Beazer Homes Receives Federal Subpoena
In a filing with the SEC yesterday, Beazer said it received a federal grand jury subpoena (requested by the U.S. Dept. of Housing and Urban Dev.) for documents related to its mortgage origination services. However, Beazer said no requests for documents have been made by the FBI, or IRS, contrary to an FBI spokesperson's statements. Beazer said it is cooperating with the U.S. Attorney's Office investigation, which so far has not made allegations of wrongdoing by Beazer. Reuters quotes a BoA Securities analyst who says, "We believe many buyers entered into aggressive mortgages due to the stretched affordability in many markets, but we think it may be difficult to prove fraud." A JP Morgan analyst noted the difficulty of predicting legal outcomes, but says it could be a focused case and any fines would be immaterial to the company. Beazer's shares gained 1.8% to $29.28 in normal trading yesterday, but lost .6% to $29.11 in after-hours activity.
Sources: Beazer SEC filings, Bloomberg, Reuters, MarketWatch
Commentary: Financial Sector: Sometimes Bad Gets Worse • Beazer Homes Down 17%: Taking Advantage of the Panic • Beazer Homes Plummets on Fraud Investigation
Stocks/ETFs to watch: Beazer Homes (BZH). Competitors: KB Home (KBH), Lennar Corp. (LEN), D.R. Horton Inc. (DHI), Pulte Homes (PHM), Centex (CTX). ETFs: iShares Dow Jones US Home Construction (ITB), SPDR Homebuilders (XHB)
Dell's Internal Investigation Finds Misconduct, Errors
Shares of PC manufacturer Dell Inc. sank up to 8% to $21.50 in AH trading yesterday before recovering to $22 on news that an internal investigation has uncovered evidence of misconduct as well as accounting errors and deficiencies. The company did not specify the nature of the misconduct, but indicated the probe is focused on "reserves and other balance sheet items." Dell is now determining whether it will need to restate prior earnings. The company announced it will delay filing its Form 10-K for fiscal 2006 past an already-extended date of April 18, the third quarter in a row that it has missed SEC reporting deadlines. In addition to the internal probe, Dell's accounting practices are being investigated by the SEC and the U.S. Department of Justice. The company is also facing a shareholder lawsuit over accounting manipulation that allegedly concealed up to $1 billion in illegal payments from Intel.
Sources: Press release, Wall Street Journal, Reuters, Bloomberg, MarketWatch
Commentary: Forecasting the PC Market's Future: The Rise of HP, The Fall of Dell • Can Dell Ever Return to its Past Glory? • Suit Claims Dell Got Billions in Illegal Kickbacks from Intel
Stocks/ETFs to watch: Dell Inc. (DELL), Intel Inc. (INTC). Competitors: Hewlett-Packard Co. (HPQ), International Business Machines Corp. (IBM), Sun Microsystems Inc. (SUNW). ETFs: SPDR Technology (XLK), iShares Goldman Sachs Technology Index Fund (IGM), iShares Dow Jones US Technology Index (IYW)
Boardroom Coup at Take Two Interactive
An insurrection by a group of shareholders at Take Two Interactive has resulted in the ouster of the board and the installation of six new directors. The company's new chairman is Strauss Zelnick, former head of BMG Entertainment and 20th Century Fox and founder of investment firm ZelnickMedia. Benjamin Feder is acting CEO, replacing Paul Eibeler. The shareholder group consists of four institutional investors: OppenheimerFunds, D.E. Shaw Valence Portfolios, Tudor Investment Corp. and hedge fund S.A.C. Capital. The group holds a collective 46.1% stake in the company. Take Two, which manufactures videogames, has remained unprofitable despite the vast popularity of its "Grand Theft Auto" product. The company lost $184.9 million in 2006. It has also been hit by a stock-options scandal; former Chairman and CEO Ryan Brant pleaded guilty earlier this year to options-backdating charges. Zelnick says he expects "the creative talent will remain in place," and dismisses speculation that the new board plans to sell the company. The company's shares, which have risen 20% since the shareholder group announced its formation on March 7, rose $1.36 to $22.46 in AH trading yesterday.
Sources: News.com, New York Times, Bloomberg, Wall Street Journal
Commentary: Take-Two's Shares Jump as Investor Group Plans to Take Action • Take-Two Interactive: Investor Group Forms, Wants Six Board Nominations • Take Two Jumps as Board Faces Ouster by Investors, But Can They Fix It?
Stocks/ETFs to watch: Take-Two Interactive Software, Inc. (TTWO). Competitors: Activision Inc. (ATVI), Electronic Arts Inc. (ERTS), Konami Corp. (KNM). ETFs: iShares Goldman Sachs Software Index Fund (IGV), Software HOLDRS Trust ETF (SWH), PowerShares Dynamic Software (PSJ)
Red Hat Reports 25% Profit Drop, but Shares Gain on Cash Flow Guidance
Linux provider Red Hat yesterday reported a 25% profit decline and lower-than-expected revenue, but its shares gained 4.5% in AH trading on the company's strong guidance for next year. Red Hat posted a Q4 profit of $20.5 million ($0.10/share) against $27.3 million ($0.13/share) a year earlier. Without expenses, the company earned quarterly EPS of $0.15, in line with expectations. For full-year 2006, Red Hat earned $59.9 million ($0.29/share) against $79.7 million ($0.41) a year ago, in part on higher sales and marketing expenses. Q4 revenue gained 41% to $111.1 million, missing Street expectations of $112.5 million. Red Hat EVP and CFO Charlie Peters forecasts 2008 EPS at $0.67-0.72 on revenue of $510-520 million versus analyst projections of $0.68 EPS on revenue of $517.2 million. He also forecasts 15-20% growth in cash flow, ahead of analyst expectations of 12-13%. Red Hat has had to contend with the recent wading into the open-source market of behemoths Microsoft and Oracle, but CEO Matthew Szulik is unfazed. "Since 1998, competition with the big boys has been a fact of life for Red Hat," he said. Sources: Conference call transcripts: F4Q07 (Qtr End 2/28/07). Press release, Chron.com, Reuters, News.com, TheStreet.com, MarketWatch
Commentary: Red Hat Fiscal Year Looks Rosy • Is Red Hat Ready to Be the Next Microsoft? • Red Hat: Surviving Competition, Displaying Growth
Stocks/ETFs to watch: Red Hat, Inc. (RHT). Competitors: Microsoft Inc. (MSFT), Novell (NOVL), Oracle (ORCL), VA Software (LNUX). ETFs: iShares Goldman Sachs Software Index (IGV), PowerShares Dynamic Software (PSJ)
Cognos Beats Q4 Expectations, but Q1 Forecast Disappoints
Canadian IT software provider Cognos Inc. yesterday reported higher-than-expected Q4 EPS as revenue grew 12.4%, but the company's shares lost about 5% in AH trading on lower-than-expected guidance for Q1 earnings. Cognos earned $60.9 million ($0.67/share) in the quarter, up from $39.3 million ($0.43/share) in the same period last year. Revenue came in at $284.50 million, ahead of Street expectations of $278.1 million. Excluding charges, Cognos reported a profit of $66.9 million ($0.74/share) versus $45.2 million ($0.49) last year, again beating analyst expectations of $0.65. For Q1 2007, however, Cognos is projecting EPS of $0.19-0.24, or $0.28-0.33 excluding items. Revenue is forecast in the $230-240 million range, representing growth of 6-11%. Analysts were projecting Q1 EPS of $0.37 on $239.5 million in sales. Rumors continue to circulate that IBM might make an offer for Cognos, but neither company is commenting on the speculation.
Sources: Chron.com, Reuters, TheStreet.com. Conference call transcripts: F4Q07 (Qtr End 2/28/07)
Commentary: Cognos: Takeover Speculation Could Intensify; F4Q Results Today • Oracle Buying Hyperion: Bad News for Business Objects, Cognos, SAP
Stocks/ETFs to watch: Cognos Inc. (COGN), International Business Machines (IBM). Competitors: Oracle Corp. (ORCL), Hyperion Solutions Corp. (HYSL), Business Objects SA (BOBJ). ETFs: Software HOLDRs (SWH), Vanguard Information Technology ETF (VGT)
AT&T, Quest and Verizon, But Not Sprint, to Compete for Big Govt. Contracts
The FCC will issue at least $20 billion (and up to $48b) worth of contracts over the next ten years, under a program called "Networx Universal," for upgrading telecom infrastructure at federal agencies. AT&T, Quest and Verizon were named competitors for the contracts, but Sprint Nextel, historically a major supplier to the government, was not included. Networx Universal calls for upgrades to voice, data, satellite, IP and wireless services at 135 of 184 federal agencies globally. Quest appears to be the biggest beneficiary as the smallest competitor, with an opportunity to also raise its profile. A reason was not provided for Sprint being left off the list, but a former agency official suspects Sprint could not compete on price and as a result, could lose around $200m - $250m annually in its existing business with the government. Sprint will discuss its proposal and the decision with officials next week. The NY Times mentions there will be a second telecom contract award in May -- worth up to $20B, called Networx Enterprise -- which is viewed as less stringent than Universal. Sprint has said it expects to win the Enterprise contract.
Sources: The New York Times, The Wall Street Journal
Commentary: Sprint-Nextel LBO Speculation Resurfaces: Why Now? • Peer to Peer Networking: The Carriers Speak Out • Triple-Play All The Way: A Look at the Hottest Trend in Consumer Telecom
Stocks/ETFs to watch: AT&T (T), Qwest Communications International (Q), Verizon Communications (VZ), Sprint Nextel (S). ETFs: iShares Dow Jones U.S. Telecom Sector Index (IYZ), Telecom HOLDRS (TTH), Vanguard Telecom Services (VOX)
Solectron Misses Estimates; Shares Rise On Strong Guidance
Solectron Corp. reported its net profit fell by nearly 50% in it's recently ended 2Q07 but forecast a profit range in-line with analyst expectations and revenue above the expected range, sending shares higher by more than 2% in after hours action. By the numbers, profit came in at just $15.3 million, good for EPS of $0.02, versus EPS of $0.03 (net earnings of $30.4 million) in the year-ago period. Revenue rose 16% to $2.9 billion. Reuters estimates had the Street looking for EPS of $0.05 on revenue of $2.9 billion. Looking ahead to next quarter, the company expects adjusted EPS of $0.04 to $0.06 on revenue of $2.9 to $3.1 billion. Analysts were looking for EPS of $0.05 on revenue of just $2.87 billion. Shares climbed $0.08 to $3.16 after hours. Solectron announced it would be cutting between 1,300 and 1,500 employees, roughly 3% of its workforce, in a major restructuring designed to bring the company long-term savings.
Sources: Press Release, Reuters, AP (i), (ii)
Commentary: Solectron: CEO Split for Dell Could Mean Bad News • Contra Heard Bargain Hunts: Zarlink, ATS Automation & Solectron • Jabil Circuit Slips On Soft Guidance
Stocks/ETFs to watch: Solectron Corporation (SLR). Competitors: Jabil Circuit (JBL), Benchmark Electronics (BHE), Sanmina-SCI Corporation (SANM)
New Tribune Bid Bodes Ill For Newspaper Stocks
California businessmen Ron Burkle and Eli Broad raised their offer for The Tribune Co. to $34 a share, a premium of 11% above TRB's Thursday closing price of $31.53. But in the absence of a hard commitment, Tribune's board may accept Sam Zell's offer of $33 a share. The bidding war could bode ill for other newspaper stocks, as Zell's offer is equal to only 9.2x Tribune's 2006 EBITDA, lower than the average of 9.8x for Tribune's publicly-traded competitors. Gannett's stock trades at 8x 2006 EBITDA, Dow Jones at 12.6x, and New York Times at 9.4x. Those multiples are lower than the 11.5 to 13.5 multiples that newspaper stocks traded at in 1995 to 2005. Bear Stearns analyst Alexia Quadrani said the acquisition premium for TRB is almost non-existent. McClatchy's offer to buy Knight Ridder for 9.6x earnings was a negative catalyst for newspaper stocks, according to Lehman analyst Craig Huber. The Tribune sale could be the same. Meanwhile, fundamentals continue to deteriorate in the newspaper industry: February ad sales at the four largest U.S. newspapers were down 5% year over year, with Tribune's down 5.1%, led by a 13% drop in revenue from classifieds.
Sources: Bloomberg, NY Times, Wall Street Journal
Commentary: Will a Buyout Save The Tribune Company? • Burkle and Broad Might Sweeten Offer for Tribune Co. -- New York Times • Seeking Alpha's coverage of the newspaper industry
Stocks/ETFs to watch: The Tribune Co. (TRB). Competitors: Gannett Co. (GCI), The New York Times Co. (NYT), The Washington Post Co. (WPO), The McClatchy Company (MNI)
Conference call transcripts: TRB Q4 2006
ENERGY AND MATERIALS
ExxonMobil, Sinopec, Seal Joint Chinese Refinery Venture
U.S. oil giant ExxonMobil Corp. said this morning it has signed a deal with China Petroleum & Chemical Corp. (Sinopec) and Saudi Aramco to expand an oil refinery in southern China, build a chemical facility, and operate a chain of 750 filling stations. Refinery capacity is expected to more than triple to 240,000 bpd. Exxon and Saudi Aramco will each own 25% of the $5 billion venture; the rest will belong to Sinopec and the local government. The announcement follows 12 years of negotiations for ExxonMobil and 10 for Saudi Aramco. Foreign oil companies are expanding investment in the state-dominated Chinese oil industry as the country's demand for oil, plastics and chemicals surges. ExxonMobil VP Steve Simon says that by 2015, 1/2 of all global chemical demand will come from Asia, and 1/4 from China. Other oil/chemical refiners that have already ventured into China include Royal Dutch Shell, BP plc and BASF AG. Other foreign investment news in China this week: On Monday, Intel Corp. announced plans for a $2.5 billion chip factory in China, and yesterday Citigroup CEO Charles Price said his company planned to more than double its Chinese workforce and increase its branches there from 16 to 30.
Sources: AP, Wall Street Journal
Commentary: Where's the Money Flowing in Energy Stocks? • Comparing China's Two Oil Giants • Asian Energy Fundamentals
Stocks/ETFs to watch: ExxonMobil Corp. (XOM), China Petroleum & Chemical Corp. (SNP). Competitors: Chevron Corp. (CVX), Royal Dutch Shell (RDS.A), BP plc (BP), Total S.A. (TOT), PetroChina Company (PTR), CNOOC Ltd. (CEO), BASF Ag (BF). ETFs: SPDR Oil & Gas Exploration & Production ETF (XOP), iShares Dow Jones U.S. Oil & Gas Exploration/Production (IEO)
Conference call transcript: Exxon Mobil Q4 2006
Rumors Swirl Around Citigroup Overseas M&A Activity
Citigroup is at the center of the rumor mill this morning. After CEO Charles Prince discussed possible M&A activity by his bank in China yesterday, head of Citi's German operations, Sue Harnett, said the bank had its eyes open for a good buying opportunity. Harnett's comments led German banking stocks on the DAX. Another unconfirmed rumor picked up by Forbes and first reported in the Commercial Times said Citigroup may have acquired Taiwan's Bank of Overseas Chinese for roughly half a billion dollars, with a press conference coming as early as this afternoon. Citibank's spokesman in Taiwan had no comment on the report and said he was unaware of an press conference being scheduled.
Sources: Reuters, Forbes
Commentary: Citigroup: Break It Up! • Citigroup CEO Outlines Planned Chinese Expansion • Citigroup Advising Barclays on ABN Amro Bid
Stocks/ETFs to watch: Citigroup (C). Competitors: HSBC Holdings plc ADR (HBC), Bank of America Corp. (BAC), JPMorgan & Chase Co. (JPM), Deutsche Bank AG (DB), Credit Suisse Group (CS), Barclays PLC (BCS), ABN AMRO (ABN). ETFs: PowerShares Dynamic Banking (PJB), streetTRACKS KBW Bank (KBE)
FDA Panel Favors Dendreon's "Provenge" Cancer Vaccine
An FDA advisory panel yesterday voted in favor of approval of Provenge, Dendreon Corp.'s prostate cancer vaccine, saying it is both safe and effective. If the FDA approves Provenge, it will become the first-ever therapeutic cancer vaccine. A decision is expected by May 15. Two late-stage studies failed their endpoints, including the primary goal of slowing the cancer's progression. But the data did show that patients taking Provenge survived 4.5 months longer than patients on a placebo. The only other drug shown to prolong the lives of prostate cancer patients is Sanofi-Aventis's Taxotere. There remains concern that patients on Provenge exhibited a higher incidence of stroke than those on a placebo. Some analysts believe the FDA will likely give the company an approvable letter and wait for the results of a larger study that should be concluded in 2010. About 232,000 men are diagnosed with prostate cancer in the U.S. annually, and about 30,000 die of it. Dendreon shares, which were halted all day yesterday, closed Wednesday at $5.22.
Sources: MarketWatch, TheStreet.com, MSNBC
Commentary: Dendreon's Provenge: 'Substantial Evidence of Efficacy' • Update on Dendreon's Briefing Docs: Provenge Missed All Endpoints • Dendreon Corp: A Risky Proposition • Dendreon: Thinking Strategically Ahead of the FDA Review
Stocks/ETFs to watch: Dendreon Corp. (DNDN). Competitors: Sanofi-Aventis [ADR] (SNY), Biomira Inc. (OTCPK:BIOM), Cell Genesys, Inc. (CEGE)
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