Fed: Some Districts Showed Slowing in February
The dollar slipped yesterday after the Fed released its Beige Book report, which indicated that four of 12 federal districts reported "slowing" in the second half of last month. The four are New York, St. Louis, Boston and Dallas. Economic conditions appear to be substantially the same as they were last month, when the Federal Open Market Committee -- which uses the Beige Book as a guide at its meetings -- stated that "the economy seems likely to expand at a moderate pace over coming quarters." The housing sector is still weak, though there are indications of stabilization. Manufacturing is expanding, notwithstanding the weakness in the auto and housing sectors. Retail, services and demand for labor continue to grow, inflation is "little changed," and pay raises are "moderate." The February payrolls report will be released tomorrow. The Beige Book is released about two weeks before each Fed rate meeting. The Fed forecasts 2.5-3% growth in the economy this year and 2.75-3% next year.
Sources: Bloomberg, Reuters, MarketWatch, Kiplinger Forecasts
Commentary: January Factory Orders: Worst Decline in Over Six Years • Productivity Down, Unit Labor Costs Up • Durable Goods Orders Decline Most in 18 Months, Sending Futures Lower
ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Toll: Housing Slump Almost Done; Horton: Not So Fast
Toll Brothers chairman and CEO Robert Toll said yesterday his company could "burn off" much of its excess inventory within five months if cancellation rates continue to decline, spurring hopes the housing slowdown is approaching a bottom. D.R. Horton CEO Donald J. Tomnitz, however, bluntly said yesterday that he expects 2007 to "suck" for his company and does not see a sector recovery before 2008. Over the past five weeks, Toll's order cancellations have dropped to 16% from a 36% high. If other homebuilders are seeing similar declines, it would be an encouraging sign for the overall housing market, said Toll CFO Joel Rassman. Tomnitz believes the inventory glut is too severe to allow a recovery to take place in the near term. The usually strong spring selling season will give the market a clearer sense of the state of the sector, but according to D.R. Horton Treasurer Stacey Dwyer, "this selling season is not meeting our expectations." Street.com columnist Brett Arends notes that despite Robert Toll's cheerful expectations, his brother Bruce has cashed out $47 million worth of Toll stock since September. "The best forward-looking indicator of all," says Arends, "may well be insider stock sales by the people who know the housing industry best."
Sources: CNN.com, MarketWatch, TheStreet.com, Reuters, Forbes, Business Wire
Commentary: D.R. Horton's Profit Falls 65%, Beats Estimates • Toll Brothers: Earnings Drop 67%, Beat Estimates • Toll Brothers' CEO: Housing Slowdown Is Stabilizing
Stocks/ETFs to watch: Toll Brothers, Inc. (TOL), D.R. Horton, Inc. (DHI). Competitors: Centex Corp. (CTX), Lennar Corp. (LEN), Pulte Homes Inc. (PHM). ETFs: iShares Dow Jones US Home Construction (ITB)
Conference call transcript: Toll Brothers F1Q07
Clearwater's Oversubscribed IPO Raises $600 Million
Wireless broadband provider Clearwire Corp. raised $600 million yesterday in its IPO, selling the 24 million shares available at $25; the forecast had been for shares to go from $23-25. The price gives the company an initial market cap of over $3.9 billion. According to a person familiar with the IPO, the deal was oversubscribed six to seven times, meaning subscribed investors got one share for every 6-7 they wanted. CEO and chairman Craig McCaw is the company's largest shareholder with 65% of its Class B stock (each Class B share is convertible to one Class A share but counts for ten votes) and 25% of its Class A stock. Clearwire's wireless broadband networks operate using WiMAX, a technology that offers the speed of a broadband connection without a hard-line. Currently its service is limited to a small number of U.S. areas, but in February the Clearwire payed AT&T $300 million for the rights to 2.5 GHz spectrum that will help it broaden its coverage. Currently its service is available in 350 cities and towns, serving 206,000 subscribers who use it to e-mail, surf, or make phone calls over the Internet. By year-end Clearwire looks to have 375,000-400,000 subscribers. Intel (26% A and 35% B) and Motorola (13.9% A) have invested in Clearwire; the companies are expected to expand WiMAX use for their mobile phones and portable devices. David Menlow, president of IPOFinancial.com, said the Street was "salivating over this opportunity" because of the big-name investors involved. But he said investors should be consider things carefully before investing in the venture; the four-year-old company has lost $459 million as of December, though sales tripled in 2006 to $100m. Shares will begin trading today on the Nasdaq exchange under the ticker CLWR.
Sources: Seattle Post Intelligencer, Reuters
Commentary: Clearwire IPO: Hype and Reality • Beyond The Hype Of The Clearwire IPO • Are We In For a Mobile Broadband Pricing Drop?
Stocks/ETFs to watch: Clearwire Corp. (CLWR), Intel Corp. (INTC), Motorola Inc. (MOT). Competitors: Sprint Nextel Corp. (S), Alvarion Ltd. (ALVR), Airspan Networks Inc. (AIRN), NTT Docomo Inc (DCM), SK Telecom Corp. Ltd. (SKM), Vimpel-Communications (VIP), Vodafone AirTouch (VOD). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), HOLDRS Wireless (WMH)
Take-Two's Shares Jump as Investor Group Plans to Take Action
Take-Two Interactive's shares gained 7.6% to $18.95 yesterday -- trading as high as $20.88 -- on news a dissident investor group owning 45+% of the company filed with the SEC saying they plan to nominate and vote for six new directors and vote to fire its CEO and possibly its CFO. Take-Two's annual meeting is March 23. The group includes OppenheimerFunds, S.A.C. Capital Management, Tudor Investment Corp., D.E. Shaw Valence Portfolios and ZelnickMedia Corp. Take-Two is best known for its Grand Theft Auto game franchise, but has struggled to turn a profit over the past year, as it also had to restate earnings for eight years due to an options backdating scandal. A Citigroup analyst maintains her "sell" rating due to uncertainty over new management's ability to bring games to market. Wedbush Morgan also rates it "sell", while Kaufman Brothers rates it "hold." An S&P analyst however, upgraded it to "hold" and raised his target to $22/share. "Grand Theft Auto IV" is set to be released in October.
Sources: Take-Two SEC filings, Bloomberg, MarketWatch
Commentary: Icahn MIA From Take Two's Board of Directors • The Take-Two Saga Continues • Icahn Management: Notable 13F Changes
Stocks/ETFs to watch: Take-Two Interactive Software (TTWO). Competitors: Activision (ATVI), Electronic Arts (ERTS), Konami (KNM), Nintendo (OTCPK:NTDOY), Sony (SNE)
TiVo's Q4 Loss Narrows, Beats Guidance, Stock Climbs 3%
TiVo reported a narrower than expected Q4 loss at -$18.7 million, or -$0.19/share, compared to its earlier forecast net loss of $33m to $38m, improving against a loss of $21.1m ($0.25/share) last Q4. Revenues increased 29% to $77.6m, but TiVo-owned subscription gross additions of 163,000 came up short of last Q4's 221k, and now total 1.7m. DirecTV-based customers declined to 2.72m, compared to 2.87m last Q4, as DirecTV is phasing out TiVo set-top boxes in favor of its own DVR. TiVo offered Q1 net income guidance of -$4m to breakeven, on service and technology revenues between $57m to $58m. Analysts expected a net loss of $2.8m on revenues of $58m. TiVo announced new partnerships, including an agreement with Earthlink to bundle TV and Internet connection services later this year. TiVo and Amazon also officially launched their Amazon Unbox on TiVo service. Shares of TiVo gained 3.4% to $6.14 in normal trading and added another 2.6% to $6.30 in after-hours trading on volume of over 220,000.
Sources: TiVo F4Q07 Earnings Call Transcript, Press releases (Amazon Unbox on TiVo and Q4 and FY07 earnings [pdf]), Associated Press, MarketWatch, Reuters
Commentary: Internet Television: Who Will Win The Day? • Amazon Tivo Combo: A Threat to the Netflix Model? • Amazon and TiVo Team Up
Stocks/ETFs to watch: TiVo (TIVO), Amazon (AMZN), Comcast (CMCSA), DirecTV (DTV), EarthLink (ELNK), Echostar Communications (DISH), Netflix (NFLX). ETFs: PowerShares Dynamic Media (PBS)
Saks' Profits and Sales Rise on Luxury Refocus
With an extra week of sales, better advertising, improved traffic, higher-end full-price merchandise sales and improvements in all locations, Saks Inc., parent of the Saks Fifth Avenue retail chain has reported 17% higher Q4 income of $21.5 million, or $0.14/share, swinging to profit from a $2.2m loss a year ago. Same store sales were up 9.9% in Q4 and 24.7% from February 2006-2007. Net 2006 sales reached $2.94 billion, up from $2.8b in 2005. CEO Steve Sadove says Saks is halfway through restructuring, having sold mid-level non-Saks stores for $2b to focus on a strong luxury market and 35-55 year-old women. After 450,000 shares repurchased, extinguishing $18m of debt and a 4$ dividend, Saks says operating margins will be 3% this year with a goal of 8% by 2010. Competitors Neiman-Marcus, Nordstrom's and Barney's/Jones Apparel have double digit operating margins. Shares rose nearly 6% to $19.82 on Wednesday.
Sources: Press Release, Motley Fool, Wall St. Journal, MarketWatch , SignOn San Diego, MSN Money
Commentary: Saks a private equity candidate? [bloggingstocks] • Saks Can't Compete In This Environment • US Income Inequality Grows, Favors Luxury Retailers Over Wal-Mart
Stocks/ETFs to watch: Saks Inc. (SKS). Competitors: Nordstrom's (JWN), Jones Apparel (JNY) ETFs: PowerShares Dynamic Retail (PMR), SPDR Retail (XRT)
TRANSPORT AND AEROSPACE
GM's Wagoner: 'U.S. Auto Industry Consolidation Unlikely'
In an exclusive report, the Wall Street Journal is quoting General Motors CEO Rick Wagoner as saying he does not expect a consolidation in the U.S. auto industry anytime soon. Wagoner acknowledges there are major problems facing the industry including intense pricing pressure from foreign automakers, declining market share by the U.S. 'Big 3' and the probability the U.S. automakers will continue making more cars than they can sell for at least 10 years. In addition, the Journal is reporting Wagoner declined to comment on a slew of recent reports that GM is in talks with DaimlerChrysler about possibly buying or trading shares for its suffering North American Chrysler unit.
Sources: Wall Street Journal, Reuters
Commentary: DaimlerChrysler CEO Zetche: 'Chrysler Difficult To Break Up' • GM Vehicle Sales, U.S. Market Share Rise; Japan's 'Big 3' Continue to Roll • GM To Buy Chrysler? At Least It Hasn't Been Ruled Out
Stocks/ETFs to watch: DaimlerChrysler (DCX), General Motors (GM). Competitors: Ford (F), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
Air Force Told It Has 60 Days to Reconsider Boeing Chopper Contract
The Government Accountability Office [GAO], which in a rare move last month ordered the U.S. Air Force to reopen the bidding for a $15 billion helicopter contract it awarded Boeing, has now told the Air Force it has 60 days to comply with its ruling. GAO rulings are non-binding but the Air Force has complied with them in the past. The complaint, filed by Lockheed Martin Corp. and United Technologies Corp.'s Sikorsky Aircraft, alleged that there were irregularities in the way search criteria were applied, unfairly favoring Boeing. Air Force officials have resisted complying with the GAO's demands thus far but the Wall Street Journal is reporting that the timing of this latest rebuke is "particularly problematic" as Air Force officials prepare to evaluate bids in a far more complex competition for aerial-refueling planes. United Technologies Sikorsky Helicopter unit yesterday released a statement upping the pressure on the Air Force which reads: "We believe the errors committed by the Air Force in those other areas are highly material, and we intend to pursue them vigorously if the corrective action taken by the Air Force does not adequately address them."
Sources: AP, Reuters, Wall Street Journal
Commentary: Air Force Urged To Reopen Competition for Boeing's $15 Billion Chopper Contract • How Boeing Defense Got Its Groove Back
Stocks/ETFs to watch: Boeing (BA), Lockheed Martin (LMT), United Technologies Corp. (UTX).ETFs: PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)
ENERGY AND MATERIALS
Lower Inventories Push Crude, Motor Gas Futures Higher
Oil futures climbed yesterday after the Energy Department's Days Inventory report showed crude supplies fell 4.85 million barrels last week to 324.2 million barrels, just 5.8% above the five-year average. Bloomberg consensus estimates were projecting a gain in crude inventories. U.S. motor gasoline inventories dropped by 3.8 million barrels - a sharper decline than the 1.4 million barrel drop that analysts had expected - leaving inventories at just 0.6% above their five-year average. The report pointed to a 6.8% drop in crude imports, lowest in 17 months, after the Houston Ship Channel was closed three times because of fog as well as to refineries which operated at 0.2% lower capacity (week over week), as the cause for the drops in inventories. Addison Armstrong, director of market research at TFS Energy LLC, believes the drop in crude inventory doesn't really matter because "we've got a nice cushion. Gasoline is a different story. Nobody was looking for that big a drop." Crude oil rose $1.13, or 1.9%, to $61.82/bbl. The average pump price for regular gasoline rose $0.01 cent to $2.50 a gallon yesterday according to AAA - that's up from just $2.145 a gallon in January.
Sources: Bloomberg, AP
Commentary: Iran's Oil Exports May Dry Up Without Foreign Help • Pickens Picks a Petroleum Production Peak • Our USO ETF Holding Should Recover Sooner Rather Than Later
Stocks/ETFs to watch: United States Oil Fund ETF (USO), Barclays Bank Zero Cpn ETN (OIL), PowerShares DB Oil Fund (DBO)
ExxonMobil Planning Over 20 New Projects Around World
ExxonMobil Chairman and CEO Rex Tillerson said yesterday the company will invest in more than 20 new projects around the world over the next three years that should add 1 million barrels of oil equivalent [boe] per day to its volumes at peak production. The company produced about 4.2 million boe/day last year. Capital spending is projected to approximate $20 billion a year through the end of the decade. The company, which currently has 40 oil and natural gas rigs operating around the globe, will invest in mature markets, including North America, Australia and the North Sea, as well as growth areas like the Middle East, Russia and West Africa. Venezuela is a problem area, now that President Hugo Chavez has ordered the nationalization of all foreign-run oil projects in the Orinoco River region. ExxonMobil has given operational control over a JV in the region to its Venezuelan partner, but “[t]here’s a lot that has to be discussed with the Venezuelans yet,” Tillerson said. ExxonMobil's closest rival, Chevron, plans to up capital spending this year by 18% to almost $20 billion. In related news, Tillerson had a sit-down in a tent last month with Col. Moammar Gadhafi, leader of Libya, to discuss access to the country's enormous oil fields. "It was a great meeting," Tillerson said.
Sources: Press Release, MSNBC, Reuters, Bloomberg
Commentary: Exxon Mobil Is Worth Half A Trillion Dollars • ExxonMobil Shelves Qatar Gas-to-Liquid Project • Exxon Again Sets Record For Largest Corporate Profit in 4Q06
Stocks/ETFs to watch: ExxonMobil Corp. (XOM). Competitors: ConocoPhillips (COP), BP plc (BP), Chevron Corp. (CVX), Royal Dutch Shell (RDS.A), Total (TOT). ETFs: SPDR Oil & Gas Exploration & Production ETF (XOP), iShares Dow Jones U.S. Oil & Gas Exploration/Production (IEO)
Fremont General: Subprime Sale Isn't a Done Deal
Shares of mortgage lender Fremont General gained nearly 26% yesterday to $8.53 on news the company is in talks with several potential buyers of its subprime unit. The shares slipped $0.60 to $7.93 in AH trading when management clarified that a transaction might not occur. Fremont was part of an overall rally in the mortgage sector yesterday that was precipitated in part by a report by the Mortgage Bankers Association that refinancing applications rose 15% last week, considered by analysts to be a reflection of the drop in interest rates that accompanied last Tuesday's market selloff. Applications are up 38.4% from a year ago. Fremont's shares nosedived 32% on Monday when it disclosed that it is leaving the subprime business and has desisted from certain lending practices on orders of the FDIC. Fremont is projecting a Q4 loss from continuing operations, due in part to higher provisions for repurchases of bad loans. In related news, Citadel Investment Group has beaten out Credit Suisse Group to buy bankrupt ResMae Mortgage Corp. and its loan portfolio for about $180 million.
Sources: Reuters (I, II), Bloomberg, Business Week, TheStreet.com
Commentary: Subprime Lenders Stage Mini-Comeback • Crisis in the Subprime Market: The First Step is Admitting You Have a Problem • Subprime Lender Stocks Plummet: Easy Money Meltdown
Stocks to watch: Fremont General Corp. (FMT). Competitors: NovaStar Financial Inc. (NFI), Countrywide Financial Corp. (CFC), New Century Financial Corp. (NEW)
Express Scripts Ups Its Caremark Bid
Late Wednesday, Express Scripts Inc. increased its hostile and competitive cash/stock bid for rival pharmacy benefits manager Caremark Rx Inc. In December, a month after Caremark agreed to a "merger-of-equals" with CVS in which Caremark shareholders would receive 1.67 CVS shares (presently $31.32) plus a $6 dividend for each share they own (valuing the company at about $21b), Express Scripts upped the ante by offering $29.25 in cash and 0.426 share (presently $74.77) of its stock (giving it a $26b value). Its new offer includes an additional cash consideration of 6% per annum (0.48 cents/share/day) which will start April 1 and accrue through the closing date of Express Scripts' acquisition or 45 days after FTC approval of the deal, whichever comes first, to be paid to Caremark shareholder upon the deal's close, which it believes will come no later than Q3. Following two postponements, Caremark shareholders are slated to vote on the CVS merger on March 16. Yesterday's increased offer came after Express Scripts' request to further delay the shareholder vote was denied. Also yesterday, Express Scripts said it expects the FTC to make a second request for information on its offer, a move celebrated by CVS's board, which has consistently questioned the rationale and the antitrust elements of Express Scripts' bid. It also raised its full-year earnings forecast $0.06 to $4.14-4.26. Express Scripts shares were up yesterday $0.21 to $74.77, Caremark fell $0.33 to $61.30, and CVS was up $0.02 to $31.32.
Sources: Press Releases: Express Scripts Improves Offer to Acquire Caremark, CVS Says Express Scripts' Second Request Confirms the Serious Antitrust Concerns Overhanging Its Highly Conditional Offer, CVS Pleased with Chancery Court Ruling Allowing Vote on Caremark Merger to Proceed, MarketWatch, TheStreet.com, Bloomberg
Commentary: Is CVS the Prescription Fix for Caremark? • CVS-Caremark Deal Would Create Pharmacy Powerhouse • Don't Expect Express Scripts to Bow Out of Caremark Rx Bidding
Stocks/ETFs to watch: Express Scripts Inc. (ESRX), CVS Corp. (CVS), Caremark Rx Inc. (CMX)
Ranexa Won't Treat Heart Attacks, CV Therapeutics Falls 24%
While CV Therapeutics' Ranexa or Ranolazine trials proved that there is no greater risk of arrhythmia or abnormal heart beats, it didn't prove Ranexa's utility in treating acute heart disease or heart attacks, as opposed to chronic angina for which it is currently used. The news sent shares down 23.58% to $9.40 yesterday, erasing $172 million in value. That Ranexa poses no risk to arrhythmia will help sales for chronic angina -- analysts felt the label warning had dampened sales. The trials may also help Ranexa be approved for first line chronic angina treatments -- it's currently used when other treatments have failed. Lehman Bros. analyst Jim Birchenough said that implied a $40 share target, while Piper Jaffray analyst Thomas Wei said Ranexa could be a possible diabetes drug. Merrill Lynch analyst Thomas Chiu rated CVTX Neutral saying it needs more marketers to help sales, and a partner to offset costs. Deutsche Bank analyst Jennifer Chao downgraded CVTX to Hold with an $8 price target.
Sources: CV Therapeutics Press Release, Bloomberg , San Francisco Business Times, Forbes
Commentary: CV Therapeutics Trial Results: Enough To Drive Profitability? • Will MERLIN Work Magic For CV Therapeutics? • CV Therapeutics: Last Chance for a Tax Loss
Stocks to watch: CV Therapeutics (CVTX). Competitors: Vertex Pharmaceuticals (VRTX), PDL Biopharma (PDLI), Genentech (DNA). . ETFs: SPDR Pharmaceuticals (XPH), iShares Dow Jones U.S. Pharmaceuticals (IHE), PowerShares Dynamic Pharmaceuticals (PJP)
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