Treasurys Rise on Weak Jobs Data
U.S. Treasury prices closed higher yesterday, despite stronger-than-expected monthly growth in the services sector, on weak January jobs data. The 10-year Treasury bond closed up 4/32 at 98-18/32 while its yield fell to 4.809%, a drop from 4.829% on Friday but still 40 basis points above a December low. The 30-year bond advanced 3/32 to 93-20/32 with a yield of 4.914% and the 2-year note gained 1/32 to 99-29/32 with a 4.921% yield. The Institute for Supply Management reported that the U.S. services sector grew slightly more quickly in January than it did in December. The non-manufacturing index rose to 59.0% from 56.7% in December, ahead of economists' forecasts of 57.0%. Bond dealers looked past that strong result, however, and focused on the report's negative indicators: new orders were flat and the employment index dropped. Weakness in the labor market implies that the Fed will not effect an interest rate hike in the near term. In other news yesterday, President Bush sent Congress a $2.9 trillion budget plan for fiscal 2008 that is intended to balance the government's books by 2012.
Sources: MarketWatch, Reuters
Commentary: U.S. Payrolls, Wages Increased Less Than Expected in January, NFP Data Reflect a Slowing Economy, Market Performance Following Monthly Jobs Report
Stocks/ETFs to watch: 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)
Blackstone Ups Its Bid For Equity Office In Final Attempt To Freeze Vornado Out
The continuing bidding saga for Equity Office Properties may finally be coming to an end. A day after fellow REIT Vornado Realty Trust sweetened its $56 cash and share offer by agreeing to pay the cash portion three weeks after the deal closed, Blackstone Group LP raised its $54 all-cash offer to $55.50. Tomorrow, Equity Office's shareholders vote on what will be the largest leveraged buyout ever. The board, chaired by Sam Zell, advised that shareholders vote to approve the merger since "the alternative transaction proposed [by] Vornado would still subject Equity Office to market and event risks over the four to six months that would be required to close the entire transaction." Equity Office has the largest holding of office buildings in the U.S.
Sources: Press Release, Bloomberg, MarketWatch, NY Times
Commentary: Vornado, Blackstone Continue To Duke It Out In EOP Bidding WarVornado Outbids Blackstone (Again) in Fight For Equity Office Properties, Equity Office Properties: Sam Zell's Genius
Stocks/ETFs to watch: 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)
Rambus Surges on FTC Patent-Royalty Ruling
Shares of Rambus gained more than 24% yesterday to $23.50 after the FTC ruled Rambus can continue collecting royalties on certain patented memory technologies over a three year period, although at lower rates than Rambus' management believe is fair. More importantly, the ruling was a relief for investors expecting the worst, since it does not apply to second-generation technology and does not nullify any Rambus patents, which would have forced it to pay back royalties received. The FTC said Rambus can charge a maximum royalty rate of 0.5% for DDR SDRAM and 0.25% for SDRAM. A BWS Financial analyst says the ruling could have been much worse and adds, "In three years, we would not expect RMBS to be making much, if anything, from the products the FTC is capping." Rambus plans to appeal the decision, saying it is "disappointed with the Commission's remedy" in regard to DDR SDRAM and SDRAM.
Sources: Press release, SmartMoney, MarketWatch
Commentary: FTC Rules Against Rambus, Shares Plummet 26% [Aug. '06] • Updated WSJ Options Scandal Scorecard
Stocks/ETFs to watch: Rambus (NASDAQ:RMBS). Competitors: Micron Tech. (NASDAQ:MU), Qimonda AG (QI)
Kodak's Low-Ink Inkjet: Will It Revolutionize the Industry?
Eastman Kodak Co., the world's #1 photography company, plans to unveil today a new inkjet printer that it says will revolutionize the industry. Inkjet makers rely on 'razor-and-blade' pricing: the printers are sold at little or no profit, and the money is made on ink sales (which costs, according to the Wall Street Journal, more per ounce than perfume or caviar). Annual sales of printers are less than 1/4 of ink sales. But Kodak's new model uses "a combination of new technology and alternative pricing" to cut ink prices by 50% per page. The three EasyShare All-in-One devices it will release today range in price from $150-300, and carry a $50 premium on comparable devices now on the market. Black cartridges will cost $10, and color cartridges $15 -- half of comparable cartridges. Some pundits are hailing this as the beginning of the end for the razor-and-blade model; others downplay its significance, saying other factors such as speed and features are equally if not more important to buyers. Kodak's Philip J. Faraci, head of Kodak's digital imaging consumer group, says research shows 70% of all families limit their children's printing because of ink costs. If the model is wildly successful, he says, Kodak might grab 1% of the market this year, and sets its goal of 10% of all printed pages by 2010. Industry researchers say Kodak may not begin making money until a customer has bought at least four replacement cartridges.
Sources: Press Release, Reuters, MarketWatch, Wall Street Journal
Commentary: Kodak's Large R&D Reductions Are Troublesome • Eastman Kodak: Out With The Old • Eastman Kodak Q4 2006 Earnings Call Transcript (Jan. 31/07)
Stocks/ETFs to watch: Eastman Kodak Co. (EK). Competitors: Hewlett-Packard Co. (NYSE:HPQ), Lexmark International Inc. (NYSE:LXK), Canon Inc. (NYSE:CAJ)
Wal-Mart Launches Hewlett-Packard Enabled Digital Download Site
Wal-Mart will be first to take advantage of Hewlett-Packard's new Video Merchant Service when it goes live with its very own digital movie and TV download site. The first brick and mortar retail store to offer the services, the new site will be in direct competition with downloading services from the likes of Amazon.com and Apple iTunes. Ready to offer more than 3,000 TV and cinematic titles, Wal-Mart will be partnering with all of the six major Hollywood studios — Walt Disney, Warner Brothers, Paramount, Sony, 20th Century Fox and Universal; iTunes currently partners only with Disney and Paramount. TV content from ABC, CBS or NBC will not initially be offered though Wal-Mart soon hopes to. Another strategy being employed by the nation's largest retailer will be undercutting current digital download prices; for example, individual TV episodes are available for $1.96 — 4 cents less than Apple Inc.'s iTunes store.
Sources: Wal-Mart Digital Downloads Site, NY Times, Wall Street Journal, Business Week
Commentary: Wal-Mart To Launch Movie Downloads in 2007, Amazon's New Movie Service No Threat to Apple - SeekingAlpha, Amazon Unbox : A Little Too Far Ahead of its Time
Stocks/ETFs to watch: Wal-Mart (NYSE:WMT), Hwelett-Packard (HPQ). Competitors: Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN). ETFs: ML Retail HOLDRS ETF (NYSEARCA:RTH), Internet Architecture HOLDRS (NYSE:IAH)
TRANSPORT AND AEROSPACE
Icahn's Bid To Buy Lear Corp. Sends Shares Flying, Raises Shareholder's Ire
Activist investor Carl Icahn publicized an offer to acquire Lear Corporation, of which already owns 16%, for $2.31 billion - roughly $36 a share. The offer was immediately criticized by Lear's third largest shareholder, Richard Pzena, who owns 11% of all outstanding shares, as not representing a fair value for the auto parts maker. Pzena went as far as to call Icahn's offer "quite disingenuous" amid uttering fears Lear's management's "personal interest in the transaction may create an inherent conflict." The per-share offer from Icahn was 3.8% higher than Friday's closing price of $34.67; shares closed up $3.97, or 11.45%, to $38.64 on news of Icahn's bid, then continued trading higher by 3.36% to $39.94 in after hours action.
Sources: Bloomberg, MarketWatch, Washington Post, Business Week
Commentary: Icahn Gets Antitrust Approval to Increase Lear Stake, Cramer's Take on LEA
Stocks/ETFs to watch: Lear Corporation (NYSE:LEA). Competitors: Johnson Controls (NYSE:JCI), Delphi Corp. (OTC:DPHIQ), Visteon Corporation (NYSE:VC)
Toyota Reports Record Q3 Earnings, Maintains Guidance
Toyota's Q3 net income rose 7% to ¥426.8 billion ($3.54b), or ¥133.13/share, easily beating analysts' estimates of ¥375.5b to ¥383b ($3.12b to $3.18b), on revenue growth of 15% to ¥6.15t ($51b). Operating income increased 19.2% to ¥574.7b ($4.77b) as Toyota benefited from cost-cutting (¥20b; $166m) and a weaker yen (¥30b; $249m), but experienced higher R&D expenses (¥21.6b; $179m). Although sales fell in its home market by 30,000 units to 541k units, Toyota's market share grew 1.3% to 47.5%, and operating income jumped 36% due to increased production volume and exports. In N. America, Toyota grew its market share by 2.1% to 15.4% in 2006. Q3 unit sales increased 19% to 764k units. Toyota maintained its earlier forecast for sales of 8.47m autos for FY ending March '07, with revenues of ¥23.2t ($192.5b), operating income of ¥2.2t ($18.3b) and net income of ¥1.55t ($12.9b). Toyota's ordinary shares gained 1.8% to ¥7,960 ($132.12 ADR equiv. at ¥120.5/$1) ahead of its after hours earnings release.
Sources: Press release, Bloomberg, Reuters
Commentary: Big 3's January U.S. Auto Sales Fall To Lowest Ever As Japanese Gain • A "Pleasant Problem" at Toyota and Honda: Full Capacity • Jim Cramer's Take on Toyota
Stocks/ETFs to watch: Toyota (NYSE:TM). Competitors: General Motors (NYSE:GM), Ford (NYSE:F), DaimlerChrysler (DCX), Honda (NYSE:HMC), Nissan (OTCPK:NSANY). ETFs: iShares MSCI Japan Index (NYSEARCA:EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (NASDAQ:ADRA)
UPS Orders 27 Cargo Planes from Boeing
United Parcel Service has placed an order with Boeing for 27 767-300ER freight aircraft. The plane's list price range is $118-160 million, but companies that buy in bulk generally do not pay list. UPS, which is scheduled to receive the planes between 2009 and 2012, plans to use the wide-body 767s on routes to and from Europe and Latin America and within Asia and Europe. UPS claims there is no connection between this order and an outstanding order it is currently reviewing with Airbus for 10 A380 freighters. UPS is Airbus's last remaining customer for the freight version of the A380, now that FedEx has canceled an order for 10. Boeing had orders for only 10 767s last year. Its newer 787, a carbon-fiber, mid-sized widebody, had 157 orders.
Sources: CNBC, Business Week
Commentary: Boeing's Earnings Fly, So Do Shares, Boeing One-Ups Airbus Yet Again With FedEx Contract, Boeing Is Flying High. Conference call transcripts: Q4 2006
Stocks/ETFs to watch: Boeing Co. (NYSE:BA), United Parcel Service, Inc. (NYSE:UPS). Competitors: Lockheed Martin Corp. (NYSE:LMT), Northrop Grumman Corp. (NYSE:NOC). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA), DIAMONDS Trust, Series 1 (DIA), Industrial Select Sector SPDR (NYSEARCA:XLI)
ENERGY AND MATERIALS
Brookfied to Buyout Longview Fibre for $1.6b
Brookfield Asset Management, a Canadian-based property and infrastructure investor, announced Monday it will acquire the shares of timberlands owner Longview Fibre it doesn't already own for $24.75 a share, which puts a $1.63b value on the company, or $2.15 including debt. The price is an 18% premium on Longview's Friday close price of $21.01, and a "substantial premium" to the share prices before the original March 6 disclosure of an unsolicited offer by a third party to acquire Longview. Brookfield has more than $50 billion of assets under management, and has announced at least seven acquisitions in the past eight months; its $1.35 billion merger agreement with U.S. shopping mall owner Mills Corp., announced Jan. 17, was cast into question today after Mills received an unsolicited $1.56b partnered bid from Simon Property Group Inc. The news saw Longview shares up $3.45 (16.4%) to $24.46, and Brookfield shares up $0.07 (0.1%) to $48.94.
Sources: Wall Street Journal, Bloomberg
Commentary: Bidding War over Mills Corp Heats Up with $1.56B Bid • The Mills Saga Is Not Over • The Next Berkshire Hathaway?
Stocks/ETFs to watch: Brookfield Asset Management Inc. (NYSE:BAM), Longview Fibre Co. (LFB), Simon Property Group Inc. (NYSE:SPG), Mills Corp. (MLS). Competitors: Developers Diversified Realty Corp. (NYSE:DDR), General Growth Properties Inc. (NYSE:GGP). ETFs: iShares Cohen & Steers Realty Majors ETF (ICF), iShares Dow Jones US Real Estate ETF (NYSEARCA:IYR), streetTRACKS Wilshire REIT Index Fund (RWR), Vanguard REIT VIPERs (VNQ)
GE Makes Its First Foray Into Global Water Market
Following widespread speculation, General Electric will announce today its first entry into the European water market. It will buy 95% of Idex Aquaservices, a French operator that extracts and treats water for industrial use for an undisclosed sum, according to the Financial Times. “There’s a huge amount of liquidity in the market for infrastructure... Water scarcity is becoming a big issue globally,” said Kevin McCarthy, managing director of GE's water investment unit. He said capital-intensive projects were low risk options that required relatively little research. The move signals GE's belief that water could soon rival the energy sector as a destination for infrastructure investment, the FT reports. Idex purifies water for food, drink, and cosmetics manufacturers.
Sources: Financial Times, MarketWatch
Commentary: Water ETFs Are Going Global • Water ETFs Are Going Global • Six Water Stocks To Keep Investors Afloat: Barron's • General Electric Q4 2006 Earnings Call Transcript (Jan. 19/07)
Stocks/ETFs to watch: General Electric Co. (NYSE:GE). Water Stocks/ETFs: Aqua America Inc. (NYSE:WTR), Pentair Inc. (NYSE:PNR), Watts Water Technologies Inc. (NYSE:WTS), Veolia Environnement SA (NYSE:VE), Suez (NYSE:SZE), American States Water Company (NYSE:AWR), PowerShares Water Resources ETF (NYSEARCA:PHO)
BP Profit Suffers 22% Hit
BP has reported a 12% slide in Q4 replacement cost profit from $4.4 billion last year to $3.895 billion, a two-year low, on production losses and lower margins, and has forecast a drop in output for 2007. Q4 net income fell 22% to $2.88 billion ($0.1488/share) from $3.69 billion ($0.1768/share) a year earlier, in line with expectations. E&P profit fell 23% to $5.1 billion as U.S. natural gas prices plummeted and volumes dropped. Oil and gas production in the quarter slipped 4.5% from a year ago to 3.84 million barrels a day, its sixth year-on-year quarterly drop. For the full year, production dropped 2.2% to 3.93 million barrels a day, and the company is projecting a further drop this year to 3.8-3.9 million barrels a day. Production was stymied in 2006 by a slowdown in growth at the company's Russian operations, pipeline spills in Alaska, delays to Gulf of Mexico rigs, and a deadly explosion at a Texas refinery. CEO John Browne, whose leadership has been sharply criticized particularly with regard to the company's U.S. refineries, will step down a year ahead of schedule.
Sources: Bloomberg, MarketWatch
Commentary: BP: Trouble On Two Shores, BP's Output Falls Again; A 'Brave' Buy with Upside Potential as a 'Recovery Stock', With So Much Negativity, BP's Worth a Look
Stocks/ETFs to watch: BP Plc (NYSE:BP). Competitors: Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A), Total SA (NYSE:TOT). ETFs: iShares Goldman Sachs Natural Resources Index Fund (NYSEARCA:IGE), United States Oil Fund ETF (NYSEARCA:USO), Vanguard Energy (NYSEARCA:VDE), BLDRS Europe 100 ADR Index (NASDAQ:ADRU)
Humana: Q4 Net Beats Estimates, Raises Full Year Guidance
Humana reported Q4 net income jumped 150% to $155 million, or $0.92/share, compared to analysts' average estimate of $0.88/share, on revenue growth of 54% to $5.65b. President and CEO Michael McCallister commented on how Humana went from being a regional firm to a national competitor and said based even on the low-end of '07 guidance, Humana will have nearly doubled in size and doubled its income in two years. Humana credits a surge in enrollment in its Medicare Advantage and Medicare stand-alone prescription-drug plans, having surpassed 1 million at year end '06 (+80% y-o-y). Rival UnitedHealth Group by comparison now expects a decline in Q1 enrollments (total ~1.4m at year-end '06). Humana raised its full year '07 EPS forecast to $4.00 - $4.20, from $3.90 - $4.10 (and $2.90 in '06), compared to analysts' estimate of $3.91. Humana's shares gained 0.9% to $57.84 in normal trading yesterday.
Sources: Press release, Bloomberg, Forbes-AP, WSJ
Commentary: Medicare Enrollment Triples Humana's Q3 Profit • Jim Cramer's Take on Humana
Stocks/ETFs to watch: Humana (NYSE:HUM). Competitors: UnitedHealth Group (NYSE:UNH), Aetna (NYSE:AET), Cigna (NYSE:CI), Coventry Health Care (CVH), WellPoint (WLP). ETFs: iShares Dow Jones US Healthcare Provider (NYSEARCA:IHF)
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