Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

MACRO AND HOUSING

Homebuilders D.R. Horton, Meritage Post Disappointing Sales

In an indication that the housing sector has yet to reach a bottom, D.R. Horton and Meritage Homes both posted lower quarterly sales yesterday. D.R. Horton reported net sales orders of $2.3 billion for fiscal Q1, nearly $1 billion below last year's figure and widely missing Street forecasts of $2.74 billion. Cancellations came in at 33% -- not good, but better than last quarter's 40%. Horton has resisted offering incentives but has recently been compelled to discount properties, a move that will hurt profit margins. Meritage reported net sales of $356 million in Q4, down precipitously from last year's $723 million. Q4 revenue was also down at $821 million versus $1.04 billion a year earlier, but this figure beat forecasts of $742.3 million. Neither company's shares took much of a hit on the news since the market had priced in its low expectations. Both Horton and Meritage are trading about 40% off their 12-month highs.
• Sources: Washington Post, Wall Street Journal
• Related commentary: D.R. Horton Beats Estimates but Advises Caution, Assessing the Homebuilder Stocks, Bursting the Housing Bubble, What Is Correct Way to Value Homebuilders?
• Potentially impacted stocks and ETFs: D.R. Horton, Inc. (NYSE:DHI), Meritage Homes Corp. (NYSE:MTH). Competitors: KB Home (NYSE:KBH), Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), Pulte Homes Inc. (NYSE:PHM). ETFs: iShares Dow Jones US Home Construction (NYSEARCA:ITB), SPDR Homebuilders (NYSEARCA:XHB)

TECHNOLOGY AND INTERNET

Apple's iPhone Wows Market

Apple stock jumped 6% yesterday after CEO Steve Jobs unveiled the iPhone, a combination cellphone/iPod/Internet communications device, at the Macworld Expo. The iPhone, which will be priced up to $599, is set for a June release. AT&T's Cingular unit has signed an exclusive deal to distribute the device and provide U.S. wireless service. Price could be a problem in the U.S. market, where handsets, including some that offer music, sell for less than $100 with carrier plans. Price pressures are fierce: Motorola, which once charmed the market with its sleek RAZR phone, has gone from selling it for $500 to offering it free with service contracts. Apple cannot drop the price of the iPhone without cannibalizing its iPod business. In the past year, Motorola, Research in Motion and Palm have all released smartphones that will compete with the iPhone. Shares of high-end Asian handset makers took hits on news of the iPhone's release, but cellphone component makers like Broadcom and some telecoms gained. Flash memory chip manufacturers might also ultimately benefit. To reflect this push into consumer electronics, Apple changed its name from Apple Computer to Apple Incorporated. Apple appears to have reached a deal with Cisco to use the name "iPhone," which Cisco has trademarked and is using for some Linksys phones.
• Sources: Press Release, Steve Jobs' Macworld Keynote (video), Forbes, Wall Street Journal, Mercury News, Reuters, USA Today
• Related commentary: Apple Reinvents the Mobile Phone -- and Itself, Apple's iPhone Partnership With Cingular Could Drag It Down, iPhone: Who Stands To Gain and Lose?, Ten Thoughts On The iPhone, Cisco Reacts To Apple's Use of 'iPhone', Apple-Cisco iPhone dispute resolved (ZDNet), Apple's iPhone Revealed: A First Hand Account From MacWorld. Conference call transcripts: Apple F4Q06 (ended 9/30/06)
• Potentially impacted stocks and ETFs: Apple Computer, Inc. (NASDAQ:AAPL), AT&T (NYSE:T). Competitors: Verizon Communications Inc. (NYSE:VZ), Sprint Nextel Corp (NYSE:S), Motorola Inc. (MOT), Research In Motion Limited (RIMM), Palm, Inc. (PALM), Google, Inc. (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO). ETFs: Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (NYSEARCA:IXN)

Nintendo Ups Guidance and Boosts Dividend; Wii Sales Crush PS3 in Japan

Nintendo's shares regained some recent lost ground despite a broad market sell-off after it raised its annual sales and profit guidance and increased its dividend forecast for the fiscal year ending this March. Also, Enterbrain, a Japanese gaming magazine reported it estimates Nintendo sold 989,118 Wii consoles in Japan in '06 following its Dec. 2 launch, which is more than double its 466,716 estimate for Sony's PlayStation 3 (Nov. 11 launch). Nintendo-NTDOY-Microsoft-MSFT-Sony-SNE-1yr-chart-01-09-07 Nintendo increased its consolidated sales forecast by 21.6% to ¥900 billion ($8b), a 77% y-o-y increase. Net income is now seen totaling ¥120 billion ($1b), or a 20% revision and 22% higher y-o-y. Nintendo cites "worldwide robust trends in sales of 'Nintendo DS' hardware and software ..." and revised its sales estimate of Wii software (ex-Wii console bundles) upward by 23.5%. It is maintaining its target of 6 million Wii console sales for the fiscal year. Nintendo also raised its year-end dividend estimate by 24% to ¥410, for an annual forecast dividend increase of 20% at ¥480/share (+23% y-o-y).
• Sources: Nintendo press release [I, II], Bloomberg, Boston Globe-AP
• Related commentary: Game Points: Game Console and Software Stock Update, Sony Soars on Goldman Upgrade, Video Game Console Makers Meet '06 Targets, Game Console Wars: Nintendo Leaves Microsoft, Sony Trailing Behind, Nintendo Wii: The Must-Have Console
• Potentially impacted stocks and ETFs: Nintendo (OTCPK:NTDOY). Competitors: Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)

MEDIA

Project 'Open Network' -- Nation's Big-Three Newspapers to Join Forces?

WSJ reports that the three biggest newspaper publishers in the U.S. -- Gannett, McClatchy and Tribune Companies -- are planning to sell advertising jointly on their Web sites, believing their survival depends on increasing online revenues. Big advertisers like car makers and phone companies don't want the hassle of negotiating with each outlet, the logic goes. Code-named "Open Network," the project hopes to win back advertisers that are "defecting in droves" to online advertisers such as Yahoo, Time Warner's AOL, MSN, and Google. People familiar with the situation say the big three, known as GMT, will initially contribute 10% of their online space to the network. A rival group known as the Seven Amigos, lead by Hearst Gannett 10 01 2007 Chart McClatchy 10 01 2007 Chart Tribune 10 01 2007 ChartCorp. and MediaNews Group Inc. that owns more than 100 newspapers, has already teamed with Yahoo to sell online classifieds, and is finalizing details of its own national ad-sales network. The deal would likely to require the newspapers to use Yahoo search on their newspaper Web sites. Lincoln Millstein, senior VP at Hearst Newspapers, said he hopes GMT will join the Yahoo consortium and not strike out on its own: "We're all struggling to get our fair share of national advertising revenues, and this partnership with Yahoo would go a long way toward achieving that goal." But said sources say GMT is wary of the Seven Amigos' agreement to use Yahoo technology to deliver the advertising, because it will give Yahoo access to sensitive information such as which newspaper sites are doing well and which pages are most popular. GMT has negotiated with ad-placement company Centro LLC to deal with ad placements; its president, Shawn Riegsecker, also thinks the two groups need to join forces if they hope to compete with big portals. "If you break this industry apart, you completely devalue the value proposition to the spot advertiser in the national market."
• Sources: Wall Street Journal
• Related commentary: Monster Broadens Its Traditional Media Partnerships, Traditional Ad Agencies Beware: " Google Print Ads" Set For Trial Run, Tribune Co.'s Second Largest Shareholder Hires Outside Adviser in Possible Break With Management, Scripps Leaves Traditional Media Behind, Craigslist.org is the Root of Newspapers ' Woes, Monster Broadens Its Traditional Media Partnerships, In the Current Print Media Reshuffle, Only the Strong Will Survive, Declining Print Ad Revenues Take Toll on Newspaper Earnings
• Potentially impacted stocks and ETFs: Gannett Co. Inc. (NYSE:GCI), The McClatchy Company (NYSE:MNI), Tribune Company (TRB), Yahoo! Inc. (YHOO), Time Warner Inc. (NYSE:TWX), Microsoft Corp. (MSFT), Google Inc. (GOOG). Competitors: The New York Times Co. (NYSE:NYT), The Washington Post Co. (WPO), E.W. Scripps Company (NYSE:SSP), Belo Corp. (NYSE:BLC), News Corp. (NASDAQ:NWS), Dow Jones & Company Inc. (DJ), Media General Inc. (NYSE:MEG), Triple Crown Media Inc. (OTC:TCMI), GateHouse Media Inc. (NYSEARCA:GHS), Monster Worldwide Inc. (NASDAQ:MNST)

CBS Announces New Internet Strategy

CBS announced at the CES show that it has a number of internet partnership deals in the works. CEO Leslie Moonves tried to communicate to the tech audience that CBS aims to be a leader in web/TV synergy. Moonves mentioned a CBS chartnumber of the company's 2007 web plans including a "virtual skybox" for NCAA fans to discuss games in progress, Star Trek placement in the "Second Life" online game and increasing downloading and interactivity capabilities for the company's TV programs. Moonves also mentioned partnerships with YouTube and Sling Media. Analysts suggest that CBS' declining ratings, including a 24% drop in young adult viewers on Thursday nights, could be responsible for this push onto the internet. However, the web strategy depends on strong TV programming. Moonves denies a connection between the two issues. Wall Street approves of the company's new aggressive moves onto the internet.
• Sources: Press Release, WSJ, AP
• Related commentary: CBS Taps Quincy Smith For Interactive Presidency, Media Giants to Form YouTube Rival, CBS's Operating Revenues Rise 26%, Nielson/NetRatings: TV Broadcasters Should Put Content On Web Conference call transcripts: CBS Q3 2006 Earnings
• Potentially impacted stocks and ETFs: CBS Corp. (NYSE:CBS) Competitors: Viacom (NASDAQ:VIA), Clear Channel Communications (NYSE:CCU), Walt Disney Company (NYSE:DIS), General Electric (NYSE:GE), Comcast (NASDAQ:CMCSA)

ENERGY AND MATERIALS

The Governator Gets Serious On Terminating CO2 Emissions

During his State of the State address yesterday, California Governor Arnold Schwarzenegger threw down the gauntlet to his state's Air Resources Board to enact a policy requiring a 10% cut in the carbon dioxide emissions of heat-trapping fossil fuels.terminator The challenge, which Schwarzenegger hopes to have met by 2020, would mean a law requiring California's petroleum refiners to ensure their products are more environmentally friendly. The challenge stems from a deal last summer between the state legislature and the governor to reduce carbon dioxide emissions by 25% by 2020. In other clean energy news, The Wall Street Journal is reporting governors of 37 states are prepared to push for a new federal rule to require greater use of ethanol fuel while President Bush is expected to speak in favor of greater ethanol use during his State of the Union address later this month in an effort to reduce greenhouse gases and reduce the nation's reliance on foreign oil.
• Sources: New York Times, Wall Street Journal, L.A. Times
• Related commentary: Clean Energy Incentives: They Work!, A Quick Guide to Ethanol Energy Stocks, Ethanol Stocks: Six Reasons To Be Cautious, Alternative Energy, Oil Stocks Up Across the Board on Dems Win
• Potentially impacted stocks and ETFs: PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), PowerShares WilderHill Prog Energy (NYSEARCA:PUW)

U.S. to Raise Royalties on Gulf Oil and Gas Leases

Stung by criticism that it has failed to collect all the royalties the U.S. is owed, the Bush administration has announced that it is raising royalties on oil and natural gas extracted from the Gulf of Mexico, the area from which about a quarter of U.S. oil is produced. The new royalty will raise the payment on new leases from the equivalent of one barrel out of every eight to one out of six. This should boost federal royalty revenues by $4.5 billion over 20 years. The new royalty will not, however, affect any of the myriad existing offshore leases; nor will it undo a mistake in hundreds of leases that could allow companies to avoid up to $10 billion in royalties over the next five years. Two of the biggest operators in the Gulf, Chevron and Exxon Mobil, have vigorously fended off efforts by the Interior Department to renegotiate their deals. In related news, the U.S. is removing drilling bans from two large tracts, one in the Gulf of Mexico and another in Alaska, in order to boost domestic energy production.
• Sources: New York Times, Forbes, Wall Street Journal
• Related commentary: Rig Shortages Delay Gulf Exploration and Production as Costs Jump, Exxon Shares Sinking to Levels They Richly Deserve, Exxon - The Most Evil (and Overpriced) of the Oil Companies, Eye on Chevron, BP's Output Falls Again; A 'Brave' Buy with Upside Potential as a 'Recovery Stock', Fuel For Thought: Which Integrated Oil Company Should You Own?
• Potentially impacted stocks and ETFs: BP plc (NYSE:BP), Royal Dutch Shell plc (NYSE:RDS.A), Chevron Corp. (NYSE:CVX), Exxon Mobil Corp. (NYSE:XOM), Statoil ASA ADS (NYSE:STO). ETFs: BLDRS Europe 100 ADR Index (NASDAQ:ADRU), BLDRS Europe 100 ADR Index (ADRU)

Alcoa Profit Coasts Up 60% on Higher Aluminum Prices

Alcoa Inc. opened the Q4 earnings season with an upside surprise, reporting a 60% gain in profit on high aluminum prices and strong demand from the air transport, commercial transport and building markets. Net income for Q4 was $359 million, or $0.41/share, versus Alcoa 10 01 2007 Chart$224 million, or $0.26/share, in Q4 2005. Revenue rose 20% to $7.84 billion, and income from continuing operations was $644 million, or $0.74/share. The results beat forecasts of $0.64 EPS and revenue of $7.64 billion. Alcoa expects demand for aluminum to remain strong, particularly in China, and is adding aluminum refining and smelting capacity in Australia, Brazil and elsewhere. Alcoa benefited from a rise in the price of aluminum this quarter to $2,766 a metric ton, up 27% from the year-ago quarter and 6% from Q3. Alcoa's strong results suggest that commodity prices are rising to reflect global inflation.
• Sources: Bloomberg, Washington Post, MarketWatch, New York Times. Conference call transcripts: Q4 2006
• Related commentary: The Outlook for Alcoa and Aluminum
• Potentially impacted stocks and ETFs: Alcoa, Inc. (NYSE:AA). Competitors: Alcan, Inc. (NYSE:AL). ETFs: Vanguard Materials ETF (NYSEARCA:VAW), iShares Dow Jones US Basic Materials (NYSEARCA:IYM), Materials Select Sector SPDR (NYSEARCA:XLB)

AEROSPACE AND DEFENSE

UAL Wins Bid for U.S.-China Capital-to-Capital Service

The Department of Transportation chose UAL Corp's United Airlines over three of its competitors to receive tentative approval to fly a new China service, non-stop daily between Washington, D.C. and Beijing. United can begin its service on March 25. Lobbying for the new service was unprecedented according to industry consultants. United's rivals including Continental, Northwest and American all voiced their disappointment. UAL-UAUA-1yr-chart-01-09-07 Analysts seem to agree United's bid was the best, offering the first capital-to-capital service and maximizing capacity by using a Boeing 747-400, the largest commercial aircraft. It is estimated the route will offer 235,000 seats annually and bring in $100m in revenue on an annual basis. MarketWatch reports additional service rights between U.S.-China will be available to U.S. carriers in March 2008. UAL's shares were up 3% intra-day on the news but ended only slightly higher (+0.09%) at $46.84.
• Sources: Bloomberg, MarketWatch
• Related commentary: Crude's Fall Boosted Airline Stocks, Airline Consolidation Efforts Heat Up as United, Continental Discuss Merger, United Airlines: Even Q3 Profits Can't Seem to Please Wall Street, Airlines Vie for Lucrative New China Route
• Potentially impacted stocks and ETFs: UAL Corp (UAUA). Competitors: AMR Corp (AMR), Continental Airlines (NYSE:CAL), Northwest Airlines (NWACQ.PK)

FINANCIAL

NYSE-Goldman Led Group Acquires 20% Stake in National Stock Exchange of India

NYSE Group Inc., Goldman Sachs Group, General Atlantic and Softbank Asian Infrastructure Fund disclosed they were each buying a 5% stake in the National Stock Exchange of India Ltd.bse sensex The exchange is the Indian emerging market's largest. The NYSE Group disclosed it paid $115 million for its stake; the other companies didn't disclose a purchase price. The combined value of Indian stocks has increased by nearly 50% in the past two years to $820 billion, making it Asia's fifth-largest equity market.
• Sources: Press Release, Reuters, Bloomberg, MarketWatch
• Related commentary: Indian Market Report: 2007 Has Brought On The Fear, On the BSE Sensex's Plunge: Buying Opportunity?, An Investor's Take On The NYSE/Euronext Merger
• Potentially impacted stocks and ETFs: NYSE Group (NYSE:NYX), Goldman Sachs (NYSE:GS). ETFs: The India Fund, Inc. (NYSE:IFN), Morgan Stanley India Investment Fund Inc. (NYSE:IIF), Barclays Bank Zero Cpn ETN (NYSEARCA:INP)

Wachovia Acquires One of Europe's Largest Fixed-Income Credit Funds

Wachovia Corp. announced yesterday that its asset-management unit, Evergreen Investments, agreed to acquire a 70% stake in European Credit Management [ECM] for an undisclosed sum.wb ECM manages a range of assets equaling approximately $26 billion including investment-grade corporate bonds, leveraged loans, high-yield bonds and credit derivatives, making it one of Europe's largest managers of fixed-income credit funds. With the deal complete, Evergreen will itself control $280 billion in assets. ECM reported $33 million in earnings this past year. It is expected Evergreen will eventually acquire the other 30% of ECM with ECM's managers remaining firmly in place.
• Sources: Press Release, Wall Street Journal, Reuters, MarketWatch
• Related commentary: Wachovia's Imprudent Takeover of Golden West, Wachovia Posts Q3 13% Profit Increase But Revenue Disappoints, In Bid To Catch Competitors, Morgan Stanley Will Buy 20% of Avenue Capital, Cramer's Take on WB
• Potentially impacted stocks and ETFs: Wachovia Corporation (NASDAQ:WB). Competitors: Morgan Stanley (NYSE:MS), Bank of America Corporation (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C). ETFs: streetTRACKS KBW Bank (NYSEARCA:KBE), Regional Bank HOLDRS (NYSEARCA:RKH), Vanguard Financials ETF (NYSEARCA:VFH)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: Are Wage Increases a Threat to Inflation?
Housing: An 80-Year Yield Curve History and its Implications
Long Idea: Anticipation of a Kraft Spinoff Has Altria Smoking This Earnings Season
Short Idea: Exxon Shares Sinking to Levels They Richly Deserve
Internet: I'm Sorry Ms. Yahoo, Eric Jackson's Plan is for Real
Telecom: Apple's iPhone Partnership With Cingular Could Drag It Down
Hardware: Will Dell Make a Comeback?
Consumer Electronics: iPhone is No Blackberry Killer - Merrill
Media: Dolby Turns Down the Volume on Obnoxious Advertisers
Healthcare: Report From JPMorgan's HealthCare Conference: The Spinal Business Is Hot
Retail: Is Gap a Private Equity Takeover Target?
Transport: Live From the Detroit Auto Show, the 'Big 4' Speak
Gold: Galore Creek and Agua Rica - Two High Risk Mining Projects (Part 2)
Energy: Is Peak Oil Already Here?
Financial: Barclay's Nerds and Their Bifurcated Alpha/Beta Approach
Asia: Japan: 2006 Market Cap Ranking
ETFs: ETF Advice From One of the World's Best Investors
Small-Caps: Simtek Corp. On The Rise
IPO Analysis: An In-Depth Look at Melco PBL Entertainment's IPO
Sound Money Tips: Refinancing Your Home
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Lawson Software F2Q07, Helen of Troy F3Q07, Emmis F3Q07, Ruby Tuesday F2Q07, Alcoa Q4 2006

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