January New Home Sales Plummet 16.6%
A positive uptick in December's U.S. new home sales had many economists thinking turnaround. But January's 16.6% decline, from 1.12 million to 937,000 homes sold (the lowest since 1994 and 20% lower than Jan. 2006), seems to indicate otherwise. Sales fell in all regions, with the West (-37% to 166,000), Northeast (-18.7% to 61,000) and South (-9.7% to 529,000) hardest hit. New home sales give a truer sense of the housing market as they're only recorded upon signing, but they don't reflect cancellations. The median new home price fell 2.1% to $239,800 from $244,900 in January 2006. While economists argue whether January sales are a trend or an anomaly, clearly more price cuts will be needed to move inventory, which rose 19.3% from January 2006. It takes about 6.8 months to sell each new house on the market now. Inventory of completed but unsold homes rose 47% from last year. Builders are cutting down on production, from 336,000 to 277,000 currently under construction, but the lack of building activity hurts the general economy, reflected in Home Depot's lower earnings and sales forecast yesterday.
Sources: Bloomberg , NY Times, The Street, Market Watch
Commentary: Short Plays for More Housing Market Weakness • Housing Bubble and Real Estate Market Tracker • Housing Slowdown Hitting Other Industries With a Lag
Stocks/ETFs to watch: Toll Brothers (NYSE:TOL), D.R. Horton (NYSE:DHI), Centex (CTX), Lennar (NYSE:LEN), KB Home (NYSE:KBH), Hovnanian (NYSE:HOV), Beazer Homes (NYSE:BZH), Pulte Homes (NYSE:PHM), MDC Holdings (NYSE:MDC). ETFs: iShares Dow Jones U.S. Real Estate Index (NYSEARCA:IYR), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB), PowerShares Dynamic Building & Construction (NYSEARCA:PKB), SPDR Homebuilders (NYSEARCA:XHB)
Bernanke Remains Sanguine After Selloff
Fed Chairman Ben Bernanke told the House Budget Committee yesterday that his faith in the stability of the U.S. economy remains unshaken despite disappointing economic data reports and Tuesday's sharp selloffs. "Taking all the new data into account," he said, "there is really no material change in our expectations for the U.S. economy since I last reported to Congress" on February 14 and 15. Bernanke continues to expect "moderate growth" in the economy. He even suggested that the economy might gain strength, provided the housing slump stabilizes and high manufacturing inventories are corrected. Nor is he concerned by the Commerce Department's sharp downward revision of its Q4 GDP estimate to 2.2% from 3.5%, stating the new figure "is actually more consistent with our overall view of the economy than were the original numbers." Bernanke cited the subprime mortgage market as a catalyst in the selloff, but does not believe it is a significant factor affecting the overall economy. Several analysts concurred that Bernanke's soothing words and calm demeanor were contributing factors in the rally of U.S. stocks yesterday. Former Fed Chair Alan Greenspan stated earlier in the week that he can envision a U.S. recession this year, a statement he later clarified as a possibility, not a probability. Yields showed a stable floor after Bernanke's comments, and the dollar rose along with equities.
Sources: MarketWatch, Wall Street Journal, Bloomberg
Commentary: The Market Decline: Keeping The Big Picture in Focus • Boo Hoo . . . . Stock Market Crash Indeed! • Market Decline: Not to Panic - 400 Points Is No Big Deal • China Selloff Shakes Markets Around World
ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Oracle to Buy Hyperion Solutions for $3.3B Cash -- NYT
The Wall Street Journal and New York Times report that according to people familiar with the matter, software giant Oracle Corp., the worlds #2 maker of business software for areas like finance and human resources, will buy Hyperion Solutions Corp. for $52 cash a share, or about $3.3 billion -- a 21% premium over Hyperion's $42.84 close yesterday. The acquisition will be announced today, they said. Hyperion competes in the business-intelligence market, making software that helps companies collect, analyze and share performance data. The people said Oracle hopes the acquisition will help it lure customers from rival SAP (who leads Oracle in market share), many of whose customers also use Hyperion products. The deal would be the latest in a two-year acquisition spree in which CEO Larry Ellison has spent over $20 billion in buying more than 25 software companies, including two of its biggest competitors, PeopleSoft in Dec. 2004 for $10.3 billion and Siebel Systems last year for $5.9b. Oracle posted strong FQ2 earnings growth in December, but its license sales rose only 28%, down from 80% in the previous quarter.
Sources: Wall Street Journal, New York Times
Commentary: Oracle At it Again? Rumors of a Hyperion Buyout • Oracle Trading at “Undeserved Discount” • Hyperion Wows The Analysts
Stocks/ETFs to watch: Oracle Corp. (NYSE:ORCL), Hyperion Solutions Corp. (HYSL). Competitors: SAP AG (NYSE:SAP), Microsoft Corp. (NASDAQ:MSFT), Computer Associates International Inc. (NASDAQ:CA), Business Objects S.A. (BOBJ), Cognos Inc. (COGN), International Business Machines Corp. (NYSE:IBM). ETFs: iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), Software HOLDRS Trust ETF (NYSE:SWH), PowerShares Dynamic Software (NYSEARCA:PSJ)
Conference call transcripts: Oracle F2Q07 • Hyperion Solutions F1Q07
Icahn Files to Buy Another $2B Motorola Shares
Activist investor Carl Icahn has filed to purchase another $2 billion of Motorola's stock, which he said in January is undervalued. At that time, he also challenged the company to reward shareholders with a larger stock buyback and take on more than its present $4.4b in debt. Motorola disclosed on Jan. 30 that Icahn had a 1.4% stake in the company and was demanding a seat on its board; the announcement caused shares to jump 6%. Icahn has a reputation for pushing through corporate change to boost slumping stock prices. Motorola shares fell 9% in 2006 and are down 10% so far in 2007. They were up over 3% to $19.09 in after-hours trading yesterday on the news.
Sources: Bloomberg, Business Week
Commentary: Motorola: Skeptical On Icahn Purchase, Awaiting Catalyst • Motorola: Street Has Second Thoughts About Icahn • Motorola Is Dead Money - Barron's
Stocks/ETFs to watch: Motorola Inc. (MOT)
Conference call transcript: Motorola Q4 2006
Deutsche Telekom Reports Q4 Loss, More Restructuring Expected
Deutsche Telekom reported a surprising Q4 net loss of €898 million ($1.2b), after earning €991m in its prior Q4, compared to analysts' average net profit estimate of €667m. The loss is attributed to costs related to job cuts and continued weakness at its domestic fixed-line business. Revenues meanwhile, increased 2.4% to €15.9b, helped by strength in its overseas businesses and at T-Mobile USA in particular. Excluding one-time charges net profit would have totaled €824m. In late January, Deutsche Telekom issued its second profit warning in six months, but even with today's negative earnings release and plans for further restructuring, it is maintaining its 72 euro cents/share dividend payment. The Wall Street Journal notes analysts say Deutsche Telekom's shares are more expensive than some of its European rivals' despite having underperformed peers over the past year. Its shares are down about 2.6% to €13.21 in morning trading in Frankfurt.
Sources: Press release [I, II], Bloomberg, MarketWatch, The Wall Street Journal
Commentary: Dutch Telecom Consolidation Likely to Accelerate European M&A • Deutsche Telekom Issues Second Profit Warning in Six Months • Barron's Euro Dogs of the Dow 2007
Stocks/ETFs to watch: Deutsche Telekom (DT). Competitors: BT Group (NYSE:BT), France Telecom (FTE), Vodafone Group (NASDAQ:VOD), Telecom Italia (NYSE:TI), Telefonica SA (NYSE:TEF). ETFs: Wireless HOLDRs (NYSEARCA:WMH), iShares MSCI Germany Index (NYSEARCA:EWG)
Blockbuster May Buy Movielink -- WSJ
The Wall Street Journal reports Blockbuster is in "advanced talks" to buy Movielink for an amount not to exceed $50 million in cash and stock, according to people familiar with the matter. Despite the small size of the deal, it is significant because it will allow Blockbuster to offer a "triple play" of rental services: in-store, online mail order and download. Blockbuster management is said to have acknowledged acquiring a download platform such as Movielink's is cheaper and less risky than developing its own. Movielink is owned by several major movie studios (inc. MGM, Paramount, Sony, Universal and Warner Bros.) as a joint-venture and was launched in 2002, but has struggled to attract customers due to a lack of marketing and a somewhat premature arrival to market. Blockbuster's chief rival Netflix, which has three times the number of online subscribers (6 million vs. 2m), introduced its download service in January.
Sources: The Wall Street Journal
Commentary: Carl Icahn Makes Waves at Blockbuster • Blockbuster Q4 2006 Earnings Call Transcript • Blockbuster Surprises Investors With 2 Million Online Subscribers
Stocks/ETFs to watch: Blockbuster (BBI). Competitors: Netflix (NASDAQ:NFLX), Apple (NASDAQ:AAPL), Wal-Mart (NYSE:WMT), Hastings Entertainment (NASDAQ:HAST), Movie Gallery (MOVI)
Washington Post Earnings Dragged Down By Print Media Division
Another quarter, another decline in revenue at the Washington Post's print media division. The Post reported a net income loss of 6.7% in its most recent quarter as continued weakness at its newspaper and magazine publishing divisions hurt strong results in other segments. Net income fell to $95.5 million, good for EPS of $9.97 (including a $3.30 a share charge), versus net of $102.4 million (EPS of $10.65 including a $1.80 charge) in the year earlier period. Despite the fall in net, revenue rose 10% to $1.04 billion, up from $948.7 million a year earlier. Revenue at its educational division which includes the Kaplan Test Preparatory service rose 18% (43% of total revenue) while revenue from its affiliated cable television channels grew by 14%. On the other hand, revenue from newspaper (Washington Post) and magazine (Newsweek) publishing fell 2% and 3% respectively. Post shares fell $3.24, or 0.42%, to $766 on the earnings report. In other news, the company set its regular quarterly dividend at $2.05 a share.
Sources: Press Release, Wall Street Journal, AP, Business Week
Commentary: Washington Post.com's Op-Ed CliffsNotes • Washington Post Online Strong; Reaches Out To Local Bloggers • Newspaper Blogs' Traffic Growth Outpacing Parent Sites
Stocks/ETFs to watch: The Washington Post Co. (WPO). Competitors: The New York Times Co. (NYSE:NYT), Gannett Co. (NYSE:GCI), Tribune Company (TRB), The McClatchy Company (NYSE:MNI)
Interpublic Swings to Q4 Profit
Ad agency operator Interpublic Group reported a swing to a Q4 profit yesterday on lower operating expenses. The company posted net income of $69.1 million ($0.11/share) versus a loss of $22.9 million (-$0.08/share) a year earlier. This year's results reflect noncash pretax charges of $108 million ($0.16/share); last year's reflect a one-time charge of a $92.1 million ($0.20/share). Revenue dropped 1% to $1.88 billion from $1.9 billion a year ago and total operating expenses fell 7% to $1.71 billion. Interpublic, which owns agencies Lowe Worldwide, Campbell-Ewald and Carmichael Lynch, has been coping with earnings restatements, management turnover and the loss of business. The company recently gained some major accounts, however, including Wal-Mart and Pfizer's Lipitor drug. Interpublic is also the subject of takeover speculation: Maurice Levy, chairman and CEO of rival Publicis, said recently that his company has looked at Interpublic and would consider buying assets of the company.
Sources: Business Week, Wall Street Journal. Earnings Conference Call Q4 2006 [audio on Yahoo Finance]
Commentary: Global Guru David Herro's Eight International Heavyweights • No End In Sight For The Interpublic Nightmare
Stocks to watch: Interpublic Group of Companies, Inc. (NYSE:IPG). Competitors: Omnicom Group Inc. (NYSE:OMC), Publicis Groupe SA (PUB), WPP Group plc (NASDAQ:WPPGY)
Charter Communications Posts Q4 Revenue Rise and Wider Loss
Cable operator Charter Communications posted a 10% revenue gain yesterday, but its Q4 loss widened on a $54 million rise in interest payments and tax expenditures. The company, which is run by Microsoft co-founder Paul Allen, reported a loss after paying preferred dividends of $396 million (-$1.08/share) in Q4 versus a year-ago loss of $336 million (-$1.06/share). Analysts were expecting a loss of $0.80/share. Charter plans to offset this loss by bundling TV, phone and Internet services, which is expected to bring in new customers and boost profit margins. "Bundling is the key to driving growth and the addition of phone (service) is the key to bundling success," said CEO Neil Smit. Revenue rose to $1.41 billion from $1.29 billion a year ago, in line with expectations, on high-speed Internet and telephone service demand. Charter's customer base has grown 30% since the end of September, but its expenses also grew 13% to $910 million. For the full year, the company's loss grew to $1.37 billion (-$4.13/share) from a loss of $967 million (-$3.13 a share) a year ago. Revenue rose 9% to $5.5 billion.
Sources: Press Release, MoneyCentral, Wall Street Journal, Chron.com
Commentary: Despite Upgrades, Charter Communications May Be Due For a Breather • Charter Shares Reach 52-Week High on Comcast CFO Optimism • Charter Communications: Overbought, Undervalued
Stocks/ETFs to watch: Charter Communications, Inc. (NASDAQ:CHTR). Competitors: Comcast Corp. (NASDAQ:CMCSA). ETFs: iShares Russell Microcap Index (NYSEARCA:IWC)
Supersize that Latte? McDonald's to Offer Upscale Coffee Drinks
In a shot across the bow at Starbucks Corp., McDonald's has announced it will serve specialty coffee beverages like vanilla lattes and caramel cappuccinos at outlets across the U.S. The drinks are already available at McDonald's restaurants in Michigan, New York and New Jersey. McDonald's is pricing espresso-based drinks between $2 and $3, undercutting Starbucks, many of whose similar offerings are over $3. The high-end coffee drinks will also compete with Dunkin' Donuts, which has widened its specialty coffee offerings and plans to offer them nationally. McDonald's new focus on high-end coffee is consistent with an overall strategic shift away from its traditional burger-and-fries offerings and toward more "upscale" food, like chicken and salad. McDonald's specialty coffee drinks will be served from push-button machines, which are faster than Starbucks' labor-intensive hand-made approach. Starbucks, meanwhile, has not been idle: last fall, it announced plans to offer hot breakfast sandwiches in an appeal to fans of the McDonald's Egg McMuffin.
Sources: Wall Street Journal, Reuters
Commentary: Did Starbucks' CEO Really Say That? • McDonald's Beats Q4 Forecasts • McDonald's Profits Climb -- For 10th Straight Quarter
Stocks/ETFs to watch: McDonald's Corporation (NYSE:MCD). Competitors: Starbucks Corp. (NASDAQ:SBUX), Burger King Corp. (BKC), Yum! Brands Inc. (NYSE:YUM). ETFs: Vanguard Consumer Discretionary ETF (NYSEARCA:VCR), iShares Dow Jones US Consumer Services (NYSEARCA:IYC), PowerShares Dynamic Food & Beverage (NYSEARCA:PBJ)
Limited's Q4 Profit Drops on Comparisons
Limited Brands, parent company of Express, Victoria's Secret and Bath & Body Works, said yesterday its Q4 profit dropped 15% on extended discounts and a comparison with a one-time tax gain a year ago. The company reported net profit of $439.8 million ($1.08/share) versus $519.2 million ($1.28/share) in the year-ago quarter, which included $0.29/share in one-time items. Sales were up 13.6% to $4.02 billion this year from $3.54 billion last year. Analysts were expecting EPS of $1.08 on revenue of $4.01 billion. Same-store sales were up 8%. Operating income rose 4.8%, to $726.8 million from $693.6 million. CEO Leslie Wexner added two weeks to Victoria's Secret's semi-annual sale last year, and also used promotions to boost holiday buying at Limited and Bath & Body Works. Those two divisions collectively represent 3/4 of Limited's revenue. The company is forecasting a low- to mid-single-digit rise in same-store sales for February, against an earlier projection of a high-single-digit rise, because of bad weather that kept customers out of stores. Q1 EPS are forecast at $0.25-0.28 versus the Street's expectation of $0.29. For full-year 2007, Limited is projecting EPS of $1.75-1.90 against analysts' $1.90 forecast.
Sources: MarketWatch, Wall Street Journal, Bloomberg
Commentary: Unlimited Selling at Limited Brands • Limited Brands: Victoria Is Not the Only One With a Secret
Stocks/ETFs to watch: Limited Brands, Inc. (LTD). Competitors: Gap Inc. (NYSE:GPS), TJX Companies Inc. (NYSE:TJX). ETFs: iShares Morningstar Mid Core Index (NYSEARCA:JKG)
Merck High On New Drugs' Success; Shares Gain
Drugmaker Merck & Co. raised its earnings projections yesterday both for 1Q07 as well as for FY2007, sending shares up $0.97, or 2.25% to $44.15. The upward revision in earnings expectations is based on better-than-expected sales thus far in 2007, the result of strong sales among the five new Merck drugs and vaccines approved in the U.S. last year. Bloomberg terms the success of such drugs as Merck's cervical cancer vaccine and a diabetes drug "a sign that the company's strategy of investing in research on diseases that have few treatments is paying off." On an adjusted basis, Merck expects to report first quarter earnings of between $0.63-$0.67 a share; consensus estimates were for between $0.59 (Bloomberg) and $0.60 (MarketWatch) a share. For the year, Merck now expects to earn between $2.55 and $2.65 a share; estimates were for EPS of between $2.60 (Bloomberg) and $2.62 (MarketWatch).
Sources: Wall Street Journal, Business Week, Bloomberg, MarketWatch
Commentary: HPV Vaccine Mandates - State Update • Merck's Earnings Fall 58%; Wyeth's Rise 17% • Potential Mandatory Vaccination May Prove Healthy For Merck, GlaxoSmithKline
Stocks/ETFs to watch: Merck & Co. (NYSE:MRK). Competitors: Pfizer Inc. (NYSE:PFE), Wyeth (WYE), Schering-Plough Corp. (SGP), Novartis AG (NYSE:NVS), Teva (NYSE:TEVA), AstraZeneca plc (NYSE:AZN), GlaxoSmithKline plc (NYSE:GSK), Sanofi-Aventis (NYSE:SNY), Eli Lilly & Co. (NYSE:LLY), Abbott Laboratories (NYSE:ABT), Amgen (NASDAQ:AMGN). ETFs: iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE), Pharmaceutical HOLDRs (NYSEARCA:PPH)
SEC Queries Amgen on Aranesp Anemia Medication
The Atlanta bureau of the SEC has come knocking on Amgen's door following the company's delayed release of data indicating its Aranesp anemia medication -- the company's best-selling drug -- may be dangerous for cancer patients. Amgen said yesterday it will cooperate fully with the SEC's informal request for information on the study, which was halted in October after researchers found that cancer patients taking Aranesp had a greater instance of recurring tumors than those not taking the medication. Amgen notified the FDA of the problem in a timely manner, but did not inform investors until February 16. Aranesp, which accounted for $4.12 billion of Amgen's sales last year, is approved by the FDA for treatment of anemia in chemotherapy and dialysis patients. The halted study was testing the use of Aranesp in patients with head or neck cancer who were undergoing radiation. The study was performed by the Danish Head and Neck Cancer Group, which publicly disclosed the results on December 1, 2006. Last month, Amgen informed the public that a separate study showed that Aranesp might increase the risk of death among patients whose anemia was caused by cancer.
Sources: New York Times, Bloomberg, MarketWatch
Commentary: Amgen Feels More Pain [TheStreet.com] • Amgen's First Cancer Drug May Spark Price War With ImClone • Biotech Week in Review: Holding Steady. Conference call transcript: Q4 2006
Stocks/ETFs to watch: Amgen Inc. (AMGN). Competitors: Baxter International Inc. (NYSE:BAX), Johnson & Johnson (NYSE:JNJ), Novartis AG (NVS). ETFs: Biotech HOLDRs (NYSEARCA:BBH), PowerShares Dynamic Biotech & Genome (NYSEARCA:PBE), Vanguard Health Care ETF (NYSEARCA:VHT)
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