The Unusual Suspects (AA, MOS, YUM, CVC, CIT, LOCM, RVSN, WFC)
It is the weekend and that means a review of last week’s unusual suspects and a review for key stocks in the week ahead. Technically earnings season gets its first earnings report from a DJIA component in ACLOA Inc. (NYSE: AA) this week, as well as earnings from The Mosaic Company (NYSE: MOS) and from Yum! Brands, Inc. (NYSE: YUM). Other key stocks to watch will be Cablevision Systems Corporation (NYSE: CVC), CIT Group, Inc. (NYSE: CIT) on the ropes, the real or unreal takeover chances for Local.com Corp. (NASDAQ: LOCM), and the unusual trading in Radvision Ltd. (NASDAQ: RVSN) and Wells Fargo & Company (NYSE: WFC). We have provided more detailed information and analysis on each story below.
ALCOA Inc. (NYSE: AA) is the first of the DJIA 30 components to report earnings after the market closes on Wednesday. This stock has risen nearly 30% in the last 90 days and it is still expected to lose -$0.12 EPS on $4.46 billion in revenue. What is important here is that the estimates have actually gotten better as it was expected to lose -$0.16 EPS just two months ago. The fourth quarter is the crucial quarter as Thomson Reuters has an estimate of $0.04 EPS on $4.76 billion in revenues, particularly since it was expected to lose money in Q4 until about 45 days ago. We think that the company has to continue to show upside as it now trades at over 25-times normalized 2010 earnings estimates from Thomson Reuters. Talking about restructuring benefits alone will not be good in enough.
Cablevision Systems Corporation (NYSE: CVC) is worth 20% more on its own after the spin-off of Madison Square Gardens in a report, according to Barron’s this weekend. Based on the way the market was at the close of the week, we’d give this a 3% premium open on a static basis on Friday, and over 4% if the markets are indicated higher. The article listed a consolidated value of close to $28.00, and remember… even though the premium could not be justified today or in any real world dollars now, this was on old $36 Dolan buyout attempt that got blocked.
CIT Group, Inc. (NYSE: CIT) is up against the ropes and the situation could come to a head this week as most feel it near implosion and as creditors are already making even more fresh moves against CIT. It traded above Thursday’s lows all of Friday despite the weekend fears. We would note that a search of options trading showed that the OCT-2009 $1.00 PUTS were the most active with more than 72,000 contracts trading hands. This continues to be a top day trader alert stock and we feel that a definitive outcome of its future is going to become a demand here sooner than later. This could be the crucial week for CIT’s future as a stock under the “CIT” ticker.
Local.com Corp. (NASDAQ: LOCM) just went on the radar last week for takeovers in Internet-Land. The problem is that a press release claiming that Microsoft was buying it was a hoax. But… we listed this one in recent months as one Internet engine that is growing and focuses in that ‘go-local’ space where so many larger engines have just failed to get entrenched. The company has an interesting advertising platform based around this as well, and the company would be a solid bolt-on deal with only an $83 million market cap after last week’s 20%+ gain.
Radvision Ltd. (NASDAQ: RVSN) lost roughly one-third of its value last week. Cisco is its top customer with roughly 40% of its attributed revenues, and Cisco’s acquisition of Tandberg could effectively leave Radvision sniffing glue. We saw at least four firms downgrade the stock last week: Cantor Fitzgerald, RBC Capital Markets, Morgan Keegan, and Oscar Gruss. The Israel-based firm said last week: “RADVISION is in the process of assessing the effect of this proposed transaction on its business over the short and long term and any opportunities it may create.” In short, it is scrambling as Cisco is its largest customer and RADVISION’s IP is in a range of Cisco’s videoconferencing solutions. This week will be key to see how traders treat this considering that it closed under its open on both Thursday and Friday but still closed Friday above the intra-day lows of both Thursday and Friday.
The Mosaic Company (NYSE: MOS) is actually set to report earnings on Monday after the closing bell. Estimates from First Call are $0.35 EPS on $1.54 billion. The bar is set very low here. Only three months ago, this one was expected to earn close to $1.00 EPS and only 2 months ago it was expected to post almost $0.50 EPS. Top fertilizer and agriculture players keep lowering guidance, and over 100% from the late-2008 lows it is still one-third of its price during the Summer-2008 peak agriculture days.
Wells Fargo & Company (NYSE: WFC), Warren Buffett’s biggest bank bet, appears to have pre-earnings season PUT OPTION buying heading into the stock. On Friday alone in the October-2009 PUTS, there were 89,835 contracts traded of the $24 PUTS versus an open interest of 125,676 contracts and there were 115,055 contracts traded of the $27 PUTS versus an open interest of 102,018 contracts. The stock has been peaking at the $28+ level, so we would attribute this to downside protection rather than anything sinister.
Yum! Brands, Inc. (NYSE: YUM) is expected to post $0.58 EPS on $2.8 billion in revenues on Tuesday according to Thomson Reuters estimates. Estimates have come down over the last quarter and its stock has not participated in the rally despite a dividend boost and share repurchase authorization. As the recession is ending or getting less and less bad, the interest in the fast food sector and casual dining just has not been there in the last quarter. That being said, we’ll consider using Yum! as a proxy stock to see how traders and investors treat it for the pre-reporting analysis of the sector rather than make any bold decision ahead of time.
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JON C. OGG
October 4, 2009