D.R. Horton Sticks With Caution [TheStreet.com]
Summary: D. R. Horton, the largest homebuilder in America, managed to beat Q4 earnings estimates despite a 51% drop in profits by closing more home sales than expected in the quarter. Investors rewarded the news by bidding up the stock 7.5% to $24.05, but the company warned that the market is continuing to deteriorate. Horton earned $277.7 million in the quarter, or $0.88/share, down from $563.8 million, or $1.77/share, a year earlier. Analysts were expecting $0.69. Revenue fell 4% to $4.8 billion, ahead of analysts' $3.93 billion estimate. Management hopes to protect Horton from the downturn by restricting speculative home starts (homes built without a buyer in place) from the current 50% of its inventory to the low 30% range. It also plans to use most of its free cash flow next year to pay down debt and strengthen the balance sheet rather than buy new land.
Related links: Media coverage: Bloomberg • Newsday. Commentary: Housing Stocks' Recent Runup -- Sustainable? • The NAR Tries to Sell the Lack of Home Sales • Housing Stocks: Watching the RSI • Housing: What Does "Return to Mean" Really Mean?.
Potentially impacted stocks and ETFs: D.R. Horton Inc. (DHI) • Competitors: Centex Corp. (CTX), Lennar Corp. (LEN), Pulte Homes Inc. (PHM) • ETFs: iShares Dow Jones US Home Construction (ITB), SPDR Homebuilders (XHB)
Producer Prices Slide 1.6%, Easing Inflation Concerns [Wall Street Journal]
Summary: Americans kept up their spending during October, reassuring economists that holiday sales will be healthy enough to offset the housing slowdown. The drop in house prices has made consumers feel poorer, but wage gains and cheaper gas bills have given them more money to spend. Sales at food and retail establishments rose to $332 billion in October, up 0.4% from September and 6.5% from a year earlier. In a surprise, sales at auto and auto-parts dealers also rose by 0.6%, notwithstanding the auto companies' grim forecasts. Declines were seen at gas stations and in building-related industries. The sales report, in combination with a 1.6% decline in wholesale-goods prices in October from September, suggests the economy is cooling enough to keep inflation in check. Stock and bond prices rose on the corrolary assumption that the Fed will be able to hold short-term interest rates steady at 5.25%.
Related links: Media coverage: Newsday. Commentary: Will Housing Bring Down the Economy? • All Eyes on This Morning's PPI Report • Evil Inflation -- Or Is It?.
Potentially impacted ETFs: Total Stock Market VIPERs (VTI), Standard & Poor's 500 Index Depository Receipts (SPY), DIAMONDS Trust (DIA), iShares S & P 500 (IVV), iShares Russell 2000 (IWM)
TECHNOLOGY AND INTERNET
Summary: Apple announced yesterday that from next year, six major airlines (United, Delta, Continental, Air France, Emirates and KLM) will offer iPod connections in selected flights. The connectivity will only be available in seats that already have in-flight entertainment systems, and will allow passengers to power and charge their iPods, as well as watch any saved TV shows or movies on the larger seat-back monitors. An analyst at Inside Digital Media commented on the positive implications for Apple in terms of recognition as "a central component of future entertainment systems", and said it could benefit since it would be another reason to choose an iPod over other MP3 players. On the ground, Red Herring reports nearly 70% of new cars come with iPod connectivity.
Related links: Media coverage: Red Herring and WSJ. Commentary: Retailers Expect the iPod To Top All Other Electronics Products This Christmas • Microsoft's Attempt To Silence a Zune Critic Backfires • Sirius and XMSR: Merger, Apple Buyout Among the Possibilities • Apple's $7 Billion Christmas Quarter To Be Paced by iPod Sales • Apple Posts Stellar Quarterly Results. Conference call transcript: Apple F4Q06.
Potentially impacted stocks and ETFs: Apple (AAPL) • Competitors: SanDisk (SNDK), Microsoft (MSFT), RealNetworks (RNWK), Creative Technology (OTCPK:CREAF), Sony (SNE) • ETFs: NASDAQ 100 Trust Shares (QQQQ), Internet Architecture HOLDRs (IAH), PowerShares Dyn Hardware&Con Electronics (PHW), iShares Goldman Sachs Technology Index (IGM), iShares S&P Global Technology (IXN), iShares Dow Jones US Technology (IYW)
Summary: Vonage's major shareholders, company insiders and IPO backers accounting for 75% of the total shares, have agreed to hold off on registering their shares with SEC, a move necessary for selling shares on the open market. The move is possibly meant to send a message to Wall Street that Vonage's major shareholders believe that the company's shares are undervalued at this point and thus they have no intent to sell them in the near future. Vonage shares are down 60% since their May IPO (chart pictured - click to enlarge).
Related links: Commentary: Why Vonage Is Doomed • Vonage Earnings Report: Another Loss, Faltering Growth Rate • Vonage: Headed For the Auction Block? • Vonage's Recent Earnings Report Gives Cause for Concern • Vonage: Losing Money & Getting Stiffed • Vonage Holdings: Unsafe at Any Price (VG, VZ) • Vonage, The Worst Tech IPO Since Pets.com (VG) • An In-Depth Look at the Vonage IPO (VG).
Potentially impacted stocks and ETFs: Vonage (VG) Competitors: deltathree, Inc. (OTCQB:DDDC), Verizon (VZ), AT&T (T).
Summary: For the eighth straight quarter, U.S. Internet advertising surpassed its old high, bringing in $4.2 billion in the third quarter in revenue, according to a PricewaterhouseCoopers estimate. The increase Q/Q of 2% and Y/Y growth of 33%. Internet advertising accounts for about 5% of all U.S. advertising revenues according to most sources. However, Yahoo! CEO feels the growth potential of Internet advertising has been underestimated since they leave out video, social media and mobile internet advertising - the largest growth areas in web advertising of late. Semel complained that predictions for online advertising only took into account graphical and search advertising adding "video as you all know will become a major factor on the Internet."
Related links: Media coverage: Red Herring. Commentary: Online Advertising Tops $4 Billion Per Quarter • Mary Meeker on the Internet's Future • The Risky Business of Pay-Per-Click Advertising • Yahoo Closing The Door On Click Fraud? • Online Ad Growth Continues To Outpace Other Ad Mediums • Even Google's Not Immune To the Slowing Online Ad Boom • Yahoo Discusses its "Panama" Search Engine Advertising Platform • Yahoo and Google Earnings Indicative of Unhealthy Reliance on Online Advertising (GOOG, YHOO). Conference call transcripts: Google Q3 2006 Earnings Call Transcript • Yahoo! Q3 2006 Earnings Call Transcript.
Potentially impacted stocks and ETFs: Yahoo! (YHOO), Google (GOOG) • ETFs: First Tr DJ Internet Index Fd (FDN), Internet Architecture HOLDRS (IAH).
Redmond Ends Linux War [Red Herring]
Summary: Building on the strength of its recently announced alliance with Linux-compatible software company Novell, Microsoft on Tuesday unveiled a new attempt at Windows/Linux cooperation: the Interop Vendor Alliance. The Alliance, completely financed by Microsoft, is to be a broad-based confederation of companies that stand to gain from the easing of tensions between the Windows and Linux camps. Until now, running the two operating systems simultaneously within a single network involved the use of special integration software and each side provided its own troubleshooting when compatibility problems arose. In founding the Alliance, Microsoft hopes to become the clearinghouse to Windows-Linux interoperability. Alliance members include AMD, NEC, Sun Microsystems, BEA Systems, CA, Siemens Enterprise Communications, Software AG, and Citrix Systems; notably absent are IBM, Hewlett-Packard, Intel, Red Hat, Fujitsu and Unisys. IBM's absence is especially surprising considering the company has bankrolled the open-source movement for several years (while Microsoft was still fighting it tooth and nail). Said Charles King, principal analyst with PundIT Research, “I guess Microsoft had to go out with whomever it could get under the umbrella first.”
Related links: Media coverage: CNET • Internet News.com. Commentary: Red Hat: Unlikely to Recover From ORCL/MSFT One-Two Punch -- Barron's • In Recognition of New "Mixed" Software Environment, Microsoft To Work With Novell's Linux • Microsofobia: Sun To Open-Source Its Java Programs.
Potentially impacted stocks and ETFs: Microsoft (MSFT), International Business Machines (IBM), Advanced Micro Devices (AMD), NEC (NIPNY), Sun Microsystems (SUNW), BEA Systems (BEAS), CA, Inc. (CA), Citrix Systems (CTXS), Hewlett-Packard (HPQ), Intel (INTC), Red Hat (RHAT), Fujitsu (OTCPK:FJTSY) and Unisys (UIS). • ETFs: Software HOLDRS (SWH), Vanguard Information Technology (VGT), Internet Architecture HOLDRS (IAH).
Summary: Yesterday Motorola announced its third acquisition in 8 weeks, saying it is acquiring Netopia for $7/share, or $208m in cash. Netopia's wired/wireless DSL modems and routers are seen bolstering Motorola's IPTV offerings, as well as its video, voice and data portfolio. The deal is expected to close early next year, and despite Netopia reporting a net loss in its Q4 yesterday of -$1.5m, or -$0.06/share, Motorola said it expects the acquisition to be neutral to its earnings next year, excluding certain non-cash charges. Motorola's president of its Connected Home Solutions division commented, "Motorola and Netopia share a common vision of the connected home as the hub for seamless mobility. This acquisition advances our vision by strengthening the Connected Home Solutions business position as a leading supplier of technology and services to telecom providers worldwide." Shares of Netopia surged 22+% to close at $6.83 and Motorola gained 2.4% to close at $21.68.
Related links: Motorola press release. Media coverage: Red Herring. Commentary: Motorola's Netopia Acquisition Reduces Its Microsoft Dependence • Motorola Acquiring Netopia - For Too Low a Price? • Motorola Shopping for a Middleware Company? • Good Technology Will Be a Good Fit for Motorola • Motorola Acquires BlackBerry Software Rival; To Sign $1.6b Deal in China • Palm May Seek a Buyer Following Motorola/Good Union • Merrill: Motorola's Good Acquisition Shouldn't Harm RIMM • Motorola Units, ASPs, Margins Under Pressure? • Motorola Gains Market Share But Misses Q3 Sales Target. Conference call transcripts: Motorola Q3 2006.
Potentially impacted stocks and ETFs: Motorola (MOT) and Netopia (NTPA) • Competitors: Ericsson (ERIC), Nokia (NOK), Palm (PALM), Research in Motion (RIMM), Cisco (CSCO) • ETFs: Broadband HOLDRs (BDH), iShares Goldman Sachs Networking (IGN), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Telecom & Wireless (PTE), Wireless HOLDRs (WMH)
Summary: Retailer Abercrombie & Fitch Co. announced Tuesday that earnings were up 43% in Q3, bolstered by strong teen-sales at its Hollister stores. Earnings were $102m ($1.11/share), up from $0.79 last year, and sales were up 22% to $863m. Street estimates were for $1.10. Sales at stores opened within the year, considered a key indicator, were up 5%; same-store sales at the core Abercrombie & Fitch chain increased only 1%. Earnings were announced post-market, but shares were +3% yesterday to close at $76.61. In after-hours trading, shares of Abercrombie were down $2.45 to $74.16.
Related links: Earnings Call Transcript. Media coverage: TheStreet.com. Commentary: Options Trader • Gross Margin Kings – Apparel & Accessory Stocks • Teen Stocks - Tempting or Tempestuous? Cramer's Take on ANF
Potentially impacted stocks and ETFs: Abercrombie & Fitch Co. (ANF) • Competitors: American Eagle Outfitters Inc. (AEOS), Gap Inc. (GPS), Guess? Inc. (GES) • ETFs: PowerShares Dynamic Retail (PMR), ST SPDR RETAIL ETF (XRT), iShares Dow Jones US Consumer Goods ETF (IYK), Consumer Staples Select Sector SPDR (XLP)
Home Depot To Be 'Opportunistic' On Flat Screens [MarketWatch.com]
Summary: Home Depot reported its first drop in quarterly net income since 2003 in its Q3 earnings announcement yesterday. During its conference call, an analyst asked about its TV strategy. CEO Bob Nardelli replied saying it is "opportunistic" and, "We know that it's a highly sought-after commodity, particularly in the holiday seasons. This is kind of an in and out on consumer electronics, particularly the flat-panel, plasma TVs." Home Depot will be competing against consumer electronics stores such as Best Buy and Circuit City, as well as against rival retail giants Costco and Wal-Mart. A Morningstar analyst commented, "They get a lot of store traffic. The consumer's in there, and if they see a compelling value they'll make a purchase, [but] I don't see [Home Depot] becoming a force in consumer electronics; I don't think Best Buy or Circuit City are shaking in their boots." Also, during the conference call, Nardelli said he does not see returns being a problem, stressing the "in-and-out" strategy of bringing TVs in on container loads and distributing them.
Related links: Media coverage: MarketWatch: JP Morgan Upgrades Home Depot. Commentary: Circuit City: Flat Panel TV Prices Falling Even Faster Than Expected • Discount Electronics Retailers, Led By Wal-Mart, Launch First Christmas Sale Salvo • Electronics Products Should Provide Christmas Bargains for Consumers, Lower Profit Margins for Manufacturers • Here a Flat Panel, There a Flat Panel... • Flat Panel TV Sales Strong, Gap Grows Between Wholesale/Retail Pricing • Home Depot Rising Despite Disappointing Earnings • Home Depot Reports First Drop In Net Earnings Since 2003 • SeekingAlpha's sector coverage of Flat Panel TVs & Monitors. Conference call transcripts: The Home Depot F3Q06.
Potentially impacted stocks and ETFs: Home Depot (HD) • Competitors: Lowe's (LOW), Best Buy (BBY), Circuit City (CC), Costco (COST), Radio Shack (RSH), Wal-Mart (WMT) • ETFs: Retail HOLDRs (RTH), Consumer Discretionary SPDR (XLY), Vanguard Consumer Discretionary (VCR), iShares Dow Jones US Consumer Services (IYC), PowerShares Dyn Building & Construction (PKB)
Summary: Wal-Mart's shares rose 2% yesterday when it reported Q3 earnings that beat Street expectations. For the quarter ended Oct. 31, net income rose nearly 12% to $2.65 billion, or $0.63/share, from $2.37 billion, or $0.57/share, a year earlier. Net sales totaled $83.5 billion, a 12% increase. Profit came in at $0.62/share versus analysts' forecast of $0.59. The news was particularly welcome following Wal-Mart's report last month that same-store sales growth would be below expectations in October and flat in November for the first time in a decade. Still, analysts cautioned against rising expectations in the run-up to the holiday season. Wal-Mart has started a program of aggressively discounting toys, home electronics and small appliances, and is seeing significant sales increases in newer segments of those areas (e.g., MP3 players). Those gains are being offset, however, by declines in more mature segments (e.g., DVD players). Q3 same-store sales increased 1.5%, well shy of the 4.6% quarterly increase posted by competitor Target. Target's Q3 profit rose 16%, ahead of forecasts, and sales rose 11%. Target earned $506 million, or $0.59/share, up from $435 million, or $0.49/share, during the same period last year. Analysts were expecting EPS of $0.55. Target President Gregg Steinhafel said Target doesn't respond to Wal-Mart's limited time, limited quantity deep discount offers. On Wal-Mart's long-running discounts, Steinhafel claims Target has often matched them before they have been advertised. In either case, Wal-Mart-initiated super-low prices are likely to force other retailers to discount their merchandise, eroding profit margins.
Related links: Media coverage: Business Week. Commentary: Discount Electronics Retailers, Led By Wal-Mart, Launch First Christmas Sale Salvo • When Goliath Stumbles: Wal-Mart, Target and Costco • Holiday Sales: Will Retailers See Red? • Wal-Mart and Other Retailers Suffer Weak Sales in Run-Up to Holidays • Target: Hitting the Mark. Conference call transcripts: Wal-Mart F3Q07 (Qtr End 10/31/06) Earnings Call Transcript • Target F3Q06 (Qtr End 10/28/06) Earnings Call Transcript.
Potentially impacted stocks and ETFs: Wal-Mart Stores Inc. (WMT), Target Corp. (TGT) • ETFs: Market 2000 HOLDRs (MKH), iShares Russell 1000 Growth Index (IWF), iShares Russell 3000 Growth Index (IWZ), PowerShares FTSE RAFI US 1000 (PRF)
Summary: TiVo announced on Tuesday that it has teamed up with CBS Interactive, Reuters plc and Forbes magazine to offer web video content on TV sets. This move is a way for the company to differentiate itself from cable digital recording services, which are cheaper than TiVo. The company has also developed software that will allow playback of video downloaded to PC's from sites like Google. Once on a PC, the video must first be translated into a TiVo compatible format. In early 2007, TiVo subscribers will also have access to Home Movies Service, which will allow them to share home videos with with other TiVo subscribers through their TV sets. The news sent shares up 33 cents to $6.25, up 5.6%.
Related links: Media coverage: Wall Street Journal , C21Media. Commentary: TiVo and the Future of Microcontent • Who Will Acquire TiVo?. Conference call transcripts: TiVo Inc. F2Q07.
Potentially impacted stocks and ETFs: TiVo (TIVO), CBS Corp. (CBS), Reuters Group plc (RTRSY) • Competitors: DIRECTV Group (DTV), Comcast Corp. (CMCSA), Echostar Communications (DISH) • ETFs: PowerShares Dynamic Media (PBS),
Summary: Two bids have been proposed by private equity consortia for ownership of Clear Channel Communications, which has been valued at around $18 billion or $36 a share. One bid was from a consortium which consists of Bain Capital and Thomas H. Lee Partners. The other group, comprised of Providence Equity Partners, The Blackstone Group and Kohlberg Kravis Roberts, is seen to have an advantage, since it approached Clear Channel with the initial bid. Apollo Management LP, Carlyle Group, Cerberus Capital Management LP and Oak Hill Capital Partners have all left the race to take over the nation's leading radio company. Clear Channel was put on sale by its board after losing 60% of its market value since 2000 due to the increase in internet advertising. The final announcement concerning the acquisition is expected to be made before trading on Wednesday.
Related links: Media coverage: Reuters. Commentary: In Clear Channel Buyout Talks, Billboards Loom Large • Google Rumors: Radio M&A, Free Checkout • Clear Channel Shows Mixed Q3 Results Ahead of Possible Sale • The Clear Channel Bidding War: $17 Billion and Beyond . Conference call transcripts: Clear Channel 3Q 2006 .
Potentially impacted stocks and ETFs: Clear Channel (CCU) • ETFs: PowerShares Dynamic Media (PBS) • Competitors: Cox Radio (CXR), Citadel Broadcasting Corp. (CDL), Cumulus Media Inc. (CMLS)
AEROSPACE AND DEFENSE
Boeing Poised To Get $10 Billion In New Business [Wall Street Journal]
Summary: Already bolstered by 200+ unexpected airplane orders this year, WSJ reports that according to "people familiar with the matter" Boeing is now poised to receive another $10b+ in sales over the coming weeks. The demand is driven by airlines scrambling to replace aging fleets, as well as recent uncertainty at rival Airbus. GE's Commercial Aviation Services unit is expected to announce as early as today an order of 15 Boeing 777s valued at $3.5 billion. And, the sources say, Boeing also has tentative deals with carriers in Europe and Asia for an additional 50 jets that could be announced before year-end. Dwindling delivery slots in Boeing's production schedule have airlines lining up; the waiting list for most Boeing planes is already two years, and on some models, such as the 787 "Dreamliner," the earliest available slots for new customers are in 2013. In a recent interview, CEO Scott Carson said that Boeing officials have been "amazed" at the continuing demand; Boeing has booked 793 orders this year vs Airbus' 508. Boeing's 231 orders for the more lucrative wide-body planes also outnumbers Airbus' paltry 41.
Related links: Commentary: How Boeing Got Its Groove Back • Boeing One-Ups Airbus Again With FedEx Contract • Airbus ' Loss in Market Share is Boeing 's Gain. Conference call transcripts: Boeing Q3 2006
Potentially impacted stocks and ETFs: Boeing Co. (BA), General Electric Co. (GE) • Competitors: Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC), United Technologies Corp. (UTX) • ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
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Long Idea: Starbucks: The Sky's the Limit
Short Idea: Dehedging Gold -- Why Barrick's In Trouble
Internet: MSN Is Still Going Nowhere Fast
Telecom: Motorola's Netopia Acquisition Reduces Its Microsoft Dependence
Hardware: Citigroup: Hewlett-Packard Should Outperform Dell Through Year-End
Software: Red Hat Stock Climbing Back
Retail: Retail Sales Still Appear Anaemic
Healthcare: Eli Lilly ICOS Buyout Is Not Arm's Length
Consumer Electronics: Bear Stearns: KOMG On Track; PLT Seeks to Expand Margins
Biotech: Elbit Medical: A Biotech Entrepreneur that Deserves a Closer Look
Gold: Dow-Gold Ratio: Blurry Picture
Financial: What Is The Price of Real-Time Worth?
Asia: Bodisen's Earnings Quietly Disclosed; Stock Down 20% Pre-Market
ETFs: Tree Huggers Unite! A Survey of Cleantech ETFs
Small-Caps: BSML Begins To Generate Cash
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Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Wal-Mart • American Eagle Outfitters • Vodafone Group • Agilent Technologies • Staples • Telefonica • The Home Depot • Ross Stores • Target • CDC • Abercrombie & Fitch • Analog Devices
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