- Finisar plummets post-earnings on weak China demand. Shares in Finisar (FNSR) tumbled in after-hours trading following a conference call in which the company told analysts it had been experiencing a dramatic reduction in orders in China as part of an 'industrywide phenomenon.' With management unable to predict when the situation will ease, Finisar expects FQ4 net income and revenue will come in below analyst forecasts. The guidance overshadowed Finisar's better-than-expected FQ3 results (see details below) and is one of the reasons why Seeking Alpha contributor Nigam Arora believes the optical networking fever is about to break. Pre-market, FNSR -34%, with rivals also suffering: JDS Uniphase (JDSU) -11.2% and Ciena (CIEN) -7.1% (7:00 ET). Oclaro (OCLR) fell 12.1% in after-hours trading.
- Icon Icahn gives back client money. Activist investor Carl Icahn took clients and the hedge fund industry by surprise in announcing plans to return his clients' money, becoming the latest in a string of prominent managers to retreat from client fund management. Though he doesn't forecast another market dislocation anytime soon, he sent his clients a six-paragraph letter in which he explained that "I do not wish to be responsible to limited partners through another possible market crisis." Investors have around $1.75B in Icahn's $7B Icahn Capital hedge fund, so even after returning client funds, Icahn will still have plenty of firepower left to invest in companies that need new direction.
- Dynegy may seek bankruptcy protection. In an SEC filing late yesterday, Dynegy (DYN) said "in light of our likely covenant non-compliance, we are attempting to amend or replace our existing credit facility." Failing that, the company may be forced to file for bankruptcy. Dynegy expects the capacity of any amended or new credit facility to be less than the current capacity of $1.8B and at a higher cost. Earlier yesterday, Dynegy reported a larger Q4 loss than expected and said it wouldn't provide guidance estimates for 2011 "in light of recent management and board changes that may affect the company's strategic plans." Dynegy shareholders may now regret their recent rejection of a board-endorsed $665M buyout offer from Carl Icahn. In after-hours trading, DYN -1.55%.
- Sprint, T-Mobile mull tie-up. Sprint (S) is once again considering whether and how to combine its business with T-Mobile USA as both struggle to stay competitive with larger rivals. Though the companies are the third- and fourth-largest wireless carriers in the U.S., they lack the size to compete for must-have devices like Apple's (AAPL) iPhone and customers are turning to AT&T (T) and Verizon (VZ) instead. T-Mobile, a Deutsche Telekom (OTCQX:DTEGY) subsidiary, is also falling behind the competition on next-generation networks. Though a tie-up potentially makes sense for both Sprint and T-Mobile USA, sources said a quick deal is unlikely, as the two sides disagree on how much T-Mobile USA is worth and on how the ownership and leadership of a combined company would be structured.
- AIG makes Treasury payment. AIG (AIG) repaid approximately $6.9B to the Treasury yesterday, using funds raised from the sale of MetLife (MET) shares. AIG has made around $36B of repayments in 2011 so far. Repayments from TARP recipients have now reached $287B, or approximately 70% of the total $411B spent under TARP.
- Oil volatility on Libya, Saudi Arabia, EIA forecasts... Oil is down slightly this morning but its recent run-up is far from over. Political unrest in the Middle East, and in Libya specifically, has inspired Shi'ite marches in Saudi Arabia's oil-rich east, and a nationwide 'Day of Rage' is planned for March 11 (followed by another on March 20). Saudi Arabia is OPEC's biggest producer, and Societe Generale's head oil analyst said in the 'most extreme, worst case scenario,' crude could hit $200/barrel if Saudi Arabia experiences serious unrest. Yesterday, the EIA raised its 2011 crude forecast to an average of $105/barrel from $91/barrel and cut expectations for non-OPEC production to 170K barrels per day from 310K bpd. Crude futures -0.3% to $104.73 (7:00 ET).
- Pummeling continues for Netflix. Shares of Netflix (NFLX) fell 5.8% in yesterday's trading after news broke that Warner Bros. (TWX) would release popular Batman film "The Dark Knight" on Facebook, adding the social networking site to the growing list of firms that offer streaming movies and TV shows. Though the Warner Bros. rental is only a trial, consensus is that it will likely turn into a permanent program and Goldman Sachs noted that "on a longer-term basis, we think that Facebook could become a credible threat" to Netflix.
- Clouded outlook for Novartis drug. An FDA advisory panel voted 13-4 to approve indacaterol, a lung drug developed by Novartis (NVS), in a 75-microgram dose, but voted 12-5 against approving the 150-microgram dose used in Europe. The mixed approval clouds prospects for QVA149, another Novartis lung drug in development which could potentially see sales of $5B annually if approved but which relies on doses of indacaterol higher than 75 micrograms.
- Muni bond market slows to a crawl. Muni bond issuance is on pace for its lowest quarter in at least 11 years, with $31.5B of debt sold through March 4. The slowdown follows a rush of borrowing late last year as municipal borrowers struggled to get their budgets in order. Though issuances could bounce back somewhat between now and the end of the month, the lack of volume thus far is still somewhat surprising, and could both delay government-funded projects and reignite investors' concerns about the stability of muni bond prices.
- Synthetic junk bonds gain traction. Demand is growing for synthetic junk bonds, which allow investors to take positions in the U.S. junk bond market without holding the underlying securities. Similar instruments have had a volatile past, as synthetic mortgage-backed CDOs collapsed when the recent housing crisis began, and similar collateralized bond obligations were slammed when the telecoms bubble burst in the early 2000s. The renewed interest in synthetic junk bonds reflects a more bullish view of the U.S. economy, and is also driven in part by the record low yields on actual bonds.
Earnings: Wednesday Before Open
- China Dangdang (DANG): Q4 EPS of $0.03 beats by $0.01. Revenue of $107.7M (+58.7% Y/Y) beats by $1.3M. Shares -2% premarket. (PR)
- Navistar International (NAV): FQ1 EPS of $0.16 misses by $0.07. Revenue of $2.74B (-2.4% Y/Y) misses by $0.16B. (PR)
Earnings: Tuesday After Close
- Finisar (FNSR): FQ3 EPS of $0.47 in-line. Revenue of $263M (+58% Y/Y) beats by $5M. Shares -33% premarket. (PR)
- Focus Media (FMCN): Q4 EPS of $0.41 beats by $0.04. Revenue of $160M (+16% Y/Y) beats by $18M. Shares +5.9% AH. (PR)
- Suntech Power (STP): Q4 EPS of $2.02 may not be comparable with consensus of $0.29. Revenue of $945M (+62% Y/Y) beats by $101M. Shares +2.7% AH. (PR, earnings call transcript)
- In Asia, Japan +0.6% to 10589.5. Hong Kong +0.4% to 23810. China +0.1% to 3003. India +0.2% to 18470.
- In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt +0.7%.
- Futures at 7:00: Dow +0.3%. S&P +0.2%. Nasdaq +0.2%. Crude -0.3% to $104.73. Gold +0.2% to $1430.30.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
9:30 Hearing: FY'2010 Government Finances
10:00 Wholesale Trade
10:30 EIA Petroleum Inventories
1:00 PM Results of $21B, 10-Year Note Auction
1:30 PM Hearing: Treasury Budget (Geithner)
- Notable earnings before Wednesday's open: AEO, DANG, NAV
- Notable earnings after Wednesday's close: HRB, MCP
The SA Currents team contributed to this post.
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