Homebuilder Lennar To Miss Quarterly Numbers, Cutting Stake in LA Venture
Homebuilder Lennar Corp. expects to post a loss of between $0.88-$1.28/share for its fiscal Q4 ended Nov. 30, due to (1) land charges related to valuation adjustments and (2) abandoned land options. Aside from these one-time items, Lennar would have earned $0.70-$0.75/share; full results will be released on Jan. 17. The company had previously guided to a F4Q profit of $1-$1.30/share, and analysts were expecting earnings of $1.07/share. Lennar delivered 14,006 homes in the quarter, down from 14,403 in the year-ago period. New orders fell 6% to 9,606 homes. CEO Stuart Miller noted that though deliveries were up overall in 2006, the company experienced "materially lower" gross margins "as a result of deteriorating market conditions in the home-building industry," and sees no signs the home-building market has hit bottom. Lennar also announced expanding its "LandSource" Los Angeles-area joint venture to include MW Housing Partners, which is managed in part by CalPERS. Lennar, which will maintain a 19% interest in the venture, expects the deal to bring $500m in overall profit, with $125m recognized at February 2007 closing.
• Sources: Lennar press release, WSJ, MarketWatch, Forbes
• Related commentary: Housing: You Call This a Bottom?!, Notable Calls: Color on Lennar News, News of Housing Bottom Premature, Seeking Alpha's Housing Bubble and Real Estate Market Tracker, Housing Stocks' Recent Runup -- Sustainable?
• Potentially impacted stocks and ETFs: Lennar Corporation (NYSE:LEN) Competitors: Pulte Homes (NYSE:PHM), Centex (CTX), D.R. Horton (NYSE:DHI), KB Home (NYSE:KBH), Toll Brothers (NYSE:TOL). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), PowerShares Dyn Building & Construction (NYSEARCA:PKB), SPDR Homebuilders (NYSEARCA:XHB)
TECHNOLOGY AND INTERNET
November Chip Sales Strong, '07 Seen Stronger Than '06
The Semiconductor Industry Association reports November chip sales rose 11.3% y-o-y to $22.7b (+3.1% m-o-m), for a fifth consecutive monthly record. Year-to-date (Nov.) sales are up 9.4% to $225.1b. SIA President George Scalise comments, "Despite some signs of slower economic growth in the fourth quarter, consumer purchases of electronic products remained strong and again drove semiconductor sales to record levels." The SIA cites data from the Consumer Electronics Association, which lists digital cameras leading ytd-Nov. sales, up 40%, followed by DSPs +12.3%, DRAMs +6.8%, NAND +6.3% and microprocessors +4.3%. Scalise says ytd sales are in-line and he sees even higher growth in '07 at 10%. Red Herring reports the sales data is positive ahead of CES and Macworld next week. It points out semi growth was strongest in Asia and slowest in Europe -- and notes portable digital music players total 20% of chip consumption.
• Sources: SIA press release, Red Herring
• Related commentary: Semiconductor Industry No Longer Concerned With Inventory Glut, Post-Vista Memory Glut: Stay Away from Chip Stocks, Don't Hold Your Breath Waiting for Semi Equipment Orders to Resume, Major Media Coverage is Sign Chipmaker Fundamentals May Be Bottoming Out
• Potentially impacted stocks and ETFs: Advanced Micro Devices (NASDAQ:AMD), Analog Devices (NASDAQ:ADI), Infineon (IFX), Intel (NASDAQ:INTC), Macronix Int'l (MXIC), Micron (NASDAQ:MU), NVIDIA (NASDAQ:NVDA), Qimonda (QI), SanDisk (SNDK), STMicroelecronics (NYSE:STM), Texas Instruments (NASDAQ:TXN). ETFs: iShares Goldman Sachs Semiconductor (IGW), Semiconductor HOLDRs (NYSEARCA:SMH), SPDR Semiconductor (NYSEARCA:XSD)
Yahoo! to Announce Partnership With GPS Provider Dash Inc.
Yahoo! Inc. and Dash Navigation Inc. have inked a partnership that will put Yahoo's local-search on Dash's soon-to-be-released Dash Express auto-navigation system. The device, to be sold in consumer-electronics stores, will connect to the web using a cellular or Wi-Fi connection when it senses one is available. Adding local-search means drivers can zero-in on a nearby restaurant or store -- Dash's GPS technology will enable Yahoo to narrow search results to businesses nearby. Here's what the exec's had to say: Dash's CEO Paul Lego: "When you use Yahoo! Local search in your car, you will be amazed by the freedom that it delivers... For the first time, drivers will be able to leave their homes knowing that they can easily find whatever they need -- right
from their car. It's that simple." Paul Levine, GM of Yahoo! Local: "Yahoo! is committed to providing innovative ways to help consumers find relevant information when, where and how they want it... Working with Dash takes us one step closer to that goal and provides consumers with another meaningful and relevant way to interact with our products."
• Sources: Press release, Wall Street Journal, Search Engine Watch
• Related commentary: Dash's website, Yahoo! Local Search, Predictions From The Internet Search Industry Rumor Mill, Better Safe Than Sorry With Yahoo in 2007, I Think Yahoo Will Surpass Google In 2007: Here's Why. Conference call transcript: Yahoo! Q3 2006
• Potentially impacted stocks and ETFs: Yahoo! Inc. (NASDAQ:YHOO). Competitors: Google Inc. (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT), LookSmart Ltd. (NASDAQ:LOOK), InfoSpace Inc. (INSP). ETFs: Internet HOLDRS (NYSE:HHH), First Trust DJ Internet Index ETF (NYSEARCA:FDN)
South Korea Steps Up Investigation of QUALCOMM
South Korea's Fair Trade Commission has formed a task force, similar to the one investigating Microsoft, which will attempt to determine whether QUALCOMM's business practices impair competition and if its royalty demands are excessive. QUALCOMM's CDMA technology, which competes globally against the GSM standard, is used exclusively in S. Korea among the 80-plus % of the nation's population of 48m that use cellular phones. An FTC official admits the investigation has been ongoing since last April amid reported difficulties in establishing facts. QUALCOMM declined to comment until it receives an official inquiry. A local industry analyst says the FTC's task force "... can be seen as political pressure on Qualcomm ..." to operate on a more level playing field, considering local companies "... have constantly complained about QUALCOMM demanding too much royalty." QUALCOMM faces similar allegations in Japan, the EU and the U.S.
• Sources: The New York Times
• Related commentary: Nokia-QUALCOMM's Battle Royale, QUALCOMM Buys WiFi Startup And RF's Bluetooth Assets to Take On Intel, QUALCOMM's Empire Is Under Siege, QUALCOMM Beats Earnings Targets. Conference call transcript: QUALCOMM F4Q06
• Potentially impacted stocks and ETFs: QUALCOMM (NASDAQ:QCOM). ETFs: Broadband HOLDRs (NYSE:BDH), Wireless HOLDRs (NYSEARCA:WMH), iShares Goldman Sachs Networking (NYSEARCA:IGN)
Gray Television's Insider Buying -- Showtime?
WSJ's Inside Track reports that analysts are seeing recent insider purchases and those of a Dallas hedge fund as a serious buy signal for Gray Television Inc. CEO J. Mack Robinson and his wife have stepped up their buying since November, buying almost $1 million of stock. And Highland Capital Management spent $1.29 million in December in raising its stake to 10.5%. During the time shares rose 25%. Jonathan Moreland of InsiderInsights.com: "Buying into strength is a positive." COO Robert S. Prather Jr., who has also been a regular buyer, says Wall Street's view of the television sector is unduly pessimistic, and that Gray shares are "way undervalued" by analysts. Mark LoPresti of Thomson Financial gives three factors needed for a positive insider profile: (1) a cluster of transactions, (2) insider consensus, and (3) an increase in purchase size. "You have all three things here," Mr. LoPresti said.
• Sources: Wall Street Journal
• Related commentary: Company website, Insider transactions (I, II)
• Potentially impacted stocks and ETFs: Gray Television Inc. (NYSE:GTN). Competitors: ACME Communications Inc. (OTCPK:ACME), Media General Inc. (NYSE:MEG)
ENERGY AND MATERIALS
Nucor to Buy Harris Steel
Charlotte, N.C.-based steelmaker Nucor Corp. has agreed to purchase Canadian company Harris Steel Group for $1.07 billion (C$1.25 billion), or C$46.25 a share, representing a 6.3% premium to the shares' closing price on December 29. Harris shares gained 5.8% to reach a record-high C$46.04 on the news while Nucor shares shed 1%. Harris, which manufactures reinforced steel bar ("rebar") for the construction industry, wire mesh for the mining industry and heavy industrial steel grating, will provide Nucor with broader geographical reach and new opportunities for growth. The deal cements a relationship begun in 2004, when Nucor paid $21 million for a 50% stake in Harris's U.S. reinforcing steel operations. An ongoing surge in demand for metal prompted a record $78 billion in M&A activity in the steel sector during 2006, a trend that is expected to continue.
• Sources: Reuters, Washington Post, Bloomberg, Wall Street Journal
• Related commentary: Metal and Mining ETF: A Safer Way to Play Steel, Beware of Fashionable Investments, Metals and Mining: Blast Off!, Steel Suppliers Facing Rising Inventories, Lower Demand
• Potentially impacted stocks and ETFs: Nucor Corp. (NYSE:NUE). Competitors: Commercial Metals Co. (NYSE:CMC), United States Steel Corp. (NYSE:X). ETFs: SPDR Metals and Mining ETF (NYSEARCA:XME), iShares Dow Jones US Basic Materials (NYSEARCA:IYM), Vanguard Materials (NYSEARCA:VAW)
AEROSPACE AND DEFENSE
Airbus Gets Jumbo Order from AirAsia for Smaller Airliner
Airbus may be struggling with its A380 super-jumbo, but sales of its A320 single-aisle short-haul airliner are soaring. AirAsia, an aggressive Malaysian-based budget carrier will reportedly buy another 100 A320s worth $6.7b based on list price, doubling its initial order. The Wall Street Journal reports AirAsia is expected to announce the order as early as next week, according to a close source. AirAsia is replacing its fleet of Boeings in favor of Airbus. It currently has 34 B737s and 14 A320s. Separately, AirAsia's shares surged in Kuala Lumpur on a rumor it will form a global "budget" alliance with easyJet and Virgin; both however denied such speculation. Reuters reports a source told it a domestic alliance between AirAsia's parent and a local carrier might be pursued. Shares of Airbus' parent EADS, were up .20% in afternoon trading in Paris .
• Sources: The Wall Street Journal, Reuters
• Related commentary: Airbus Gets First A380 Orders Since June, Boeing Continues To Succeed at Airbus' Expense, Boeing Lands Big Lufthansa Order, Again Besting Airbus, Boeing and Airbus Project Future Direction of Their Industry
• Potentially impacted stocks and ETFs: EADS (Paris: 005730). Competitor: Boeing (NYSE:BA). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA)
Bad Blood Remains After Goodyear Strike
Goodyear Tire and Rubber, the world's third-largest tiremaker behind Bridgestone and Michelin, will ramp up production following the resolution of a nearly three-month-long strike -- but hard feelings remain between management and their unionized employees. The new agreement with the United Steelworkers union, which will affect approximately 14,000 workers, provides for a $1 billion healthcare program for retirees, but will also shutter a factory in Texas. It is expected to save the company $610 million over three years and $300 million a year thereafter. Although the contract was ultimately approved by all 12 locals across 10 states, much animosity was created between management and workers during the strike, souring a previously positive relationship. Now that the strike has ended, Standard & Poor's has affirmed its 'B+' rating on Goodyear's corporate credit and removed Goodyear's debt from negative CreditWatch.
• Sources: Reuters, Business Week, LA Times
• Related commentary: Strike Has Yet to Dent Goodyear's Stock, Most Overbought/Oversold S&P 500 Stocks, Auto Suppliers' Troubles Point To Broader Industry Challenges
• Potentially impacted stocks: Goodyear Tire and Rubber Company (NASDAQ:GT). Competitors: Cooper Tire and Rubber (NYSE:CTB), Bridgestone Corp. ADR (OTCPK:BRDCY), Continental AG (OTCPK:CTTAY), Michelin Group (Euronext: ML)
Home Depot CEO Bob Nardelli Resigns, Shares Up Strongly
Home Depot Inc. has announced Chairman and CEO Robert Nardelli has left the retailer under a decision reached with the board of directors, effective immediately. The resignation comes as Home Depot is facing a regulatory probe over options pricing practices and investor scrutiny over falling earnings. An internal review of its options practices concluded there was no intentional wrongdoing by any person who was a member of the management team or board. Nardelli has been succeeded by VC Frank Blake. Nardelli will receive a severance package of about $210 million. HD shares are currently up 5% to $42.03 in pre-market trading.
• Sources: Press Release, Reuters, AP,
• Related commentary: Share Improvement in Store for Home Depot, Lowe’s, Don't Scapegoat Bob Nardelli for Home Depot's Stagnant Stock, Home Depot's Dividend Increase: Not What Bob Nardelli Wants You To Believe, Jim Cramer's take on the resignation: sell HD and buy LOW! (video)
• Potentially impacted stocks and ETFs: The Home Depot Inc. (NYSE:HD). Competitors: Lowe's Companies Inc. (NYSE:LOW), Fastenal Co. (NASDAQ:FAST). ETFs: Retail HOLDRS ETF (NYSEARCA:RTH), Consumer Discretionary SPDR ETF (NYSEARCA:XLY), Vanguard Consumer Discretionary VIPERs (NYSEARCA:VCR)
Starbucks Taking Trans-Fats Off the Menu
Half of Starbuck's stores in the U.S will cut trans-fats from their menus by the end of this week. The company has been working on the task of ridding the artery-clogging fats from its snacks for two years, and plans are in place to remove trans-fats completely by the end of the year. Trans-fats are produced by hydrogenation, a process that makes fats harden and extends their shelf life, but hydrogenated oils have been shown to clog arteries and cause other health problems. New York City banned the use of trans-fats from most restaurants, and Wendy's, Taco Bell, Panera Bread and KFC have already stopped using the oils.
• Sources: Reuters, USA Today/AP
• Related commentary: Is Starbucks the Victim of Coffee Mugging by Oxfam?, Starbucks Worthwhile a a Lower Price. Conference call transcripts: Starbucks F4Q06
• Potentially impacted stocks and ETFs: Starbucks (NASDAQ:SBUX). Competitors: Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), Farmer Brothers Company (NASDAQ:FARM), Diedrich Coffee (DDRX). ETFs: PowerShares Dyn Leisure & Entertainment ETF (NYSEARCA:PEJ), Consumer Discretionary SPDR ETF (XLY)
State of Massachusetts Investigating Relationship Between UBS and Several Hedge Funds
The State of Massachusetts is investigating the relationship between UBS and several hedge funds for possibly illegal relationships. UBS has been leasing hedge funds space as well as providing them with receptionists, consultants and amenities at an office tower in Boston with the expectation it would receive trading business from the funds in return. Also under investigation is whether the funds paid higher trading commissions to UBS in exchange for its investment services and if so, whether the funds failed to tell clients about the higher costs.
• Sources: Bloomberg, Wall Street Journal, Reuters
• Related commentary: Acquisitions Binge Makes UBS a Sell, UBS To Benefit from Chinese Banking Restrictions, Spitzer Not Done Yet, Sues UBS Over Fee-Based Accounts, UBS, Credit Suisse Under SEC Investigation for Bonds Trading Irregularities
• Potentially impacted stocks and ETFs: UBS AG(NYSE:UBS).Competitors: Credit Suisse Group (NYSE:CS). ETFs: Europe 2001 HOLDRS (NASDAQ:EKH)
Amgen Acquires Option On Experimental Cytokinetics Heart Drug
The NY Times is reporting that Amgen has inked a deal with with much smaller biopharma R&D firm Cytokinetics (chart pictured) giving it an option on an experimental new heart failure drug. The deal, which is expected to be officially announced this morning, is valued at $75 million however, Cytokinetics could ultimately receive additional payments of more than $600 million, plus royalties, if the drug makes it to market and records significant sales. The drug, which is about to enter phase II clinical testing, currently goes by the name CK-1827452, and serves to activate a protein in the body which plays a central role in making heart muscles contract to pump blood. Heart failure affects 5 million Americans per year.
• Sources: NY Times
• Related commentary: Searching for Value Investments in the Drug Stock Universe, Amgen's Buyout of Abgenix Pays Off, Smart Biotech Investing: Avoiding One-Product Wonders (NSTK, GILD, AMGN, DNA; ETF: IBB). Conference call transcripts: Amgen Q3 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: Amgen (NASDAQ:AMGN), Cytokinetics (NASDAQ:CYTK). Competitors: Sanofi-Aventis (NYSE:SNY), Genentech (Private:DNA), Novo Nordisk (NYSE:NVO), Gilead Sciences (NASDAQ:GILD). ETFs: Biotech HOLDRS (NYSEARCA:BBH), First Tr Amex Biotech Index Fd (NYSEARCA:FBT), Vanguard Health Care (NYSEARCA:VHT)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, excerpted from Seeking Alpha's Barron's One-Page Summary
- Barron's cover story questions how much value remains in AT&T Inc. (NYSE:T) post its BellSouth merger. Its recent acquisitions fail to address growing decline (2-4% per Q) in the retail telephone sector as customers move to VOIP. Cable companies are like Comcast Corp. (NASDAQ:CMCSA) are aggressively going after AT&T's customer base with 'triple-play' (voice, video, internet) packages. AT&T's countermove -- Project Lightspeed -- is off to a rocky start. And most of AT&T's forecasted growth is coming from post-merger cost-cutting, not new earnings which at best will increase 1% per year through 2008. With shares up 46.5% in 2006, a small earnings miss could see $35 shares retreat to $30; a bigger miss could mean serious trouble.
- An interview of emerging-market guru Arjun Divecha has him bullish on Taiwan, Brazil, Thailand, and Korea -- India being his least favorite. Stocks he likes: (1) Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) -- it has a 50% market share in global foundry, enabling them to set pricing terms due to their overwhelming size. China Mobile Limited (NYSE:CHL) -- it stands to benefit from a governmental shift from export- to domestic-oriented. Despite liking Brazil, he cautions on Petrobras Energia Participaciones S.A. (NYSE:PZE) and Companhia Vale do Rio Doce (NYSE:RIO), which may be hit by lower energy/commodity prices.
- Grocery retailer Safeway Inc.'s (NYSE:SWY) shares may be overripe. They currently teeter near 4.5-year highs, and it carries a hefty 17.8 P/E ratio. Its luxury-oriented shopping experience has sold in the upper-class neighborhoods it has targeted thus far, but future expansion into low-class areas will be a hard sell. SWY is banking on its new Blackhawk gift card kiosks to add $100m to '07 earnings, but competition is likely to lower profit margins. And its high P/E ratio makes it an unlikely buyout target. With shares up 48% in '06 to $35, the stock is probably worth more like $30.
- Barron's likes home-improvement giants Home Depot Inc. (HD) and Lowe's Companies Inc. (LOW) as likely beneficiaries of a rebounding housing market. Warren Buffett recently added to his LOW stake, and Todd Lowenstein of HighMark fund, who recently bought Home Depot shares, says it "screams 'very statistically cheap' on earnings, book value, cash flow and sales." Sensing a comeback, the chains are investing in space and new products along with plans for overseas expansion. With HD, a LBO, although unlikely, is not completely out of the question.
- Great Plains Energy Inc. (NYSE:GXP) shares are up 17% since the summer of 2005, yet its 15.9 P/E ratio still trails a 17.7 industry average. On the heels of a strong marketing campaign that helped it secure a big rate jump to fund its coal plant construction, and a healthy 5.2% dividend, shares could easily rise another 15% in 2007.
- Technology Trader says the pre-Vista DRAM sales push that drove chip stocks like Micron Technology Inc. (MU) and Qimonda AG ADS (QI) is over, and we're likely on the verge of a glut fed by increased manufacturing capacity in Korea and Taiwan and by a reduction in transistor size that is increasing the bit-yield per wafer by 50%. NAND flash demand is also softening, which means 2007 will not be the year to chase memory stocks.
- Bill Alpert has a hard time understanding how Apple Computer Inc. (NASDAQ:AAPL) can say CEO Steve Jobs received no benefit from the post-dated grants he received in 2001, considering that in exchange for foregoing his options he got 5 million restricted shares which are now worth $775 million. But this matters little to Apple bulls, who can now look forward to a year of new products such as a full-screen iPod media player, long-awaited iTV, and the iPhone. With Jobs still at the helm, he says he won't be making funny faces at the stock any time soon.
U.S. Markets: Mean Reversion: When There Is Blood In the Streets, It's Time To Buy
Housing: Housing Bubble and Real Estate Market Tracker
Long Idea: Looking For a Bargain? Shine Some Light on Sweden
Short Idea: Hershey Leaves a Bad Taste For Shareholders
Internet: Predictions From The Internet Search Industry Rumor Mill
Telecom: It's Official: AT&T/BellSouth Merger Gets FCC Approval
Hardware: Intel Speeds Ahead of Advanced Micro Devices
Software: Cognizant's Success - It's All About Quality Control
Consumer Electronics: Apple Could Go Sour if Jobs Has to Step Down
Semiconductor: Semiconductor Industry No Longer Concerned With Inventory Glut
Media: Sirius Crosses 6 Million Subs, Achieves Positive Free Cash Flow
Healthcare: Orthopedics: A (Baby) Booming Industry
Retail: Sears Holdings: A Baby Berkshire in the Making?
Transport: Tata Motors Sales Recover in November, December
Gold: Gold Investing: Stock Picks for 2007
Energy: Alternative Energy Investing in 2006: Six Key Points
Financial: Wall Street I-Banks Show Outstanding 2006 Results
Asia: Japan: 2006 Year in Review, 2007 Outlook
ETFs: ETFs Are Hot: Is This Just The Beginning?
Small-Caps: Busted: Companies That Tried (Unsuccessfully) To Slip Bad News Past Investors Over New Year's
IPO Analysis: The Case For IPOs In A Shrinking US Market
Sound Money Tips: The Top Free Online Dating Sites
Jim Cramer: Latest stock picks
More 2007 Market Outlooks: Options Trader, William Trent, Thomas Hawk, The Wall Street Transcript, Geoff Gannon, Dean Bubley, Prakash Kolli, Richard Shaw (I, II), Dinesh Pandya, Jeff Miller, Business Week, Russell Bailyn, Ashkan Karbasfrooshan, Mark Anderson, Barron's Analyst Survey, Gary Dorsch
Have Wall Street Breakfast emailed to you every morning before the market opens.