ISS Advises Equity Office Shareholders to Accept Blackstone's Bid
The independent advisory group Institutional Shareholder Services Inc. [ISS] is recommending that holders of Equity Office stock vote in favor of a buyout by private equity firm the Blackstone Group at their February 5 meeting. Equity Office is the largest owner-operator of office properties in the U.S. Last Thursday, Blackstone upped its all-cash bid by 11.3%, from $48.50 to $54, countering a bid from Vornado Realty Trust of $52 per share in cash and stock. The Blackstone offer amounts to $38.3 billion including debt, making it the largest private-equity bid in history. The Equity Office board of trustees is also in favor of the Blackstone deal. If it is approved by shareholders, the deal should close around February 8. Equity Office shares were up $0.32 on Friday to close at $55.22, above the Blackstone offer price, on speculation that Vornado might once again top Blackstone's bid.
• Sources: Bloomberg, MarketWatch, CNN.com
• Related commentary: Blackstone Back at the Table; Raises Equity Office Bid to $38.3 Billion, Blackstone Group's 'Zell Buyout' Is Questionable At Best, Blackstone Acquiring Equity Office in Largest Private-Equity Deal Ever
• Potentially impacted stocks and ETFs: Equity Office Properties Trust (EOP), Vornado Realty Trust (NYSE:VNO). Competitors: Boston Properties Inc. (NYSE:BXP), Mack-Cali Realty Corp. (NYSE:CLI). ETFs: iShares Cohen & Steers Realty Majors (NYSEARCA:ICF), Vanguard REIT Index ETF (NYSEARCA:VNQ), WisdomTree Dividend Top 100 (NYSEARCA:DTN), streetTRACKS DJ Wilshire REIT (NYSEARCA:RWR)
Infineon Posts First Profit In Two Years On Strong iPod, Vista Chip Sales
Infineon Technologies AG turned in its first profit in two years on strong iPod sales, and by proxy the chip it makes for the world's top selling MP3 player. By the numbers, profits for the recently-ended quarter were €120 million ($155 million) good for EPS of €0.15 a share, versus a loss of €183 million in the year-earlier period (EPS of -€0.25). Revenue also rose 27% to €2.13 billion. Consensus Bloomberg estimates predicted earnings of just €89 million on greater revenue of €2.31 billion. In addition to a boost in iPod sales boosting profits, Microsoft's new Vista OS helped boost sales at Infineon's memory unit, Qimonda. Infineon still owns 86% of Qimonda, which reported earnings of €177 million for the quarter), after an IPO in August of 2006. Despite turning out its first positive earnings in two years, German analyst Malte Schaumann was concerned. "Earnings were mainly boosted through Qimonda and that's dangerous."
• Sources: MarketWatch, Bloomberg, Reuters,. Check back later for Infineon's 1Q07 conference call transcript.
• Related commentary: iPhone Design Wins: Samsung, Marvell, Infineon, Broadcom, Foundry Shakeout Looms—Who Will Remain Standing?, SanDisk, Infineon To Be Pressured By Memory Glut?
• Potentially impacted stocks and ETFs: Infineon Technologies AG (IFX), Qimonda AG (QI). Competitors: Micron (NASDAQ:MU), STMicroelectronics NV (NYSE:STM)
Deutsche Telekom Issues Second Profit Warning in Six Months
Deutsche Telekom, Europe's biggest telecommunications company, yesterday cut its 2007 profit forecast for the second time in six months. Intense competition and the dollar's 10% slide against the euro have led to an anticipated drop in earnings of up to €1.2bn ($1.55bn). The company is anticipating EBITDA of €19 billion ($24.5 billion), down from earlier guidance of €19.7-20.2 billion. 2006 revenue is forecast at €61.3 billion versus an earlier projection of at least €61.5 billion. The warning builds pressure on new CEO René Obermann, who states there will be no change to the plan for “[n]ecessary structural reforms" put forward by his predecessor, Kai-Uwe Ricke. The plan includes major job cuts that should save the company €4.5bn by 2010. DT lost 2.3m German fixed-line customers in 2006 on discounting by Vodafone and Telecom Italia and competition from the Internet and wireless technology. Mobile customer numbers went up in both Europe and North America, but the unfavorable dollar-euro exchange rate erased €200m from projected profits for 2007. DT's T-Mobile USA division gained 902,000 customers in the U.S. in Q4, well behind the record 2.4 million customers added by Cingular Wireless. T-Mobile rates in Germany, which fell 11% in 2006, are expected to continue to decline. DT will increase marketing spending this year, primarily on its Internet and wireless businesses, and will open about 200 retail stores in Germany. The company will pay a dividend of at least $0.72/share for 2006 and will publish Q4 earnings on March 1.
• Sources: Financial Times, Bloomberg, Wall Street Journal
• Related commentary: Barron's Euro Dogs of the Dow 2007, Say Ach Ya To Germany: A Global Powerhouse, Who In Europe Is Likely to Be the Next LBO Target?
• Potentially impacted stocks and ETFs: Deutsche Telekom AG [ADR] (DT). Competitors: BT Group plc (NYSE:BT), France Telecom (FTE), Vodafone Group plc (NASDAQ:VOD), Telecom Italia S.p.A. [ADR] (NYSE:TI). ETFs: iShares MSCI Germany Index Fund (NYSEARCA:EWG)
Laureate Education To Go Private In Management-Led Buyout
Laureate Education becomes the latest publicly-traded company to go private - the company yesterday announced that its board had unanimously agreed to a management-led buyout for about $3.1 billion in cash. That price represents an 11% premium over Friday's closing price of $54.41 by valuing shares at $60.50 a piece. The buyout, first proposed by Chairman and CEO Douglas Becker in September 2006 includes private equity firm Kohlberg Kravis Roberts & Co. and hedge fund SAC Capital. Including about $700 million in debt, the deal totals $3.8 billion; the deal should be complete by the end of the second quarter.
• Sources: Press Release, Reuters, MarketWatch
• Related commentary: Private Equity - The New VC?, Private Equity and Leveraged Buyouts: With Risk Comes Reward, Laureate Education President Buys Stock After Earnings Sell-Off (Pending:LAUR)
• Potentially impacted stocks and ETFs: Laureate Education Inc. (LAUR). Competitors: Apollo Group Inc. (NASDAQ:APOL), DeVry (NYSE:DV), Corinthian Colleges (NASDAQ:COCO), ITT Educational Services (NYSE:ESI)
TRANSPORT AND AEROSPACE
ResCap Mortgage Unit Coming Back to Haunt GM
GM's announcement last Thursday that it is delaying its Q4 earnings report illustrates the effect the travails of the U.S. mortgage market have had on GMAC Financial Services, a lending unit GM divested in November. Cerberus Capital Management purchased 51% of GMAC for $14 billion, but there is some question whether the $14.4 billion tangible NBV ascribed to GMAC at the time was appropriate. At particular issue is GMAC's ResCap mortgage unit, which has suffered the same pressures that have hurt lenders throughout the industry. Lehman Brothers auto analyst Brian Johnson estimates that "complications" at ResCap could cost GM $300-400 million in cash charges in H1. A substantial payout to Cerberus could be a great strain on GM as it struggles to maintain liquidity and fund its restructuring. GM is planning to restate results from 2002 through Q3 2006 because of overstatements of deferred-tax liabilities. The company is forecasting a profitable Q4 with record revenue and says it ended 2006 with $26.4 billion in cash.
• Sources: Wall Street Journal
• Related commentary: GM To Delay 4Q06 Earnings, Restate Past Earnings Yet Again, American Cars: No Rewards under the Hood, Has GM Missed Its Moment?
• Potentially impacted stocks and ETFs: General Motors Corp. (NYSE:GM). Competitors: Ford (NYSE:F), DaimlerChrysler (DCX), Toyota (NYSE:TM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY). ETFs: WisdomTree Dividend Top 100 (DTN), PowerShares FTSE RAFI US 1000 (NYSEARCA:PRF), Rydex S&P 500 Pure Value (NYSEARCA:RPV)
Surface Transportation Board Reins In Railroads' Hefty Fuel Surcharges
The federal Surface Transportation Board [STB] has instructed railroads to change the way they set the fees they charge customers. It has expressly forbidden the practice of "double-dipping" -- the inclusion of fuel costs in price hikes on shipments that are already bearing other fuel surcharges. Shippers have complained to the STB over the past few months that the railroads have been setting surchages as a percentage of fluctuating shipping rates rather than basing them on changes in the price of fuel. They claim that the surchages, which have added as much as 20% to the cost of shipping, have been used as a "profit center" rather than as a means to recover fuel costs. The railroads claim their fuel surcharges are fairly determined, but some have adopted a mileage-based surcharge in response to the criticism. Railroads Union Pacific, Burlington Northern Santa Fe, Norfolk Southern and CSX all reported strong quarterly earnings this week, due in part to the surcharges. The STB will resume its scrutiny of the surcharges in August.
• Sources: Wall Street Journal, Associated Press
• Related commentary: Rail Carriers Losing Their Pricing Power?, A Bleak Report For The Railroad Industry, Eight Top Picks From Big-Cap Giants Rob Lyon and Jerry Senser
• Potentially impacted stocks and ETFs: Union Pacific Corp. (NYSE:UNP), Norfolk Southern Corp. (NYSE:NSC), Burlington Northern Santa Fe Corp. (BNI), CSX Corp. (NYSE:CSX). ETFs: iShares Dow Jones Transportation Average (NYSEARCA:IYT), Vanguard Mid-Cap Value ETF (NYSEARCA:VOE)
Deal or No Deal? US Airways Reportedly Sweetens Offer by $1B for Delta
The Wall Street Journal reports US Airways could increase the cash portion of its $9.8 billion cash-and-stock hostile bid for Delta Air Lines by $1b under certain conditions, according to people familiar with the matter. Bloomberg meanwhile reports Delta's creditors may ask US Airways for an extension of its Feb. 1 deadline. US Airways' conditions include Delta opening itself for due diligence and requires the Delta creditor committee ask a bankruptcy judge to postpone a restructuring hearing next week. A group of Delta creditors separate from the official committee are reported to have approached US Airways late Friday proposing a bid increase of $2b. US Airways' unofficial offer was made Saturday bringing the cash portion of its bid to about $6b and won't increase the number of shares from its previously stated 89.5m. In an attempt to alleviate Delta's concern about antitrust issues, US Airways is said to have also offered to pay a termination fee if the deal is blocked by the DoJ.
• Sources: Bloomberg, WSJ
• Related commentary: Delta Faces Congressional Scrutiny and Impatient Debtors, There's a Reason There Is No Airline ETF, US Airways Ups Ante for Delta to $10.2 Billion
• Potentially impacted stocks and ETFs: Delta Air Lines (DALRQ.PK), US Airways Group (LCC), Northwest Airlines (NWACQ.PK). Competitors: AMR Corp (AMR), Southwest Airlines (NYSE:LUV), UAL Corp (UAUA), JetBlue Airways (NASDAQ:JBLU), AirTran Holdings (AAI)
Citigroup to Buy World's Biggest Online Bank for $1.13B
Citigroup, the worlds biggest financial services company, said this morning that it will buy London-based Prudential's Egg banking business -- the world's largest pure online bank -- for $1.13 billion. As part of the agreement, Prudential will provide life and pension products to Egg customers for the next five years. The purchase includes over three million customers (more than quadruple Citigroup's 800k UK credit card base), and products and services including online payment services, credit cards, personal loans, savings accounts, mortgages, insurance, and investments. Citigroup said it expects the deal to enhance its earnings in its first year, and that it will be able to learn from Egg's successful platform to enhance its global offerings. George Awad, a Citi exec: "We will deliver growth by combining Egg's leading edge online products and distribution with Citigroup's global banking expertise and scale." The transaction is expected to close in the next 2-3 months.
• Sources: Press Release, Wall Stret Journal
• Related commentary: Citigroup Unlike Other Big U.S. Banks, GE and Citigroup Rallies: How Wall St. Missed It, Irresponsible Insinuations about Citigroup 'High-Flyer'
• Potentially impacted stocks and ETFs: Citigroup Inc. (NYSE:C). Competitors: UBS AG (NYSE:UBS), ABN Amro Holding N.V. (ABN), Mitsubishi UFJ Financial Group Inc. (NYSE:MTU). ETFs: iShares S&P Global Financial Index Fund (NYSEARCA:IXG), iShares Dow Jones US Financial ETF (NYSEARCA:IYF), iShares Dow Jones US Financial Services (NYSEARCA:IYG), streetTRACKS KBW Bank (NYSEARCA:KBE), Vanguard Financials VIPERs (NYSEARCA:VFH), Financial Select Sector SPDR ETF (NYSEARCA:XLF)
Nomura's Q3 Earnings Fall 26%, But Beat Estimates
Nomura Holdings reports a 25.7% drop in Q3 (ended Dec. 31) net income to ¥79.1 billion ($651m), but still beat analysts' consensus estimate of ¥60.48b ($498m) based on a poll by Reuters. Revenue increased 6.4% to ¥589.5b ($4.85b). It was another quarter of tough comparison and declining brokerage commissions. In a positive light, net income grew 81.7% q-o-q on revenue growth of 25.6%. Rival Daiwa Securities also saw its profit fall, by 31% to ¥26.75b ($220m), but it was a 57% q-o-q increase, also beating analysts' consensus forecast (¥23.56b). As competition in the brokerage industry continues to intensify with banks entering the market, both Nomura and Daiwa are looking overseas for growth. During the quarter, Nomura agreed to purchase electronic brokerage Instinet -- the deal reportedly valued at around $1b -- and made an $888m equity investment (15% stake) in Fortress Investment Group.
• Sources: Earnings release and presentation [pdf], Bloomberg, Reuters
• Related commentary: Goldman Raises Nomura's Target Share Price, Maintains "Buy" Rating, Japan: A lot of Idle Cash 'Gradually' Flowing into Stocks, Goldman Top M&A Adviser in Japan, Nomura Falls to Sixth
• Potentially impacted stocks and ETFs: Nomura Holdings (NYSE:NMR). Competitors: Daiwa Securities (OTC:DSECY), Nikko Cordial (OTC:NIKOY), Goldman Sachs (NYSE:GS), Merrill Lynch (MER), Morgan Stanley (NYSE:MS), UBS AG (UBS)
Citigroup CEO Prince, Determined To Boost Profits, Will Reduce Payroll
Citigroup Inc. CEO Charles Prince believes he has just the plan to increase profits at the company by as much as 2.4%, by cutting the payroll and eliminating more than $1 billion in unneeded expenses. The move to cut spending could boost EPS by a minimum $0.10 in 2007 according to Portales Partners analyst Charles Peabody. The U.S.'s largest bank by market cap's latest move is largely the result of shareholder pressure, including largest individual shareholder Saudi Prince Alwaleed bin Talal, to attempt to reverse a 15% rise in spending in FY 2006 as compared to an only 7% profit growth.
• Sources: Bloomberg, MarketWatch,
• Related commentary: Citigroup Earnings Drop 26%, But Beat Forecasts, Citigroup Unlike Other Big U.S. Banks. Citigroup: Q4 Results Promising, Conference call transcripts: Citigroup Q4 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: Citigroup Inc. (C). Competitors: Bank of America Corporation (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Wachovia Corporation (NASDAQ:WB). ETFs: streetTRACKS KBW Bank (KBE), Regional Bank HOLDRS (NYSEARCA:RKH), Vanguard Financials ETF (VFH)
Bank of America and Countrywide Financial Discuss Alliance
Charlotte, N.C.-based Bank of America [BoA] and U.S. mortgage lending giant Countrywide Financial are discussing a possible merger or joint venture, according to the Financial Times. The putative merger would bring together the number-two U.S. bank in terms of assets and the country's biggest home lender. Analysts believe Countrywide, whose market value was about $26.1 billion as of the close on Friday, would sell for approximately $30 billion. A possible JV scenario -- and one that some analysts believe is more likely than a merger -- is the sale of Countrywide mortgages at BoA branches. BoA has 5,747 U.S. branches, about 2,300 more than any other bank, and is the largest U.S. credit card issuer. It also controls 9% of U.S. deposits, ahead of all competitors. It is considered to be relatively weak in mortgages, however. Countrywide originated $462.5 billion of mortgage loans last year. In 2004, BoA bought FleetBoston Financial Corp. for $48 billion, and last year it purchased MBNA Corp. for $34.2 billion. BoA shares fell $0.36 to $52.04 on the report while Countrywide shares climbed 12% before settling at $42, a 4% gain. Countrywide will report Q4 results tomorrow.
• Sources: MarketWatch, Reuters
• Related commentary: BoA Boosted by MBNA Acquisition, Q4 Net Jumps 47%, Beats Street, Bank of America: Impressive Numbers Prove We Were Wrong -- Barron's, Bank of America Acquires U.S. Trust in Bid To Lure the Uber-Rich, Countrywide Financial: The Price is Right, The Market Isn't
• Potentially impacted stocks and ETFs: Bank of America Corp. (BAC), Countrywide Financial Corp. (CFC). Competitors: Citigroup Inc. (C), Wachovia Corp. (WB), Wells Fargo & Co. (NYSE:WFC), Washington Mutual Inc. (NYSE:WM). ETFs: First Trust Morningstar Dividend Leaders Index Fund (NYSEARCA:FDL), WisdomTree HighYielding Equity (NYSEARCA:DHS), WisdomTree LargeCap Dividend (NYSEARCA:DLN), iShares S&P 500 Value Index Fund (NYSEARCA:IVE)
Bristol-Myers, Sanofi Ink Pre-Merger Deal, Newsletter Claims
French financial newsletter La Lettre de l'Expansion claims that Sanofi-Aventis and Bristol-Myers Squibb signed a pre-merger deal last week. The merger -- if it takes place -- will result in the world's largest pharmaceutical company. If Sanofi succeeds in purchasing U.S. pharma Bristol-Myers, which has a market value of around $51.5 billion, it will oust Pfizer from the position of world's biggest pharmaceutical company and push GlaxoSmithKline into third place. A Sanofi-Bristol-Myers alliance makes strategic sense, since the two companies already co-market the blood thinner Plavix and the hypertension drug Avapro. Sanofi is much bigger than Bristol-Myers with a market capitalization of 95 billion euros ($123 billion). Its shares are less highly rated, though, and there is concern that a large acquisition could dilute its earnings. Bristol-Myers is trading at about 21x forecast 2007 earnings, largely on takeover speculation. Sanofi is trading at 13.3x. Before a deal can be finalized, litigation will have to be concluded on Plavix patents that have been challenged by Canadian generic drug manufacturer Apotex. Sanofi and Bristol-Myers are expected to win the case.
• Sources: Reuters
• Related commentary: Bristol-Myers, Sanofi Gain Temporarily Halt to Generic Plavix, Bristol-Myers Squibb Partners with AstraZeneca in $1.2 Billion Pact, Sanofi-Aventis Diet Drug Acomplia May Have Use in Diabetes Treatment, Top Picks for 2007 from JPMorgan HealthCare Analysts
• Potentially impacted stocks and ETFs: Bristol Myers Squibb Co. (NYSE:BMY), Sanofi-Aventis [ADR] (NYSE:SNY). Competitors: Eli Lilly & Co. (NYSE:LLY), Merck & Co. Inc. (NYSE:MRK), Pfizer Inc. (NYSE:PFE), Novartis AG (NYSEMKT:NVX), GlaxoSmithKline plc [ADR] (NYSE:GSK). ETFs: iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE), Pharmaceutical HOLDRs (NYSEARCA:PPH), SPDR Pharmaceuticals (NYSEARCA:XPH), iShares KLD Select Social Index (NYSEARCA:KLD)
Another Headache for Pfizer: Generic Lipitor Threat from Canada
Last Thursday the Canadian Federal Court ruled against Pfizer, denying its application to block Ranbaxy Pharmaceuticals from producing a generic version of cholesterol-lowering Lipitor, the world's best-selling drug, based on a key ingredient which has a patent expiring in July 2010. Pfizer said it will appeal "... in an effort to sustain Lipitor's exclusivity through July 2010." Ranbaxy, an Indian generic drug maker, will still have to wait at least until May per the Court's ruling on another patent. AP reports Ranbaxy's spokesman said there will be another hearing in Feb. to decide on several other patent disputes. Pfizer suffered a major setback last month when it announced its hoped for Lipitor replacement torcetrapib would be halted due to higher risk of death for patients taking it than those that didn't. Lipitor accounted for 27% of Pfizer's global sales and 30% of its U.S. sales in 2006. Pfizer sells nearly 10x more Lipitor in the U.S., valued at $7.85b in '06, than in Canada.
• Sources: Press release, Forbes-AP, WSJ
• Related commentary: Pfizer's Not As Confident As It Seems, Pfizer Resorts to More Cost Cutting, Pfizer Beats Street Estimates; All Eyes on CEO Kindler's Cost Cutting Plans
• Potentially impacted stocks and ETFs: Pfizer (PFE). ETFs: iShares Dow Jones US Pharmaceuticals (IHE), iShares Dow Jones US Healthcare (NYSEARCA:IYH), Pharmaceutical HOLDRs (PPH), Vanguard Health Care (NYSEARCA:VHT), Health Care Select SPDR (NYSEARCA:XLV), First Trust Morningstar Dividend Leaders (FDL)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Barron's Excerpts
- Barron's Analyst Roundtable Part III. This week highlights the picks of the following five analysts: (1) Meryl Witmer (Eagle Capital): Navistar International Corp. (NYSE:NAV), Kaiser Aluminum Corp. (NASDAQ:KALU), Texas Industries Inc. (NYSE:TXI). (2) Marc Faber, author of the Gloom, Boom & Doom Report: Cresud Inc. ADR (NASDAQ:CRESY), ProShares Short MidCap400 (NYSEARCA:MYY). Short -- iShares Dow Jones US Broker-Dealers Index Fund ETF (NYSEARCA:IAI). (3) Oscar Shafer, New York money manager: Flamel Technologies S.A. (NASDAQ:FLML), Shire Pharmaceuticals Group plc (SHPGY), Avis Budget Group Inc. (NASDAQ:CAR), Sally Beauty Inc. (NYSE:SBH), Tesco Corp. (TESOF). (4) Fred Hickey, author of the High-Tech Strategist newsletter: Short -- Research In Motion Ltd. (RIMM), Apple Computer Inc. (NASDAQ:AAPL), Lam Research Corp. (NASDAQ:LRCX), Heelys Inc. (NASDAQ:HLYS). Long -- streetTRACKS Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV). (5) Mario Gabelli: Cablevision Systems Corp. (NYSE:CVC), Groupe Danone (DA), General Mills Inc. (NYSE:GIS), Brown-Forman (NYSE:BF.A), International Flavors & Fragrances Inc. (NYSE:IFF), Energizer Holdings Inc. (NYSE:ENR), AutoNation Inc. (NYSE:AN), AutoZone Inc. (NYSE:AZO), Waste Management Inc. (WMI), GATX Corp. (NYSE:GATX), Sequa (SQA.A), Liberty Media Capital (LCAPA).
- BMC Software Inc. (NASDAQ:BMC) shares have more than doubled since mid-2005. Investors may be ignoring danger signs, such as flat sales and cash flow, stiff competition from International Business Machines Corp. (NYSE:IBM) and Computer Associates International Inc. (NASDAQ:CA), and its unusual practice of reporting long-term contracts as immediate revenues. If momentum falters and cash flow reality kicks in, BMC ($34) could drop into the 20s.
- The 'Dogs of the Dow' picks out-of-vogue companies from the DJIA by selecting the ten stocks with the highest dividend yield. Barron's tracks the performance of its own 'Euro Dogs' by taking the 15 top-yielding stocks from the 50 stock Stoxx index. This year's dogs that trade on U.S. markets: France Telecom S.A. (FTE), Enersis S. A. (ENI), Deutsche Telekom AG (DT), ABN Amro Holding N.V. (ABN), BT Group plc (BT), HSBC Holdings plc ADR (HBC), Vodafone AirTouch Public Company (VOD), Barclays plc (NYSE:BCS), ING Group N.V. (NYSE:ING), Royal Dutch Shell (NYSE:RDS.A)
- Nokia Corp.'s (NYSE:NOK) earnings surprise last week magnified the woes of competitor Motorola Inc. (MOT). Nokia's handset margins were up 2% to 17.8%, compared to Motorola's 4.4%. MOT is trying to gain market share by slashing prices at the cost of profits. As Nokia introduces new handsets, and with no RAZR successor in sight, the gap is likely to widen, and MOT shares are likely to be dead money for at least the first half of 2007.
- Tech IPOs are hot: shares of the 20 venture-capital financed tech companies that IPOed last year were up 14.3%, vs. the Nasdaq's 10% and the S&P's 13.5% return. Two names to watch: CommVault Systems Inc. (NASDAQ:CVLT) and Acme Packet Inc. (NASDAQ:APKT). Acme makes routers for direct internet phone calls, something neither Cisco Systems Inc. (NASDAQ:CSCO) nor Juniper Networks Inc. (NYSE:JNPR) has. CVLT's innovative backup software is eating up market share, making it a potential buyout target for EMC Corp. (EMC) or International Business Machines Corp. (IBM).
- Avis Budget Group Inc. (CAR) had a rough 2006, but shares have begun to climb. Rental-car pricing is firming and fleet costs should moderate in 2007. Currently in the bottom range of its historical margin trough, if Avis can bounce and drive margins back up to five-year averages, earnings would double and today's $24 share price would be a bargain.
- Over the last nine months Abitibi-Consolidated Inc. (NASDAQ:ABY) shares are down over 40% to $2.64 on a strong Looney, weak housing market, and concerns over the newspaper industry. The Street may be overlooking its turnaround potential: The Looney is down from over $0.90 to $0.85 and newspaper worries are likely overdone. If the housing market firms, earnings could hit $0.50/share (they're currently losing money) and shares could double.
- Analysts are negative about Gap Inc. (NYSE:GPS), citing its lack of fashion focus and the difficulties of replacing outgoing CEO Paul Pressler. Robert Olstein of the Olstein All-Cap Value Fund says he has the answer to the companies woes: Do a McDonald's-like turnaround by closing underperforming stores and freeing up cash to find the clothing customers want. Olstein has a couple of recommendations about replacing Pressler, and says that if all goes well, shares ($19) could hit at least $27 in 12-18 months.
- When Alcatel-Lucent (ALU) CEO Patricia Russo warned last week about weak sales and income, investors concluded the merger is a failure, and shares dropped 12%. Likely, though, the warning reflects Q4 difficulties due to an investment freeze at AT&T Inc. (NYSE:T) and a general slowdown in telecom spending. ALU has barely begun implementing its new plan: In 2007 it expects €200 million in merger-related savings, ballooning to €1.4 billion by 2009. Sales should pick up as operators renew spending, and ALU can leverage its strong market positioning across fixed-line, wireless and Internet segments.
- This week Altria (NYSE:MO) will announce its long-awaited Kraft Foods Inc. (KFT) spinoff. Within the year will be a spinoff of the company's international tobacco branch. David Adelman, Morgan Stanley tobacco analyst, says Altria has "one of the most underleveraged balance sheets of any large consumer-products company in the world," and should do substantially better once the units are separate. Shares ($87) could hit $105 by mid-2008.
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