in line with the upper-end of our own expectations.

Lockheed’s board of directors has now just announced this Thursday that it has authorized a fourth quarter 2012 dividend of $1.15 per share. The hike is by $0.15 or 15%. With the coming defense cuts under the fiscal cliff, this is a situation that many defense firms and many investors are watching closely. The company confirmed that this announcement marked the tenth consecutive annual dividend increase, and said that it was the tenth double-digit percentage increase.

A month ago we predicted 12 major dividend hikes before the end of 2012, several of which have already been announced. Lockheed Martin was one of those stocks and we noted:

Lockheed Martin may be in the defense sector and at risk of austerity measures, but its dividend hike of late 2011 was for a yield of 5.2%. That only screens out as about 4.4% now that shares hit a new 52-week high. In the new age of austerity, the $30 billion defense giant might not be able to take the same 33% dividend hike it took in late 2011, but it is still expected to grow earnings, and that $1.00 quarterly payment may get hiked to $1.10 or $1.15 in the next 45 to 60 days.

As far as what the annualized payout of $4.60 means with a $91.80 share price, the old dividend yield of close to 4.4% will now yield 5% to new investors. It is also worth noting that $91.80 share price compares to a 52-week range of $70.37 to $93.99.

Lockheed is blowing away its defense contractor peers on the dividend yields. Here is a list of dividend yields as follows:

Rockwell Collins Inc. (NYSE: COL) at 2.3%

L-3 Communications Holdings In (NYSE: LLL) at 2.8%

General Dynamics Corp. (NYSE: GD) at 3.1%

Northrop Grumman Corporation (NYSE: NOC) at 3.3%

Raytheon Co. (NYSE: RTN) at 3.4%

JON C. OGG

Filed under: 24/7 Wall St. Wire, Aerospace & Defense, Dividends & Buybacks Tagged: COL, GD, LLL, LMT, NOC, RTN

Austerity Age Hits Rockwell Collins, Another Defense Earnings Warning

Jon C. Ogg — Fri, 21 Sep 2012 13:21:46 +0000

Rockwell Collins Inc. (NYSE: COL) is trading lower after the defense firm said on Friday morning that is lowering its guidance for fiscal year 2013. The blame is over unprecedented uncertainty around military cuts expected in 2013 and over congressional plans.

As far as the guidance, the operating earnings for 2013 were $4.30 to $4.50 per share on sales of $4.6 to $4.7 billion. Estimates were $4.63 EPS and $4.87 billion.

Rockwell Collins said that is total segment operating margins are now expected to come in a 21% to 22% range. The company said that the Budget Control Act of 2011 requires reductions to U.S. defense spending starting in January 2013 and today’s guidance is meant to include this impact. Rockwell Collins also cast a wide net by saying that this uncertainty is there for all businesses supporting the Department of Defense.

The assumption is that spending cuts will occur and it expects government programs to transition from development into production. It also talked up the launch of new air transport and business aircraft, but it remains focused on shareholder value and long-term growth targets.

Rockwell Collins is a $7.45 billion company by value and shares are down almost 3% at $51.00 versus a 52-week range of $46.37 to $61.46.

This likely will not be the last defense warning you hear in the aerospace and defense sector.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Aerospace & Defense, Earnings Tagged: COL

EADS/BAE Merger: Waves of Consolidation, Antitrust and Problems for Global Aerospace and Defense

Jon C. Ogg — Thu, 13 Sep 2012 11:49:56 +0000

This proposed merger between EADS and BAE is going to be more than complicated. Frankly, we also wonder about the legality of such a merger and wonder how other defense and aerospace firms will not formally object to the deal. The combined deal will have many hurdles to overcome. It would be a combination of the European Aeronautic Defence and Space Company, which is the parent of Airbus, and the surviving company of the British Aerospace and Marconi Electronic Systems merger from the 1990s.

Investors are so far having a hard time accepting the deal as well. EADS shares fell 5.6% to 28.00 euro yesterday in Paris trading, and shares are down another 8% to 25.70 euro in local Paris trading today. BAE Systems saw its shares rise 10.6% to 363.6 pence in London trading on Wednesday, but shares are giving back much of those gains today with a drop of almost 6.5% to 340.10 pence in London trading.

In short, when stocks fall around a merger it is bad omen, and that is true regardless of the geographic location. If stocks are expected to still return 5% to 8% per year, then EADS just created a situation where any new shareholders who bought will have to wait two years or more just to get back to even.

Analysts do not like the merger either. Deutsche Bank downgraded shares of EADS overseas today due to an overhang and uncertainties due to a distractive and complex situation.Deutsche Bank did maintain a Buy rating on BAE. Citigroup has also downgraded EADS to Neutral on the risks associated with this merger. Barclays also keyed in and recommended taking profits in BAE Systems with the note that it expects EADS shares to struggle even if the deal could create value for both companies. Another firm, called Investec, recommended that BAE shareholders take their profits here and look for excess gains elsewhere as the BAE share price is likely limited. Societe Generale downgraded BAE Systems to a Sell rating on the gains seen already.

According to Yahoo! Finance, the respective market caps in dollar-converted terms from British pounds and euros puts the value at almost $18 billion for BAE and more than $27 billion for EADS. That brings a combined value of $45 billion or so. In comparison, Boeing Co. (NYSE: BA), which is a DJIA component, is worth some $55 billion. Lockheed Martin Corp. (NYSE: LMT) is worth just under $30 billion, and General Dynamics Corp. (NYSE: GD) is worth over $23 billion. Elsewhere, Raytheon Co. (NYSE: RTN) is worth about $19.1 billion and Northrop Grumman Corp. (NYSE: NOC) is worth about $16.7 billion.

As far as EADS is concerned, the share structure is complicated, with 50.14% ownership and voting rights tied to the French and Spanish governments and also Daimler; some 49.86% of the shares are considered the free float. With state ownership in play, we would throw out the caveat that it would seem likely that if the EU nations wanted the merger to go through then it is feasible that they would be able to “encourage” cooperation for approvals from the European regulatory bodies.

History is against this deal if the conspiracy of regulatory approval and cooperation is not considered. Will American and other NATO nations raise a flag over this deal? It seems likely. If you go back one decade or so you will recall that the European Union rather than the Department of Justice blocked General Electric Co. (NYSE: GE) from acquiring Honeywell International Inc. (NYSE: HON) based on antitrust issues. If the Europeans can block a merger of two U.S. companies, it is feasible that the opposite could be possible. S&P Equity Research has said now that the deal would face a number of regulatory hurdles. The U.S. military agencies might also raise issues about how to ‘ringfence’ the U.S. operations in order to protect sensitive information and technology.

If this EADS/BAE merger is somehow allowed, we would expect that the investment community will start expecting a chain-reaction of defense and aerospace mergers as companies will go from having two powerful government-backed competitors to one much more giant competitor that is government backed. Here are some of the U.S. companies that are all under $10 billion in market cap that could fit within the realm of takeovers with overlaps in aerospace and defense, listed by market capitalization rates:

Rockwell Collins Inc. (NYSE: COL) at $7.3 billion
TransDigm Group Inc. (NYSE: TDG) at $7.3 billion
L-3 Communications Holdings Inc. (NYSE: LLL) at $6.9 billion
FLIR Systems Inc. (NASDAQ: FLIR) at $3.1 billion
HEICO Corp. (NYSE: HEI) at $1.9 billion
Esterline Technologies Corp. (NYSE: ESL) at $1.8 billion
Alliant Techsystems Inc. (NYSE: ATK) at $1.6 billion
GenCorp Inc. (NYSE: GY) at $600 million

Aerospace and defense mergers are not easy, and they often face more strict approvals and oversight due to the sensitivity of the contracts that are (or can be) involved in. That being said, the past two decades saw significant consolidation in the sectors. Two ETFs in the aerospace and defense sectors are PowerShares Aerospace & Defense (NYSEMKT: PPA) and iShares Dow Jones US Aerospace & Defense (NYSEMKT: ITA), but the holdings are similar, as you would expect, and the trading volume is light on each.

We have not even touched on how future austerity measures and lower military and government spending are concerned around influence over politicians and foreign policies. That is another matter entirely.

JON C. OGG

Filed under: Aerospace & Defense, Mergers & Acquisitions Tagged: ATK, BA, COL, ESL, FLIR, GD, GE, GY, HEI, HON, ITA, LLL, LMT, NOC, PPA, RTN, TDG

The Growth of the Short-Selling Hedge Fund ETF (HDGE, GT, OPEN, ENR, COL, GMCR, C, ERIC, ATI, BBY, JCI)

Jon C. Ogg — Thu, 12 Apr 2012 15:06:03 +0000

Apparently having a short selling strategy under a hedge fund exchange-traded fund model has been working. This week we received notice that the assets under management for AdvisorShares ActiveBear ETF (NYSE: HDGE) hit a record with more than $209 million in assets under management. That figure was listed on the fact sheet as being $205 million as of Wednesday’s close. This is a short-selling strategy ETF, so in theory its share price will rise as the market falls and/or when the holdings fall in value.

The short-only equity ETF saw inflows as well this week as the market was soft earlier in the week, but that will obviously ebb and flow as the markets rise and fall. The top ten short positions are as follows (largest first): Goodyear Tire & Rubber Co. (NYSE: GT); OpenTable, Inc. (NASDAQ: OPEN); Energizer Holdings Inc. (NYSE: ENR); Rockwell Collins Inc. (NYSE: COL); Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR); Citigroup, Inc. (NYSE: C); Ericsson (NASDAQ: ERIC); Allegheny Technologies Inc. (NYSE: ATI); Best Buy Co. Inc. (NYSE: BBY); and Johnson Controls Inc. (NYSE: JCI). Without rounding up or down, these top ten short positions account for only 32% to 33% of the entire ETF’s short positions.

Here is the ETF’s philosophy in a nutshell: “The portfolio management team implements a bottom-up, fundamental, research driven security selection process. In selecting short positions, the Fund seeks to identify securities with low earnings quality or aggressive accounting which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period. In addition, the portfolio management team seeks to identify earnings driven events that may act as a catalyst to the price decline of a security, such as downwards earnings revisions or reduced forward guidance.”

One thing is nearly certain here. If investors are looking for an ETF product that bets against high valuations or against what may be market aberrations, they may have found their vehicle.

Now, here is the flip-side of this ETF. There are two sides to every coin. If you get into a serious bull situation this can lose incredible amounts of money. Sometimes it is the most troubled stocks which rally the most, and it doesn’t take a rocket scientist to figure out what likely happens to the price of this ETF in that situation.

The ETF’s Net Expense Ratio is currently 3.29% but the fund noted “The Advisor has contractually agreed to keep the Fund’s Total Annual Fund Operating Expenses from exceeding 1.85% for at least a year from the date of the Prospectus. This agreement is limited to the Fund’s direct operating expenses and, therefore, does not apply to “Acquired Fund Fees and Expenses.” The fee breakdown is as follows per the ETF fact sheet:

Management Fee 1.50%
Short Interest Expense 1.44%
Other Expenses 0.22%
Acquired Fund Fees 0.13%
Gross Expense Ratio 3.29%

JON C. OGG

Filed under: Active Trader, ADR, Corporate Governance, ETF, ETFs & Mutual Funds, International Markets, Mutual Funds, Personal Finance, Short Interest Tagged: ATI, BBY, C, COL, ENR, ERIC, GMCR, GT, HDGE, JCI, OPEN