U.S. Trade Gap Down 1% in Nov. on Export Strength and Lower Oil
The U.S. trade gap narrowed 1% in November to $58.2 billion, its smallest since July 2005 and also its third straight decline, on record exports of $124.76b. However, the fact remains the U.S. has a huge overall deficit exceeding $700b year-to-date, likely to surpass the $716.7b record set in '05, for a fifth straight year of record shortfalls. Still, economists seem pleased with the latest data and point to a narrowing trade gap with China to $22.9b in Nov. (vs. $24.4b in Oct.), although year-to-date at $213.5b it already exceeds all of '05. Trade gaps with Canada and Japan also narrowed, while holding steady against the EU and widening with Mexico. A weaker U.S. dollar is credited for the increase in exports, which helps make them cheaper, while limiting demand for imports, which become more expensive. Stronger exports could help the "soft-landing" argument, as further strength could lessen the impact of any additional weakness in housing.
• Sources: Bloomberg, MarketWatch, WSJ [I, II]
• Related commentary: Consumer Borrowing Up Sharply as Debt Moves from Condos to Credit Cards, Fed's Kohn: Soft Landing Likely for U.S. Economy, Too Early To Worry About Employment Being Too Strong, U.S. Economy Just Beginning to Sizzle -- Barron's, Global Markets: Currency Imbalances and Trade Are Driving Forces
• Potentially impacted stocks and ETFs: S&P 500 Index (NYSEARCA:SPY), NASDAQ 100 Trust Shares ETF (QQQQ), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Russell 2000 Index ETF (NYSEARCA:IWM), iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT)
TECHNOLOGY AND INTERNET
Kodak Sells Health Business to Onex Corp. for $2.55 Billion
Eastman Kodak, struggling to pay down debt as it finds its footing in the digital world, will sell its healthcare imaging unit to Onex Corp. for $2.55 billion. Kodak has posted losses totaling about $2 billion over the past eight quarters. The company will use proceeds of the sale to pay down approximately $1.15 billion in debt, and will focus anew on its digital camera, printer and scanner businesses. The division to be sold makes X-ray film, digital X-ray machines and mammography equipment, and competes with General Electric, Siemens and Philips Electronics. It had revenue of $2.54 billion in the 12 months ended Sept. 30 and accounts for about 19% of Kodak's total sales. Sales at the unit fell 6% to $597 million in Q3, and profits were down 29% to $68 million on higher silver prices and costs. The purchase will be Onex's sixth health-care acquisition. The company also holds stakes in Emergency Medical Services Corp. and Res-Care Inc. Together with Goldman Sachs, Onex was involved in the recent $3.3 billion purchase of Raytheon Co.'s business-jet unit, and it was involved in the $8.7 billion buyout of Qantas Airways Ltd.
• Sources: Bloomberg, Reuters , USA Today, Wall Street Journal
• Related commentary: , Kodak Reports Eighth Straight Loss, but Shares Rise 5%, Eastman Kodak: Out With The Old. Conference call transcripts: Q3 2006
• Potentially impacted stocks: Eastman Kodak Co. (EK), Onex Corp. (TSE: OCX). Competitors: Canon Inc. (NYSE:CAJ), Sony Corp. (NYSE:SNE), General Electric Co. (NYSE:GE), Siemens AG (SI)
eBay Buying Ticker Reseller StubHub
Online auctioneer eBay is acquiring startup ticker reseller StubHub for $285 million plus the $25 million cash on StubHub's books ($310m total), in an effort to boost sagging growth as its core business matures. Privately-owned StubHub, based in San Francisco and founded seven years ago, had revenue last year of about $100 million and EBITDA earnings of approximately $10 million, so the buyout values the company at more than 30x cash flow. eBay has competed against StubHub in the lucrative ticket reselling business; IAC/Interactive's TicketMaster unit is another big player in the field. StubHub is the largest tickets-only online reseller, making a market in concert, sports and other events; ComScore reports 2.1 million unique visitors to StubHub last month.
• Sources: eBay press release, TechCrunch, WSJ, Reuters
• Related commentary: eBay Scalps StubHub (Om Malik), eBay's Q4 Listings Well Below Estimates - Jaffray, Internet Sector In '07: Continental Europe Will Be Key, Can eBay Stay Ahead?
• Potentially impacted stocks and ETFs: eBay (NASDAQ:EBAY) Competitors: IAC/Interactive (IACI) Conference call transcripts: eBay Q3 2006
ENERGY AND MATERIALS
Oil Price Hits 19-Month Low
Crude oil futures, shuddering at the news that U.S. petroleum-product stocks grew for the fourth consecutive week, fell to a 19-month low of $54.02 a barrel yesterday. Gasoline stockpiles were up 3.8 million barrels and distillate fuel inventories 5.4 million barrels, both exceeding analyst forecasts. Mild temperatures, particularly in the Northeast, largely caused the jump in distillates, which include heating oil. Another factor was a rise in refinery utilization last week to 91.5% of capacity. Crude futures have skidded 31% since their July record of $78.40 a barrel. The decline has prompted speculators to start betting on further falls, which could magnify the drop. The decline will also likely result in a third OPEC production cut. Though the oil price has penetrated both short-term and long-term support, enough uncertainty remains in the market to keep the price from going into freefall: Russia cut off the oil supply traveling through Belarus on Monday (a dispute that threatened supply to Eastern Europe but has since been resolved), Venezuelan production might be affected by Chavez's socialist agenda, and Nigeria is facing ongoing violence at its oil facilities.
• Sources: Wall Street Journal, MarketWatch, Bloomberg, Reuters, TheStreet.com
• Related commentary: What's Really Behind This Oil Price Crash?, Falling Oil Prices Are Ultimately Positive For Stocks, Oil Prices Plummet for Second Straight Session, Oil Prices Plummet as Temperatures Rise, Energy Bears Beware: Winter May Yet Arive, Oil Price Boosted by Iranian Ire at U.N. Sanctions,
• Potentially impacted ETFs: Oil Service HOLDRs Trust (NYSEARCA:OIH), United States Oil Fund LP (NYSEARCA:USO), PowerShares DB Oil (NYSEARCA:DBO)
Tiffany: Strong Holiday Sales and Higher Guidance Issued, But Stock Drops 2%
Shares of Tiffany fell 2% yesterday despite news it achieved solid holiday same-store-sales, especially at its flagship NY store and overseas ex-Japan. Also, Tiffany raised its guidance for its current and next fiscal year. Overall, holiday s-s-s were up 8% in the U.S. and 18% overseas, but -4% in Japan, which accounts for half of Tiffany's international revenue. Tiffany revised its fiscal year (ending Jan. 31) earnings upward to $1.82 -$1.85 per share, from $1.79 - $1.84 previously, in line with analysts' estimates of $1.82 (Thomson) and $1.83 (Reuters). Reuters quotes an Oppenheimer analyst who says, "With the strong sales in the New York market and outside, people thought the range would be even higher." Q4 sales are expected to be up 14% - 15% with EPS of $1.03 - $1.06. Tiffany sees EPS growth in '07 between 13% - 15%, or $2.06 - $2.13 per share, against the Street's estimate of $2.06. Separately, in an SEC filing, Tiffany said its sales agreement with Japan's Mitsukoshi department store will expire at the end of this month. Tiffany makes 10% of its net sales at boutiques in Mitsukoshi. The two have reportedly negotiated but will have to negotiate further before a new agreement is reached. Tiffany can continue operating boutiques in the meantime, but either party can act unilaterally and change terms and conditions including the fees Tiffany pays as a percent of sales.
• Sources: Tiffany press release and SEC filing, Bloomberg, Reuters
• Related commentary: Fisher's Buyout Candidates, Tiffany's Is Looking Good, Stocks To Capture China’s Baby Boomers, Tiffany Comments on Declining Japan Comps
• Potentially impacted stocks and ETFs: Tiffany & Co (NYSE:TIF)
US Airways Ups Ante for Delta to $10.2 Billion
US Airways has boosted its hostile takeover bid for bankrupt Delta Airways by 28% to $10.2 billion. The new deal is designed to force a decision from Delta's creditors, who were undecided after US Airways' previous bid of $8.5 billion. They have until February 1 to respond. According to the Wall Street Journal, "the new proposal will provide between $12.7 billion and $15.4 billion in value to Delta's unsecured creditors, a hefty premium over the $9.4 billion to $12 billion valuation that Delta places on its standalone plan." Delta management says the new offer, like the old one, fails to address its concerns about anti-trust and labor issues and the combined company's debt burden. Eager for alternatives, Delta has been talking with Northwest Airlines, also in Chapter 11, about a link-up. US Airways expects the acquisition to add to EPS in the first year, but it will also more than double its shares outstanding and elevate its debt far beyond its current market value of $5.1 billion.
• Sources: Bloomberg, Reuters, Wall Street Journal, The Platform. Conference call transcripts: January 10, 2007
• Related commentary: Northwest and Delta Flirt with Merger, War of Words Between Delta and US Airways Intensifies, Delta Tries to Trump US Airways Buyout Through Bankruptcy, US Airways Surprises Delta With Hostile Bid, Merger Mania Grips the Airlines
• Potentially impacted stocks and ETFs: Delta Air Lines, Inc. (DALRQ), US Airways Group Inc. (LCC), Northwest Airlines Corp. (NWACQ.PK). Competitors: AMR Corporation (AMR), Southwest Airlines Co. (NYSE:LUV), UAL Corp. (UAUA). ETFs: streetTRACKS DJ Wilshire Small Cp Growth (Pending:DSG)
Northwest and Delta Flirt with Merger
In an intriguing third option behind submitting to a hostile takeover by US Airways or going it alone, Delta Airlines is in talks with Northwest Airlines to join forces when both carriers emerge from bankruptcy. Northwest is expected to leave Chapter 11 in Q2 and is examining several strategic options, including a merger with Delta. Delta's management, too, has been calculating merger benefits as it struggles to fend off US Airways, which just raised its bid from $8.5 billion to $10.2 billion. Delta has waged a furious grass-roots campaign to scupper the US Airways takeover, including mass emails to frequent fliers. It has also leaned on the support of its pilots and employees -- a tactic that could backfire if the airline is forced to shrink the amount of equity employees will receive in its standalone plan. It has also hired media consultants and taken the battle to Capitol Hill, where it hopes to convince the Senate Committee on Commerce, Science and Transportation that the takeover will be bad for the industry and the consumer. Northwest has not commented on the merger talks.
• Sources: Wall Street Journal, Forbes
• Related commentary: US Airways Ups Ante for Delta to $10.2 Billion, Merger Mania Grips the Airlines, Delta Tries to Trump US Airways Buyout Through Bankruptcy, Airline Consolidation Efforts Heat Up as United, Continental Discuss Merger, Large Shareholder Opposes Northwest Buyout of Mesaba Airlines
• Potentially impacted stocks and ETFs: Northwest Airlines Corporation (NWACQ.PK), Delta Airlines Inc. (DALRQ.PK), US Airways Group Inc. (LCC). Competitors: AMR Corporation (AMR), UAL Corp. (UAUA). ETFs: streetTRACKS DJ Wilshire Small Cp Growth (DSG)
Genentech's Beat and Raise Quarter Wows Analysts
Genentech Inc. reported a dream fourth quarter yesterday after the market close and raised its outlook for 2007, sending shares higher by 1.15% in after hours trading. The company, which is majority owned by Swiss drug maker Roche Holding AG, saw U.S. sales topped $2 billion for the first time in the company's history. By the numbers, Genentech reported net income of $594 million ($0.55 EPS) compared with just $339 million ($0.31 EPS) during the year earlier quarter. Adjusted EPS was $0.61 for the quarter while operating revenue came in at $2.7 billion, up from $1.9 billion in the year earlier period. Those numbers beat Thomson Financial consensus estimates of EPS of $0.56 on revenue of $2.55 billion. Sales of the company's top-selling drug, Rituxan, jumped 16% to $560 million while its second best seller, Avastin, saw sales jump 36% to $490 million - again surpassing analyst expectations. Looking forward to 2007, the company expects 2007 earnings before items to rise 25% to 30% from 2006's level of $2.23 a share.
• Sources: Genentech Q4 2006 Earnings Call Transcript, Press Release, MarketWatch, Bloomberg, Wall Street Journal
• Related commentary: Genentech is a Hard Act To Follow [WSJ], MedImmune vs. Genentech: Supreme Court Ruling Facilitates Patent Challenges, Genetech to Acquire Xolair Co-developer Tanox for $919 Million, The Biotech Industry: 30 Years of Failure, Starting with Genentech
• Potentially impacted stocks and ETFs: Genentech (Private:DNA), Roche Holding AG (OTCQX:RHHBY). Competitors: Amgen Inc. (NASDAQ:AMGN). ETFs: Biotech HOLDRs (NYSEARCA:BBH)
Las Vegas Sands To Undertake New Macau Project; Shares Jump
Shares of Las Vegas Sands Corp., jumped 11% yesterday to an all-time high of $102.81 after a Jefferies & Co. analyst announced the company had been given the go ahead for a new casino on Hengqin Island, near Macau. According to Jefferies, the planned 2,000-acre complex will be built over 11 years and is worth $34 a share. The U.S. largest casino operator by market cap, Las Vegas Sands shares doubled in value in 2006; in addition to its Hengqin Island project, the company plans to open Singapore's first casino as well as build an additional 20,000-room project in Macau.
• Sources: TheStreet.com, Bloomberg, Business Week
• Related commentary: A Quick Guide to the Major Gambling Stocks, The Big Macau Gamble, Vegas Style, Las Vegas Sands: Dicey Valuation. Conference call transcripts: Las Vegas Sands Q3 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: Las Vegas Sands Corp. (NYSE:LVS). Competitors: Wynn Resorts (NASDAQ:WYNN) and MGM Mirage (NYSE:MGM)
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Telecom: An Interview With Vonage CEO Jeff Citron
Hardware: Mac Prices: Comparing Apples With... Apples
Software: Microsoft Vista's Voice-Recognition Software: The Future of PC Applications
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Media: Blockbuster Soars, Netflix Running Out of Steam
Healthcare: Desperate Moves in the CVS, Express Scripts, Caremark Tug o' War
Retail: Federated Department: No Longer Getting My Shopping or Investment Business
Transport: Why I'm Bullish On Airline Stocks
Gold: Crystallex Price Continues To Be Manipulated By the News
Energy: What's Driving Oil Prices Down?
Financial: JPMorgan: Outlook For 2007 Positive
Asia: China ETFs: Don't Be The Last One Out The Door
ETFs: Looking at Commodity and Foreign ETFs in 2007
Small-Caps: Willamette Valley Vineyards: Waiting For The Grapes To Grow
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Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Audiovox F3Q06 (Qtr End 11/30/06), Mercantile Bank Q4 2006, Genentech Q4 2006
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