Seeking Alpha's one-page summary of this morning's key market-moving and stock-moving stories. Headlines link to the original article. Use Wall Street Breakfast as your starting point, and make sure to check the original before trading.
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MACRO AND HOUSING
Realogy Meets Tempered Views [TheStreet.com]
Summary: Despite worries from Wall Street that a company so heavily involved in the slumping U.S. housing market would perform poorly during the third quarter, real estate brokerage company Realogy met analysts expectation for the quarter and maintained its outlook for FY 2006. Realogy, which includes franchises such as Coldwell Banker and Sotheby's International Realty, earned $87 million, or 34 cents a share in the third quarter - down significantly from its earnings of $227 million, or 91 cents a share during the year earlier period. Revenue also fell, by 16% to $1.73 billion, within the range that management had forecast. The poorer numbers were reflective of the slowdown in U.S. home sales. Still, the company reiterated its full-year guidance, which it lowered in August, for revenue of $6.4 million to $6.7 billion and adjusted earnings of $1.44 to $1.76 per share. Shares fell nearly 4.5% during market trading yesterday. Earnings were reported after the close.
Related links: Faced With Growing Wall Street Scrutiny, Realogy Considers Going Private • Does Realogy Contain Real Value? • Barron's: Time to Buy Housing Stocks • Why I'm Long Realogy • Cendant Lobs Up a Fat Pitch in the Form of Realogy Corp.
Potentially impacted stocks and ETFs: Realogy (H), Equity Office Properties Trust (EOP), Simon Property Group Inc. (SPG), Equity Residential (EQR), Apartment Investment & Management Co. (AIV), Vornado Realty Trust (VNO)
TECHNOLOGY AND INTERNET
Summary: Time Warner reported knockout Q3 earnings on Wednesday, mostly due to its acquisition of the Adelphia Communications Corp and a turnaround at AOL. Net earnings, including Adelphia's, reached 57 cents a share on $2.3 billion, a significant increase from last year's 18 cents a share on $853 million. Excluding the Adelphia acquisition, earnings came to 19 cents per share, just below analyst estimates of 20 cents. AOL made a strong showing this quarter, raising advertising revenue by 46%. Time Warner is in the midst of shifting AOL's business model away from subscriptions towards one based on advertising, like its competitors Google and Yahoo. However, total revenue for the quarter still declined 3% because of the 13% decline in subscription revenue. Due to cuts in marketing and other spending, AOL managed to post a 21% increase in profit. Dick Parsons, Time Warner's CEO, said on the conference call that he was "very pleased" with AOL's performance and the general direction of its turnaround. Despite previous news reports that the company might consider letting the Internet company go, he added: "It's a core asset, and I think we've got it on the right track."
Related links: Conference Call Transcript: Time Warner Q3 2006 • Sell-Side Debate on Time Warner • Time Warner Management Not Making the Tough Decisions Necessary to Succeed • Time-Warner Considers Cutting AOL Loose • Is a Yahoo-AOL Acquisition in the Works? • Forbes: Time Warner Seen Poised For Long-Term Upswing
Potentially impacted stocks and ETFs: Stocks: Time Warner (TWX), Google (GOOG), Yahoo! (YHOO), Viacom (VIA), News Corp. (NWS), Comcast Corp. (CMCSA) • ETFs: Internet HOLDRs (HHH), PowerShares Dynamic Large Cap Growth (PWB), Vanguard Consumer Discretionary VIPERs (VCR)
Amid Videogame Arms Race, Nintendo Slows Things Down [Wall Street Journal]
Summary: Nintendo took the simple approach with the design of its Wii game console that goes on sale in the U.S. in less than three weeks. It is technologically inferior by design to Microsoft's Xbox 360 and Sony's forthcoming PlayStation 3. Nintendo chose such a strategy because of the reality that the gaming market was shrinking in Japan, wasn't growing in the U.S., and gamers were increasingly finding games too complicated. The simple approach has paid off huge with its handheld DS console launched in November 2004 that has outsold Sony's more high-tech PlayStation Portable. With the Wii, Nintendo is attempting to satisfy all sorts of gamers, to include casual players that may otherwise have not purchased a new console, due to cost and the complexity of games. The Wii at $250 is cheaper than the entry level models of the Xbox 360 at $299, and the PS3 at $499. And its innovative remote control-like game controller and "fun" games such as sports games where the controller can be used as a tennis racket for instance, in addition to classic games like Zelda, are seen attracting a wider audience. Nintendo may not have the market share Sony's gained from its PlayStations, but it is profitable and expects its Wii to be profitable within a year.
Related links: IRG: Nintendo FQ2 Earnings Summary (scroll-down) • Nintendo's Strategy Significant for its Business and the Video Game Industry • Sony Comments on LCD TVs and PSP Shipments • Reuters: Nintendo picks GameStop, Toys "R" Us for Wii launch • BusinessWeek: Nintendo Brings the Games to the People • The Growing Importance of Online Gaming for Nextgen Consoles • Microsoft: "The Younger Audience Is Our Future" • Who Will Profit From the Gaming Console Wars? • Nintendo: Solid Business, Share Price Too High
Potentially impacted stocks and ETFs: Nintendo (OTCPK:NTDOY), Microsoft (MSFT), Sony (SNE), Activision (ATVI), Electronic Arts (ERTS), Konami (KNM), Take Two (TTWO), THQ (THQI)
ENERGY AND METALS
Newmont Profit Jumps on High Gold Prices [Reuters]
Summary: Newmont Mining, benefiting from high gold prices that more than compensated for lower production, yesterday reported a 57% jump in Q3 profit. Net earnings were $198 million, or $0.44/share, compared with $126 million, or $0.28/share, a year earlier. The EPS figure bested analyst expectations of $0.43, and the shares gained over 3% on the news to reach a high of $46.69. Revenue declined to $1.102 billion from $1.145 billion. In July, Newmont issued a warning that sales were likely to be lower in Q3 than in Q4 because of lost business in Uzbekistan, lower output in Ghana and Peru, and higher energy and labor costs. Though gold sales fell to 1.698 million ounces from 2.122 million a year earlier, the company's average realized gold price rose to $615 per ounce in Q3 from $435 a year earlier.
Related links: Newmont Mining Q3 2006 Earnings Call Transcript • Newmont Mining: A Golden Opportunity -- Barron's • Where Is Newmont Mining Headed? • Newmont Mining 3Q Profit Rises [Associated Press]
Potentially impacted stocks and ETFs: Newmont Mining Corp. (NEM) • Market Vectors Gold Miners (GDX), Vanguard Materials ETF (VAW), SPDR Metals & Mining (XME)
Struggling Ford Looks to Get a Lift -- From Slumping Volvo's New Models [Wall Street Journal]
Summary: Swedish automaker Volvo's (S80 model pictured) sales have been slumping of late, with its aging fleet of cars and higher global gas pump prices. Purchased by Ford in 1999, the nearly 80 year old luxury car maker has, until recently, been a staple of Ford's overseas luxury line, which also contains Jaguar, Land Rover and Aston Martin. In August, Ford surprised by announcing that it likely wouldn't see a profit from its luxury line this year - the result of high pump prices and a weakening dollar. Renowned for its unimpeachable safety design, Volvo is considered key to Ford's ability to again become a profitable company (the company reported losses of more than $5 billion in its most recent earnings report). And with seven new or improved models being released in the next four years, Volvo models just may be the key to a Ford recovery. If not, than Ford may ultimately have to consider unloading the company to the highest bidder. For the time being, however, that is not a concern. Volvo CEO Fredrik Arp claims Ford Chairman Bill Ford has assured him that Volvo isn't for sale because of its "global footprint." Volvo executives do acknowledge that they may be running out of wiggle room. According to Mikael Sallstrom, a representative of the Swedish Metalworkers Union and a Volvo board member, "When you have a situation like the one we have today, where [Ford] is bleeding money and Volvo's sales are down, your independence within the company isn't as big." Sallstrom, as well as many outsiders believe the only way for the Swedish car maker to ensure its future with Ford, as well as maintain its independence, is to increase global sales significantly - perhaps from 2005's 443,000 units sold to above 500,000.
Related links: Ford Q3 2006 Earnings Call Transcript • Investing Is... Using Stocks To Capture an Idea • Throwing In The Towel On Ford • Ford Expects to Slash 1H07 Production By 12% • Cramer's Take on Ford • GM, Toyota, Ford Post Oct. Sales Gains [AP] • Volvo Trucks Cutting 600 in Hagerstown [AP]
Potentially impacted stocks and ETFs: General Motors (GM), Volkswagen AG (OTCQX:VLKAY), Toyota (TM), Honda (HMC), Mercedes [DaimlerChrysler] (DCX) • PowerShares Intl. Dividend Achiev. (PID),
Summary: Burger King reported a whopping 82% increase in net earnings in its Q1 report. The company earned a profit of 30 cents per share on revenue of $546 million, significantly better than analyst expectations of 26 cents per share on revenue of $538.1 million. Revenue also jumped 8% from last year's $508 million. Earnings news pushed shares up $1.12 or 6.7% yesterday to close at $17.90. The company says that its Value Menu, BK Stacker sandwich and increased breakfast traffic drove sales. Chicken products, in addition to NFL and NASCAR promotions, also contributed to Q1 results. For FY 2007, the company expects 6-7% revenue growth, and 10-12% adjusted earnings growth. Previously, Burger King has reported worldwide same store growth for 11 consecutive quarters.
Related links: LIPOsuction Becoming Fashionable for Debutante Companies • Houston Chronicle: Burger King CEO Gets $7.1M Bonus
Potentially impacted stocks: Burger King (BKC), McDonald's (MCD), Wendy's International (WEN), Jack in the Box Inc. (JBX), CKE Restaurants, Inc. (CKR)
Citigroup May Be Near A Chinese Bank Deal [Wall Street Journal]
Summary: Citigroup has been in a year long bidding war with France's Société Générale SA and China's Ping An Insurance, with the three of them separately seeking to win a stake in China's Guangdong Development Bank. According to a person close to the matter and state media reports, Citi appears to be in position to win. The deal would be worth about $3 billion for a stake approaching 25%, or under the maximum allowable by foreign banks and investors under Chinese law. In order to comply, Citi is making its bid with a subsidiary, so as not to exceed 20% ownership by a single foreign bank, but still be under 25% control. In the end, Citi, and a group of Chinese investors it is working with would have an 85% ownership position. Guangdong DB has $48 billion in assets with nearly 600 branches and a national license, but is "financially weak." By the end of this year China must open its banking sector -- estimated $1.9 trillion equivalent of yuan deposits -- to foreign competition as part of its 2001 WTO accession promise.
Related links: Citigroup Q3 2006 Earnings Call Transcript • BofA, Citi Trade Lower after Q3 Earnings • China's Banking Sector Looks Better with New Corporate Bankruptcy Law • Developments in China's Banking Sector
Potentially impacted stocks and ETFs: Citigroup (C), Société Générale (OTCPK:SCGLY) • ETFs: First Trust Morningstar Div Leaders Idx (FDL), WisdomTree High-Yielding Equity (DHS), streetTRACKS KBW Bank ETF (KBE), Vanguard Financials ETF (VFH)
Summary: Private equity fund Silver Lake Partners and a subsidiary of Japan's largest investment bank, Nomura Holdings, have reached an agreement for the sale of Instinet, an electronic brokerage servicing institutional investors, by Silver Lake for an undisclosed amount in cash. Based on a recent profit estimate valuing Instinet at 20x earnings, the deal could be worth about $1 billion, or almost 5x the $207.5 million Silver Lake paid less than a year ago. Instinet hired Evercore in August to explore its options. Private equity funds typically hold investments over a longer period of up to five years, but will "flip" an investment when there's a good profit making opportunity. This is an important acquisition for Nomura, as its spokesman was quoted by Bloomberg saying, "We will be able to provide hedge funds and other institutional investors with value-added trading technologies and execution services." Instinet will also provide Nomura with greater global reach and a larger client base.
Related links: Nomura Press Release • Additional coverage: Bloomberg and WSJ • Nomura's Disappointing Earnings and Difficult Circumstances • Nomura Q2 Earnings Conference Call Q&A Session Transcript
Potentially impacted stocks and ETFs: Nomura Holdings (NMR), Evercore Partners (EVR), Investment Technology Group (ITG)
CVS in Talks to Buy Drug Middleman [New York Times]
Summary: Drugstore chain CVS Corp. is in late-stage talks to purchase pharmacy benefits manager [PBM] Caremark Rx for $21 billion. The combined company should enjoy annual revenue of $75 billion, well beyond that of any of its competitors. PBMs, which function as middlemen between drug companies and people with drug benefits coverage, handle about 75% of the $235 billion spent on prescriptions every year in the U.S. The merger is taking place during a period of serious challenges to the business of drug retailing, including the recent announcement by Wal-Mart that it will sell generic prescriptions for $4. The addition of Caremark Rx to CVS's own PBM, PharmaCare, will place CVS far ahead of rivals Medco Health Solutions, Express Scripts and Wellpoint. PBMs administer drug benefits to the employees of their customers, which are generally large corporations. They purchase drugs from their manufacturers and then distribute them through drugstores or mail order. Caremark, which handles drug benefits services for 4.5 million federal employees, retirees, and dependents as well as the employees, retirees and dependents of Chrysler, processed more than 530 million prescriptions last year through its network of 6,000 walk-in and seven mail order drugstores. Because they buy in such bulk, PBMs are able to buy drugs at discounted prices -- but that advantage is now threatened by Wal-Mart's $4 generic drug program. Caremark's stock price has reflected the threat, falling 17% since Sept. 12 to a $49.23 close yesterday. The merger, which is not yet official, will be reviewed by the Federal Trade Commission to ensure that there are no antitrust violations.
Related links: How the CVS-Caremark Merger Might Work (Or Not) • Why Wal-Mart's Drug Program Shouldn't Worry Walgreen and CVS Investors • Wal-Mart's Cheap Drugs Not as Threatening as they Appear • CVS Trumps Walgreen on Stock Valuation • Wal-Mart's $4 Generic Drugs Could Shake Up Entire Pharma Sector • Wal-Mart's Prescription Drug Plan Could Impact Entire U.S. Health Care System • CVS, Caremark Unite to Create Drug-Sale Giant [Wall Street Journal]
Potentially impacted stocks and ETFs: CVS Corp. (CVS), Caremark Rx (CMX), Medco Health Solutions (MHS), Express Scripts Inc. (ESRX), Wellpoint, Inc. (WLP) • Retail HOLDRs (RTH), SPDR Retail (XRT), PowerShares Dynamic Pharmaceuticals (PJP), iShares Dow Jones US Pharmaceuticals (IHE), SPDR Pharmaceuticals ETF (XPH)
Summary: Mastercard's net income grew 82%, surpassing analysts' expectations as the second-largest credit card company benefitted from increased spending and fees for overseas purchases. In the first full quarter since Mastercard went public in May, it reported a net income of $193 million, or $1.42 a share, compared to $106.1 million, or 79 cents last year, and exceeded analysts' estimates of $1.07 a share. Mastercard cut its operating expenses and pruned 4.6% from its advertising budget. More frequent use of credit cards and new prices for overseas purchases were partly responsible for the 19% rise in transactions for the quarter, offsetting legal woes which are also affecting its rival, Visa. Overseas merchants claim the credit card companies are involved in price-fixing with banks, but both Visa and Mastercard have denied these allegations.
Related links: Visa IPO Should Pose Challenge to MasterCard • For Credit Card Issuers, The Sky's the Limit When It Comes to Rewarding Customers • An In-Depth Look At MasterCard's IPO (MA)
Potentially impacted stocks and ETFs: Mastercard (MA) • Competitor: American Express (AXP)
AEROSPACE AND DEFENSE
Boeing Loosens Airbus's Brazil Hold [Wall Street Journal]
Summary: For years, Airbus has been the dominant aircraft provider to Brazilian companies. Yesterday, Boeing Co., capitalizing on its rival's recent sales woes, signed an order from TAM SA, Brazil's dominant airline, to provide four 777 aircraft (pictured) - at a total value of more than $1 billion list price. Breaking Airbus' hold on Latin America, Boeing claimed the sale to be the first to a Latin American carrier. The company expects to deliver the first 777 to TAM's fleet by mid-2008. Tam's CEO Marco Antonio cited the 777's fuel efficiency and range as the main reasons his company chose the Boeing jets. None-the-less, TAM still does most of its business with Airbus, saying in a news release it expects to acquire at least 61 Airbus planes between now and 2010. The airline currently operates 93 airplanes and hopes to get that number up above 125 planes by 2010.
Related links: Boeing Q3 2006 Earnings Call Transcript • Airbus' Loss in Market Share is Boeing's Gain • The Jumbo Jet (Airbus) is Fast Becoming Irrelevant • Boeing is Set for Takeoff • Boeing's Earnings Crash As R&D Expenses Soar • Airbus Superjumbo Stalled at the Gates
Potentially impacted stocks and ETFs: TAM SA (TAM), Boeing (BA), Embraer-Empresa Brasileir de Aero. (ERJ) • iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
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U.S. Markets: Housing Is Just Starting To Roll Over
Long Idea: Look Beyond Housing Slump At Eagle Materials
Short Idea: REIT Landlords Can't Have It Both Ways
Internet: Amazon's High Multiple Isn't Sustainable
Telecom: The Risks of Investing in Telenor
Hardware: Dell Improving Its Margins?
Software: Kana Software: Risky, But Making the Right Moves
Healthcare: Allscripts Positioned Well For Growth
Retail: CVS + Caremark = Un-Analyzable Company
Consumer Electronics: Nokia the iPod Killer? I Think Not
Biotech: BioMarin Recieves Approval for Aldurazyme in Japan
Gold: Perspectives on Gold, the Current Bull Market and Beyond
Financial: IAC/Interactive Discusses the Mortgage Lending Environment
Asia: Baidu Takeover Rumors: What Google and Yahoo Would Gain
Sound Money Tips: Tips on Hacking Down Your Heating Bill
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Maxim Integrated Products • Las Vegas Sands Q3 2006 Earnings Call Transcript Amdocs • Electronic Data Systems • Gen-Probe • InfoSpace • ValueClick • Newmont Mining • Garmin • Aqua America • Dominion Resources • PSEG • Time Warner
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