Banking & Finance

The Unusual Suspects (ACOR, AAPL, BX, PMI, VZ, T, BRK-A, BRK-B, CBY, HSY, KFT, C, BAC, WFC, GS)

This week’s Unusual Suspects are not just about earnings season, despite the deluge and onslaught we are about to see.  We have a watch for events this week in shares of Acorda Therapeutics, Inc. (NASDAQ: ACOR), Apple Inc. (NASDAQ: AAPL), The Blackstone Group, LP (NYSE: BX), Phillip Morris International (NYSE: PMI), Verizon Communications Inc. NYSE: VZ), AT&T Inc. (NYSE: T), and in Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B).  The Cadbury plc (NYSE: CBY) buyout saga is close to coming to a head with Hershey Co. (NYSE: HSY) and Kraft Foods Inc. (NYSE: KFT) both up against news this week.  We also have earnings previews for Citigroup Inc. (NYSE: C), Bank of America Corporation (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), and Goldman Sachs Group Inc. (NYSE: GS).

There are far more issues to consider for the week, but this is a start.  We’ll be doing more detailed earnings previews in groups during the week.

Acorda Therapeutics, Inc. (NASDAQ: ACOR) has an FDA deadline of January 22 for an FDA decision of the drug Famipridine-SR developed along with Biogen Idec (NASDAQ: BIIB).  This is the MS drug aimed at helping MS patients in their walking.  Acorda received a delay on this event before in October until the Jan. 22 date, which temporarily caused a large and fast dip in the stock that shares have since recovered from.  For whatever this is worth, Acorda’s active FEB10 options have an open interest of more than 7,400 contracts in the CALLS and an open interest right at 20,000 contracts in the PUTS; and the short interest has come down a bit to just over 3 million shares if the preliminary January data has remained steady.

Apple Inc. (NASDAQ: AAPL) is not on the earnings deck this week, but there are more rumors out there regarding this week’s data showing more of the Mac tablet. even noted a touchscreen Mac with an 18″ screen coming later in the year.  Frankly, we are getting tired and tired of hearing about this tablet.  It is obvious as hell that the company is going to launch one, but if it doesn’t jump forward then other PC makers are going to preempt it and get theirs out ahead of Apple.  It is time to see and touch this product.

The Blackstone Group, LP (NYSE: BX) is likely to have an IPO for its majority-owned Travelport Ltd.  This is the travel reservation and booking operations (with Galileo and Worldspan brands) that is set to announce plans to raise about 1.2 billion Pounds (close to $1.95 billion U.S. Dollars) in a London Stock Exchange IPO.  This will help to pay down more than $3 billion in debt from the company after Blackstone and co-investors paid some $4.3 billion in 2006, and the Orbits IPO has already happened.

Phillip Morris International (NYSE: PMI) may be one to watch for exposure to China.  China is said to finally be making good on a promise to cut smoking in public with a public building smoking ban in 7 of the nation’s capitals with promises to clamp down more.  PMI has a venture with China National Tobacco to increase production and market share in China and China is the world’s largest tobacco market.  Bans in the U.S. and Europe have had far less impact than many thought it would against the tobacco companies, but that fear is there that smoking will ultimately be less and less prevalent if they limit the number of places you can smoke.

Verizon Communications Inc. NYSE: VZ) and AT&T Inc. (NYSE: T) are entering into a price war which may be a no-win scenario for any carrier and a drag on smartphone maker margins.  Most unlimited voice and data plans for top smartphones will now be closer to $100 per month, down from about $130 now.  This may be ‘another price war round of cuts’ rather than something that is exactly new, but this creates the great race to zero by our count.

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) is doing another deal, although this one may not have any major impact other than showing that Warren Buffett doesn’t mind making sure that Berkshire Hathaway stays dominant in the insurance and financial sector.  Swiss Re is getting about $1.27 billion from Buffett by transferring part of Swiss Re’s life insurance operations n the United States over to Berkshire Hathaway.

The business world is getting high on chocolate.  A bidding war for the sake of their being a bidding war is ensuing over Cadbury plc (NYSE: CBY).  Weekend reports have Hershey Co. (NYSE: HSY) planning to leverage itself to the hilt.  The family trust controlled company is said to be about to offer at least $17.9 billion next week for Cadbury in an effort to top the Kraft Foods Inc. (NYSE: KFT) offer of $17.2 billion.  That would put Hershey’s price  offer in a range of 800 to 820 pence per the WSJ, over the implied 770 pence per share offer currently on the table from Kraft.  Here is the problem with Hershey doing this, they think it is the financial world of 2006 to 2007 where using leverage is a norm.  This will include a loan of at least $10 billion (WSJ noted from J.P. Morgan Chase & Co. and Bank of America Merrill Lynch) and is likely to include $5 billion in newly issued Hershey shares and $3 billion or more from private investors and the Hershey trust.  Meanwhile, there are no assurances that THIS deal will get approved either as the CEO of Cadbury has already signaled that he believes shares will rise to more than 1,000 pence over the next three years.  Meanwhile, Kraft has a Tuesday deadline of deciding to hike its offer to Cadbury.  Hershey shareholders will get to decide if this over-leveraging of the business is the right move after shares have been cut in nearly half over the last five years and have been dead-money for the last two years without all the new leverage.

We could see a lowering of bias on revenues after JPMorgan for banks and brokers this week with a huge onslaught of financial firms reporting earnings.  This week’s top bank and financial earnings are as follows:

  • Citigroup Inc. (NYSE: C) is Tuesday morning and estimates are -$0.33 EPS and $18.43 billion in revenue.
  • Wednesday is Bank of America Corporation (NYSE: BAC) and estimates are -$0.52 EPS and $26.84 billion in revenue.
  • Wednesday is also Wells Fargo & Co. (NYSE: WFC) and estimates are -$0.02 EPS and $21.88 billion in revenue.
  • Thursday is Goldman Sachs Group Inc. (NYSE: GS) and estimates here are $5.19 EPS and $9.75 billion in revenue.

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