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MACRO AND HOUSING

Weak Housing Forecasts Foretell Further Downside

The housing industry continues to struggle with rising loan defaults and slow sales: (1) IndyMac, a top-10 U.S. mortgage lender, said it now expects Q4 earnings of $0.97/share (Jan. 25), down from its original forecast of $1.30-1.40 and $1.06 last year. IndyMac blamed its shortfall on higher provisions for defaults, repurchases of soured loans earlier sold to investors, declines in loan values, and a margin squeeze between its funding costs and the interest rates it receives from borrowers. Shares were down $3.05 (7%) to $40.50. (2) Homebuilder Centex said it expects a loss of $2/share (Jan. 23) for its F-Q3, vs. $2.37 last year. It said it will write down its land value by $300 million and record a $150m loss on options to buy land that are being abandoned, calling the current environment "one of the most challenging" of the last 25 years. Shares dropped $1.55 (2.9%) to $51.61. (3) KB Home, announcing changes in previous estimates, also said it will take a $343 million property Centex 17 01 2007 Chart IndyMac Bancorp 17 01 2007 Chartcharge this quarter. While some economists think we've seen the worst of the housing slump, others take recent developments as a sign of what's to come. Ivy Zelman, housing analyst for Credit Suisse: "There are going to be more negative surprises. I think it's just getting started."
• Sources: Wall Street Journal, LA Times
• Related commentary: Housing Stocks: Is the Worst Over?, More Evidence of the Housing Bottom from the Builders, Seeking Alpha's Housing Bubble and Real Estate Market Tracker
• Potentially impacted stocks and ETFs: Centex Corp. (CTX), IndyMac Bancorp Inc. (NDE), KB Home (KBH). More Homebuilders: Toll Brothers Inc. (TOL), D.R. Horton Inc. (DHI), Lennar Corp. (LEN), Beazer Homes USA Inc. (BZH), Pulte Homes Inc. (PHM). ETFs: iShares Dow Jones US Real Estate (IYR), iShares Cohen & Steers Realty Majors (ICF), SPDR Homebuilders (XHB), iShares Dow Jones US Home Construction (ITB)

TECHNOLOGY AND INTERNET

Intel Shares Fall on Price War Worries

Shares of Intel Corp were down 3.5% following its Q4 earnings release in which it said it earned $1.5 billion ($0.26/share), beating the $0.25 average forecast, on revenues of $9.7b. This was a sharp decline from Q4'05 when Intel reported earnings of $2.45b ($0.40/share) on revenue of $10.2b. Intel-INTC-1yr-chart-01-16-07 Gross margin improved to 49.6% compared to 49.1% in Q3. It gave Q1 sales guidance of $8.7-$9.3b; vs. the average Street estimate of $8.93b, and projected its gross profit margin would fall to 49% in Q1 2007. The fall in margins, which are down from 61.8% in Q4 2005, indicate its price war with AMD continues to take a heavy toll; investors had hoped Q4 margins would show signs of bottoming. In its conference call, CFO Andy Bryant admitted 2006 had been "a very tough pricing year," and said, "We're going to have to fight to win orders." Separately, Reuters reports Intel "may be poised to sell its flash memory operations in Israel." Intel sources were cited on the financial news web site of Ha'Aretz newspaper saying STMicroelectronics would be the purchaser. The expected sales price is $1.5b, excluding debt.
• Sources: Intel Q4 2006 Earnings Call Transcript, Intel press release [pdf], Reuters [I, II], New York Times
• Related commentary: Intel Earnings Preview: Bleeding From Price War?, Can Intel Face The Competition?, AMD Issues Q4 Earnings Warning, Shares Tumble in Extended Trading,
• Potentially impacted stocks and ETFs: Intel (INTC), Advanced Micro Devices (AMD), STMicroelectronics NV (STM). ETFs: Semiconductor HOLDRs (SMH), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (PSI), SPDR Semiconductor (XSD)

Symantec Shares Nosedive on Q3 and Full-Year Warning

Shares of security software giant Symantec Corp. tumbled 13% to $17.79 yesterday after the company warned that Q3 profit and sales results will miss forecasts. Symantec also revised its full-year outlook downward. This is the second consecutive quarter that the company has missed forecasts. Symantec lowered its Q3 revenue range to $1.29-1.31 billion, shy of the Street's expectation of $1.35 billion, and Symantec 17 01 2007 Chartits EPS range for the period to $0.10-0.11 versus a $0.14-0.15 forecast. For fiscal 2007, the company expects a revenue range of $5.08-5.11 billion with EPS of $0.36-0.39 against an earlier forecast of $0.46-0.56 EPS on revenue of $5.1-5.3 billion. Symantec overestimated revenues it would earn from software to maintain data centers, and weak license sales led to a higher proportion of revenue from long-term maintenance contracts, effectively deferring sales into future quarters. The company was also surprised by the magnitude of expenses associated with installing a new software system. Symantec's miss follows disappointing results from software makers SAP AG and Oracle Corp., reflecting a general pullback in corporate spending on IT.
• Sources: Forbes, Bloomberg, Reuters, MoneyCentral
• Related commentary: Sorting Symantec's Mess: Investors Concerned More Bad News To Follow, Symantec's Warning: Some Unresolved Questions, Symantec's A Short Following Weak Data Point, Symantec Tumbles On Warning
• Potentially impacted stocks and ETFs: Symantec Corp. (SYMC). Competitors: CA, Inc. (CA), McAfee Inc. (MFE), Microsoft Corp. (MSFT). ETFs: iShares Goldman Sachs Software Index (IGV), Software HOLDRs (SWH), streetTRACKS Morgan Stanley Technology (MTK), Internet Architecture HOLDRs (IAH)

Verizon to Spin Off New England Assets to Fairpoint

In a bid to hone its focus on wireless, television and the Internet, Verizon Communications announced yesterday that it is spinning off landline phone operations in Maine, New Hampshire and Vermont and combining the assets with rural carrier Fairpoint Communications. The tax-free deal is valued at roughly $1 billion. Fairpoint shares enjoyed a 15% boost on the news. Verizon shareholders will get $1.02 billion in Fairpoint stock and own 60% of the company. They will receive one share of FairPoint for each 55 shares of Verizon they own. Verizon, which recently divested its Dominican assets as well as Idearc, its directories business, is also interested in divesting rural assets in Ohio, Indiana, Michigan, Illinois and upstate New York. The streamlining is designed to speed up Verizon's construction of the country's fastest fiber network and enable it to compete with cable on pay-television service. Fairpoint plans to expand broadband connections in the three states within a year of the deal's closing.
• Sources: Business Week, Bloomberg, MarketWatch, Wall Street Journal. Conference call transcripts: January 16, 2007. Video: FairPoint, Verizon executives on the spinoff
• Related commentary: Verizon FairPoint Spinoff To Lower Debt - What Do Shareholders Have To Gain?, Howling At The Moon: Dogs and Flying Five 2007 Stock Picks, Verizon's Idearc Spinoff: It May Quickly Become a Value Stock
• Potentially impacted stocks and ETFs: Verizon Communications Inc. (VZ), Fairpoint Communications Inc. (FRP). Competitors: AT&T Inc. (T), Qwest Communications International Inc. (Q), Sprint Nextel Corp. (S). ETFs: Telecom HOLDRs (TTH), iShares Dow Jones US Telecom (IYZ), iShares S&P Global Telecommunications (IXP), First Trust Morningstar Div Leaders Idx (FDL)

MySpace To Allow Parents To Partially Monitor Children's Online Behavior

The Wall Street Journal reports News Corp.-owned social networking site MySpace has made an allowance for parents wishing to monitor their children's behavior on the web's most popular site by page views. But the new software, called 'Zephyr,' has raised concerns it will alienate MySpace users. Once installed, Zephyr will allow its administrator (a parent or anyone else who installs it) to find out what name, age and location their children use to represent themselves on the site, though it will not give parents the ability to read their children's e-mail or see their profile pages. The announcement comes as a group of 33 state attorneys general decide whether to pursue legal action against MySpace if it does not raise the age limit to join the site to 16 from 14. Facebook's Chief Privacy Officer Chris Kelly responded that MySpace's approach is "inconsistent with our privacy architecture." Myspace currently bans members under 18 from entering pages with adult content.
• Sources: Wall Street Journal, Boston Globe
• Related commentary: Fox Interactive/MySpace Beats Yahoo in November Page Views, Web 2.0: What's Hot and What's Not
• Potentially impacted stocks and ETFs: News Corp. (NWS). Competitors: Yahoo (YHOO), Microsoft (MSFT), Google (GOOG). ETFs: PowerShares Dynamic Media Portfolio (PBS), Internet HOLDRs (HHH)

MEDIA

XM Softens Stance on Possible Merger with Sirius, But DoJ and FCC Stand in the Way

The Wall Street Journal explores the various obstacles a merger between the lone two players in satellite-radio might face in the wake of increased analyst speculation of a deal, a warming up to the idea by XM and a sense of urgency as the '08 election cycle approaches. Both the FCC and Dept. of Justice are seen potentially blocking an attempt to merge due simply to the fact there would only be one player left in satellite radio. However, both Sirius and XM claim they compete against all types of music media. Sirius-SIRI-XM-XMSR-Nasdaq-1yr-chart-01-16-07 It may be difficult to persuade the FCC considering it previously blocked a merger between EchoStar and DirecTV. Nonetheless, it seems a recent marked softening of its stance on a merger by XM, as well as stock analyst speculation of a merger could serve as a "trial balloon intended to gauge the reaction of both investors and regulators," says the WSJ adding, "Such advance work may be necessary given that any deal would face significant hurdles." An RBC Capital Markets analyst also warns although cost savings could reach 50%, it might not happen until 2010 due to usage of different technologies.
• Sources: WSJ, Forbes
• Related commentary: XMSR and Sirius: The Street Weighs In, More From The Sirius/XM Satellite Radio Merger Rumor Mill, Sirius Satellite: Reverse Stock Split in the Offing?, Sirius, XMSR Shares Jump On Positive Sirius Subscriber, Cash Flow News. Conference call transcripts: Sirius Q3'06 , XM Satellite Radio Q3'06
• Potentially impacted stocks and ETFs: Sirius Satellite Radio (SIRI), XM Satellite Radio Holdings (XMSR)

Cablevision Board Rejects New Dolan Family Offer With a Resounding 'No'

"Do not let Chuck and Jim Dolan steal CVC," analyst Richard Greenfield wrote to investors Friday after the Dolan family which controls 70% of Cablevision's board upped its bid to take the company private from $27 to $30 a share.cvc Yesterday, the response came in the form of a letter addressed to the Dolans from the special committee of two independent board members entrusted with negotiating shareholders side of the deal, and it offered a resounding "no," claiming the new offer still did not represent fair value for the company. With three million subscribers in one of the nation's wealthiest demographics, New York City, many analysts feel Cablevision represents a best of breed as far as cable companies go. Shares have done exceedingly well in the last eight months after hitting a low of $18 due to increased profits and revenues stemming from 'triple-play' offerings combining video, high-speed Internet and phone services. Shares closed at $28.49 yesterday after adding $0.10.
• Sources: Text of board's letter to Dolan family, Newsday, Washington Post, Wall Street Journal
• Related commentary: Is The Dolan Bid For Cablevision Holding Down Its Stock Price?, Investors Feel 'Short-Changed' in Dolan's Bid To Take Cablevision Private, Report: Liberty Media Looking To Buy Cablevision's Rainbow Unit. Conference call transcripts: Cablevision Q3 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: Cablevision Systems Corporation (CVC). Competitors: Verizon (VZ), Comcast (CMCSA), Viacom (VIA), Time Warner (TWX)

ENERGY AND MATERIALS

Freeport-McMoRan: Q4 Earnings Miss, Prices and Production Down

Freeport-McMoRan reports Q4 net income of $426 million, or $1.99/share, an 8% y-o-y decline, which missed the average Street estimate of $2.12/share. Revenue grew 10% to $1.64b, but missed the consensus estimate of $1.72b. Three issues negatively impacted earnings: adjustments to metal sales from prior quarters, higher Q4 y-o-y copper and gold prices but 36% and 15% respectively off calendar intra-year highs and lower production at its Grasberg mine in Indonesia (copper -8.1% and gold -54%). Freeport-McMoRan-FCX-1yr-chart-01-16-07 Net income for the year totaled $1.4b, or $6.63/share on revenue of $5.79b, compared to $935m, or $4.67/share on revenue of $4.18b in '05. Freeport expects to sell 1.1 billion pounds of copper and 1.8m ounces of gold in '07 -- versus 1.2b and 1.7m, respectively in '06 -- of which Q1 sales are expected to be the highest. Shares of Freeport lost nearly 3% yesterday to close at $53.40. Its $25.9 billion stock and cash deal to acquire Phelps Dodge announced last Nov. is set to close this March.
• Sources: Earnings press release [pdf], Bloomberg, MarketWatch
• Related commentary: Steve Cohen Will Vote Against Phelps Dodge/Freeport McMoRan Merger, An Analysis on Freeport-McMoRan's Bid for Phelps Dodge, Freeport Stock Jumps On BHP Takeover Rumors, Does Freeport-McMoRan's Phelps Dodge Acquisition Signal a Top in Metal Prices?,
• Potentially impacted stocks and ETFs: Freeport-McMoRan Copper & Gold (FCX), Phelps Dodge (PD). Competitors: Cabot (CBT), Southern Copper (PCU), Newmont Mining (NEM), Rio Tinto (RTP). ETFs: SPDR Metals and Mining ETF (XME), Market Vectors Gold Miners ETF (GDX)

FINANCIAL

TD Ameritrade Profit Jumps, But What's Next?

Ameritrade's purchase of TD Waterhouse one year ago tripled client assets, doubled high-interest margin loans, cut reliance on trading commissions by increasing money market account fees and interest revenue, and yielded a 69% jump in Q1 profit from '06 market gains. AMTD reported F-Q1 2007 earnings of $145.6 million ($0.24/share) up y/y from $86 million ($0.21). Revenue nearly doubled y/y to $535 million from $277 million. CEO Joseph Moglia said Ameritrade will use increased cash for more share buybacks, paying down debt and more acquisitions. He promised to boost profits to $1.10/share in 2007 by closing offices, eliminating jobs and combining the two companies' trade-processing systems. Prudential says online brokers are a top pick in '07, but Banc of America commented that many of AMTD'S Q1 gains are one-timers like lower executive bonuses and health insurance claims, raising questions about '07 results. Friedman, Billings, Ramsey and Co. downgraded AMTD from Outperform to Market Perform. Shares gained $1.05 (6.1%) on Tuesday to $18.40.
• Sources: The Street; Reuters; Businessweek; Bloomberg; MSN Money
• Related commentary: Online Brokers' Blasè Response To BOA May Come Back To Haunt Them; Online Discount Brokers: Disintermediation Won't Strike Evenly; Bank of America Accelerates Free Trading: Time to Short Ameritrade, E-Trade and Charles Schwab?; Additional Concerns On Ameritrade; E*Trade in the Free Trade Era; Will Bank of America's Commission-Free Trading Doom Online Brokers?Conference Call transcripts: TD AMERITRADE F1Q07 (Qtr End 12/31/06) Earnings Call Transcript
Potentially Impacted Stocks and Competitors: Bank of America (BAC), E*Trade (ETFC), Schwab (SCHW), Wells Fargo (WFC), Just2Trade.com, Zecco.com
ETFs: iShares Dow Jones U.S. Broker/Dealers (IAI)

Wells Fargo, U.S. Bancorp: Commercial Lending, Fees Boost Q4 Profts

Wells Fargo and U.S. Bancorp reported increased Q4 earnings on Tuesday. Wells Fargo met analyst expectations with $2.18 billion in earnings ($0.64/share). Revenue climbed 11% y/y to $9.41 billion, beating forecasts of $9 billion. U.S. Bancorp reported a y/y earnings increase of 4.5% to $1.19 billion. Both banks pin increased Q4 profits on revenue from commercial loans and money-management fees. Analysts suggest that 17 Federal interest rate hikes since 2004 have slowed consumer borrowing, forcing the banks to rely more on commercial lending. Wells Fargo shares advanced $0.74 to $36.25, while U.S. Bancorp shares rose $0.20 to $35.75 in afternoon trading yesterday.
• Sources: Bloomberg, TheStreet.Com, Reuters, WSJ
• Related commentary: Key Earnings Reports Over Next Two Weeks, Wells Fargo Looks Forward to 10% or Better Growth, US Bancorp Raises Its Dividend, But What About Capital Gains?,
• Potentially impacted stocks and ETFs: : Wells Fargo (WFC), U.S. Bancorp (USB) Competitors: SunTrust Banks Inc. (STI), National City Corp. (NCC), KeyCorp (KEY), AmSouth Bancorp (ASO) ETFs: iShares Dow Jones US Regional Banks Index Fund (IAT), iShares Dow Jones US Financial Sector Index Fund (IYF), iShares Dow Jones US Financial Services Index Fund (IYG), Regional Bank HOLDRs Trust (RKH), Vanguard Financials ETF (VFH), Select Sector SPDR Financial (XLF)

Commerce Bancorp Shares Plummet on U.S. Probe and Earnings Warning

New Jersey-based bank Commerce Bancorp announced yesterday that federal regulators are investigating transactions involving some of its principals. The bank also warned that a difficult interest-rate environment might cause early 2007 earnings to miss Street forecasts. The Commerce Bancorp 17 01 2007 Chartdouble whammy precipitated an 8.3% share price drop to $31.83.In 2005, two Commerce officers were convicted of municipal corruption involving Philadelphia city contracts. There is speculation that the current probe concerns two things: leases the bank holds for land with entities in which CEO Vernon Hill is a business partner, and a longstanding business relationship the bank has had with an architectural design firm run by Hill's wife. The bank reported that it met analyst forecasts with a 68% increase in Q4 profit to $78.7 million, or $0.40/share, but expects quarterly earnings to stay around $0.40/share until the Fed cuts short-term interest rates. Analysts had forecast profit per share of $1.84 for the year, a target that now appears virtually impossible to achieve. Net interest margin also fell to 3.25% in Q4 from 3.27% in Q3 and should average between 3.2% and 3.3% through June.
• Sources: Bloomberg, Motley Fool, Reuters. Conference call transcript: Q4 2006
• Related commentary: Why a Commerce Bancorp Sale is Unlikely
• Potentially impacted stocks and ETFs: Commerce Bancorp Inc. (CBH). Competitors: Citigroup Inc. (C), PNC Financial Services Group Inc. (PNC), Wachovia Corp. (WB)

HEALTHCARE

Express Scripts Begins $25 Billion Hostile Bid for Caremark; CVS Sweetens Deal

Express Scripts began seeking Caremark shareholder support for its $24.3 billion hostile bid yesterday, prompting rival bidder CVS to sweeten its offer for the pharmacy benefits manager with a one-time dividend of $2.00 a share. Caremark rejected Express's offer last week in favor of CVS's $22.3 billion proposal. In December, Express Scripts bid $29.25 in cash and 0.426 share of Express Scripts stock for each share of Caremark about two months after Caremark accepted a bid of $21 billion in stock from CVS. Based on current stock prices, the Express deal offers Caremark shareholders a 7% premium over the CVS deal. Following Express's move yesterday, CVS and Caremark announced the dividend and also said they will retire about 10% of the new company's outstanding shares if the deal goes through. The share retirement should help the new company achieve double-digit cents-per-share accretion and boost 2008 ROE. The Caremark-CVS deal hinges on a shareholder vote in mid-March and a ruling on a Caremark shareholder lawsuit. Caremark management maintains that a combination with CVS could lower costs by $400 million and disputes Express's $500 million savings estimate. It also contends that a combination with Express is unlikely to be approved by antitrust regulators.
• Sources: MoneyCentral, Bloomberg (I, II), New York Times, Wall Street Journal
• Related commentary: Express Scripts, Snubbed by Caremark Rebuff, Launches Proxy War, Desperate Moves in the CVS, Express Scripts, Caremark Tug o' War, Caremark Favors CVS Offer Over Express Scripts, Express Scripts Undercuts CVS in Brazen Bid For Rival Caremark Rx
• Potentially impacted stocks and ETFs: Express Scripts, Inc. (ESRX), Caremark Rx, Inc. (CMX), CVS Corp. (CVS). Competitors: Unitedhealth Group, Inc. (UNH), Wal-Mart Stores Inc. (WMT), Medco Health Solutions (MHS), Wellpoint, Inc. (WLP). ETFs: iShares Dow Jones US Healthcare Provider (IHF), PowerShares Dynamic Mid Cap Growth (PWJ), Retail HOLDRs (RTH), SPDR Retail (XRT), PowerShares Dynamic Pharmaceuticals (PJP), iShares Dow Jones US Pharmaceuticals (IHE), SPDR Pharmaceuticals ETF (XPH)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: Overbought, Overbullish Climate Leaves No Room to Get Out
Housing: 'Era of Low Inflation'? Grandma Begs to Differ
Long Idea: Qimonda: A Deep Value Play For Vista and Video Consoles
Short Idea: Why Is Systemax Being Fishy About Its Rebate Business?
Internet: Trading Google Into Earnings
Telecom: How To Invest In WiMAX
Networking: Cisco's Core Markets 'No Longer Accelerating'
Hardware: Will NCR Corp.'s Teradata Be Bought Out Before It Can Go Public?
Software: Symantec's Warning: Some Unresolved Questions
Consumer Electronics: Apple's iPhone Won't Cannibalize iPod
Media: Netflix's Long-Awaited Launch of VOD: Slightly Disappointing
Biotech: Project BioShield Fails to Motivate Biotechs to Protect America
Retail: Store of the Future: Shop at Best Buy, Buy at Amazon?
Transport: Throwing More Money At Fickle U.S. Consumers Won't Fix Ford's (or GM's) Problems
Energy: Oil vs. Energy Stock Prices: Something's Gotta Give
Asia: A Depression in Natural Gas Prices May Prove Bullish For China
ETFs: MacroShares Crude Oil ETFs: Unintentional Comedy Show
Small-Caps: Issuer-Paid Dutton Analyst Stanley Ng Has Been Dead On With Qiao Xing
IPO Analysis: Hong Kong Leads Global IPOs in 2006, by Dollar Volume
Sound Money Tips: Improve Your Bottom Line in the New Year
Jim Cramer: Latest stock picks
Conference Call Transcripts: Intel Q4 2006, TD AMERITRADE F1Q07, Commerce Bancorp Q4 2006, Forest Laboratories F3Q07, New Oriental Education & Technology F2Q07

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