Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: +1.80; 1,494.50
NASDAQ 100: +1.00; 1,886.75
Dow: +12.00; 13,190.00
NIKKEI 225: +0.69%; 17,394.92 (+119.94)
HANG SENG: +0.34%; 20,388.49 (+69.51)
S&P/ASX 200: +1.50%; 6,237.70 (+91.90)
FTSE 100: +0.44%; 6,447.90 (+28.30)
CAC 40: +0.28%; 5,976.98 (+16.94)
XETRA-DAX: +0.40%; 7,438.42 (+29.55)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.03%; $64.38 (-$0.02)
Gold: -0.55%; $673.60 (-$3.70)
Natural Gas: 0.34%; $7.74 (+$0.03)
Silver: -1.27%; $13.20 (-$0.17)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Job Growth Slows to Weakest Rate in Four Years -- ADP
Private sector jobs increased by only 64,000 in April, their weakest growth in four years, according to Wednesday's ADP employment report. Service firms added 106,00 jobs, goods producers cut 42,000, and small businesses created 45,000 jobs. The ADP report is designed to predict the monthly nonfarm payrolls report released by the Labor Department on Friday, except that while nonfarms jobs include government jobs, ADP's number does not. Assuming an average 24,000 government jobs added, the report predicts job growth of 90,000, lower than the 100,000 currently forecasted by economists.
Sources: ADP report, MarketWatch
Commentary: A Closer Look at the Recent Labor Report • Economic Report Summary: Growth Slowdown Finally Arrives
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Time Warner Net Falls 18%, Adjusted EPS Beats; TWC Net +16%, Beats
Time Warner's Q1 net income fell 18% to $1.2 billion, or $0.31/share, but adjusted EPS of $0.22 topped the Street's estimate of $0.20. Sales rose 9% to $11.2b, in-line with expectations. Time Warner Cable reported earnings for the first time as a public company. Q1 net income increased 16.5% to $276m, or $0.28/share, beating the Street ($0.25), but a 61% rise in revenues to $3.85b, missed analysts' average estimate of $3.92b. An S&P analyst pointed to difficult comparisons in Time Warner's film segment, but noted, "The highlights of the quarter were the cable unit and AOL, which seems to be on track with the new strategy." AOL's profit rose 27% to $542m, on a 40% increase in advertising revenue, despite a 25% decline in sales due to its decision to offer certain services free of charge. Shares of Time Warner lost 0.2% to $20.59 in normal trading, while Time Warner Cable lost 1.6% to $36.22. In pre-market activity, Time Warner last traded at $20.95 (+1.75%) on thin volume just over 5,000 shares, and Time Warner Cable was up 0.8% to $36.50 on volume of only 600.
Sources: Earnings press release (i, ii) [pdf], Business Outlook press release (i, i) [pdf], Bloomberg (i, ii), MarketWatch (i, ii), Reuters
Commentary: Time Warner Mulls Its Options With Future of Cable Stake- WSJ • The Irony! Time Warner Considers Selling Cable To Focus On Internet • Time Warner Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Time Warner (NYSE:TWX), Time Warner Cable (TWC). Competitors: News Corp. (NASDAQ:NWS), Viacom, Inc. (NYSE:VIA), Comcast Corporation (NASDAQ:CMCSA), DIRECTV Group, Inc. (DTV), Cablevision Systems Corporation (NYSE:CVC), EchoStar Communications (NASDAQ:DISH). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS), PowerShares Dynamic Leisure & Entertainment (NYSEARCA:PEJ)
Sprint Misses Estimates, Loses Monthly Subscribers To Competitors
Sprint Nextel Corp. reported a first-quarter loss, missing consensus analyst estimates. Net income was negative $211 million, good for EPS of minus $0.07, versus net income of $419 million (EPS of $0.14) in the prior year period. On an adjusted basis, the company was just below breakeven posting a loss of $19 million. Adjusted earnings before amortization came out to 18 cents a share on revenue of $10.1 billion, flat y/y. Thomson Financial consensus estimates called for EPS of $0.22 cents on revenue of $10.31 billion. Though Sprint reported a net addition of 568,000 net new customers in the quarter, it lost 220,000 monthly subscribers, mainly to competitors AT&T and Verizon. Sprint's total customer base now stands at 53.6 million, up 10% from last year. The company reiterated its outlook for FY revenue of $41 billion - $42 billion in 2007 and capital spending of $7.2 billion.
Sources: Press Release, Bloomberg, Wall Street Journal, MarketWatch [check back later today for Sprint's conference call transcript]
Commentary: Sprint/Nextel: The Next Data Wireless Kings? • Activist Investor Ralph Whitworth Takes $500 Million Sprint Stake, Pushes for Change -- WSJ • Bottom-Fishers, Beware: Sprint/Nextel Could Remain a Value Trap
Stocks/ETFs to watch: Sprint Nextel (NYSE:S). Competitors: Verizon (NYSE:VZ), AT&T (NYSE:T), Qwest Communications (NYSE:Q). ETFs: PowerShares Dynamic Telecom & Wireless ETF (PTE), HOLDRS Wireless (NYSEARCA:WMH)
Conference call transcripts: Sprint Nextel Q4 2006 Earnings Call Transcript
Related: Sprint Investor Relations
MasterCard Shares Up on Earnings/Revenue Beat
MasterCard Inc., the #2 U.S. credit card company, said Q1 earnings were up 70% on a 19% jump in the number of transactions -- both profit and revenue were well in excess of analyst expectations. EPS were $1.57 ($215 million), vs. $0.94 ($126.7 million) a year ago; Wall Street estimated $1.16. It was the highest earnings quarter in the company's history. Revenue was $915.1 million, vs. $738.5 million last year; analyst estimates were $842 million. Gross dollar volume of transactions was up 16.4%. The company said growth in the South Asia/Middle East/Africa and Latin America regions was particularly strong. Total operating expenses climbed 8.2% as the company hired more staff to handle customers, while advertising and marketing expenses came down 2.3%. Timothy Willi of A.G. Edwards said, "We are bullish on the long-term prospects for MasterCard... Consumers, businesses and government are making cards their preferred method of payment... During the past 10 years, card-based payments have aggressively displaced paper." Shares have tripled since the company went public a year ago. Shares climbed 6.8% in the pre-market to $122.68.
Sources: Press release, MarketWatch, Bloomberg
Commentary: MasterCard's Story Continues To Impress • A Forensic Accountant's Winners and Losers from Pending Litigation • Mastercard: Better To Sell Early
Stocks/ETFs to watch: MasterCard Inc. (NYSE:MA). Competitors: American Express Company (NYSE:AXP)
Citi to Acquire BISYS for $1.47B, Eyes Expanded Investor Services Platform
Citigroup has agreed to acquire BISYS Group, a provider of outsourcing solutions to the financial services sector, for $1.47 billion in cash, or $11.85/share, which is a 3.3% premium to its Tuesday close of $11.47. Citi will pay a $0.15/share dividend when the transaction is completed. In addition, it will sell BYSYS's retirement and insurance services division to buyout firm J.C. Flowers, resulting in a net acquisition cost of $800m. Citi plans to combine BYSYS's Fund Services and Alternative Investment Services units, which service mutual funds, hedge funds, private equity and the like, with its own operations. Citi's Co-President of Markets and Banking said the firms are a "great fit," commenting how "BISYS's Investment Services division propels Citi into a market leading position in hedge fund administration and mutual fund servicing, and integrating it into Citi’s global network will extend our full service client platform ...." The deal is expected to close in the second half of this year, subject to BISYS shareholder and various regulatory approvals. Citi said it is expected to be neutral to EPS in the first year and accretive thereafter. BISYS last traded at $11.90 (+3.75%) in pre-market activity and Citi was up 0.5% over Tuesday's close at $54.49.
Sources: Press release (i, ii), Bloomberg, The Wall Street Journal
Commentary: Citigroup Execs Fear Activist Hedge Fund Targeting • Citigroup Executives Resist Calls for Breakup • Bisys Group: Okumus Discloses 10.4% Stake, Seeks Seat on Board
Stocks/ETFs to watch: Citigroup (NYSE:C), The BISYS Group (BSG). Competitors: SEI Investments (NASDAQ:SEIC), Electronic Data Systems (NASDAQ:EDS), State Street (NYSE:STT), Bank of America (NYSE:BAC), JP Morgan Chase (NYSE:JPM), HSBC (HBC). ETFs: DIAMONDS Trust, Series 1 (DIA), iShares Dow Jones US Financial Services (NYSEARCA:IYG), Financial Select Sector SPDR (NYSEARCA:XLF), KBW Bank ETF (NYSEARCA:KBE)
Conference call transcripts: Citigroup Q1 2007
Cognizant Sees 60% Quarterly Profit Rise; Shares Jump
Cognizant Technology posted a 60% rise in Q1 net income and a 61% increase in revenue on the strong performance of its low-cost software development services in India.Q1 profit rose to $75.4 million ($0.50/share) from $47.2 million ($0.32) a year earlier. Revenue soared to $460.3 million from $285.5 million on healthy growth in Europe. Adjusted EPS reached $0.54. Analysts had forecast EPS of $0.48. Cognizant is forecasting Q2 revenue of at least $500 million and adjusted EPS of $0.56. Fiscal full-year revenue is forecast to be at least $2.07 billion and adjusted EPS are projected at $2.34. Shares rose $2.51, or 2.84%, to $90.98 in pre-market action.
Sources: Press release, Reuters, MarketWatch
Commentary: Cognizant Cited as Top North American Application Outsourcing Provider • Visa Cap Issues Offer Excuse for Indian Outsourcing Stocks To Pull Back
Stocks/ETFs to watch: Cognizant Technology Solutions Corp. (NASDAQ:CTSH). Competitors: Infosys (NASDAQ:INFY), Wipro (NYSE:WIT), Satyam Computer Services (SAY). ETFs: India Fund (NYSE:IFN), Morgan Stanley India Investment (NYSE:IIF)
Conference call transcripts: Q4 2006
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday the market opened slightly higher but then gave way to modest selling, as the morning's economic reports didn't seem to be compatible with the extraordinary earnings of the past couple of weeks.
One problem was the Institute for Supply Management's report, which showed a bounce up to 54.7% in April from 50.9% in March, while 51% was expected. To market-watchers, that sounded a bit inflationary.
Then the National Association of Realtors reported that its index of pending home sales fell by 4.9% in March and that April didn't look so hot, either. Both Ford (NYSE:F) and General Motors (NYSE:GM) said that April sales were in the tank (Ford's were off by 14%), and the "S" word -- stagflation (i.e., stagnant economic growth plus inflation) -- was uttered across the trading floors.
All was not lost, however, as excitement about News Corp.'s unsolicited offer for Dow Jones & Co. created a stir, and Microsoft (NASDAQ:MSFT) made news by floating a story that it might be interested in making an offer for 24/7 Real Media (TFSM). Real Media's stock reacted by jumping more than $2 for a 20%-plus gain.
Well that's all pretty exciting stuff, and following a nasty beginning to the week, buyers liked what they saw. And so, Monday's selling was at least temporarily forgotten as the Dow Industrials gained 73 points to close at 13,136 and the S&P 500 added four at 1,486, but the Nasdaq only erased about a fifth of Monday's losses by gaining just six points Tuesday to close at 2,532. Volume on the NYSE was 1.7 billion shares, and 2.4 billion shares traded on the Nasdaq. Breadth averaged about 8-to-7 on both exchanges.
The June crude oil contract was a major contributor to the stock market's gains as it dropped by $1.31 to $64.40 a barrel, but the Amex Energy SPDR (NYSEARCA:XLE) gained 23 cents and closed at $63.65. Monday's reversal (i.e., down) is still in effect, so the next support for the XLE is at about $62.
Gold (June contract) fell again -- this time by $6.20 to $677.30 per troy ounce -- and the Philly Gold and Silver Index [XAU] lost 78 cents. But the stochastic on the XAU is now at an oversold level not seen since September, so a trading bounce seems likely. But to get any more than that, the index is going to have to mount a charge against the 200-day moving average, now at $138.11, and close conclusively above it.
What the Markets Are Saying
Can the market move ahead without two of its leaders that provided stability in the big stock run-up since July of last year? I'm talking about the Dow Jones Utility Average and the Dow Transportation Average.
The Transportation Average has taken on an ominous double-top at the 5,225 area, which is confirmed by its internal indicators, but it does have support at several levels not far from the current price of 5,084. The first support is at 4,952 (the 50-day moving average) and then at the double-bottom at 4,688, which also coincides with the 200-day moving average.
The Dow Utility Average executed a Key Reversal Day on April 26 (i.e., a new high was made but the close was lower than the prior day's). The next support is almost at yesterday's low of 518, which is exactly at its 20-day moving average.
The other key index (and my favorite) is the NYSE Composite, which closed yesterday at 9,640, up 12 points, after turning up from its 20-day moving average; its next support is at the breakout double-top at 9,450.
These are some numbers on key indexes that we'll be watching as we try to figure out what the next direction for the market will be. The important thing now, though, is to not try to anticipate but to instead let the market tell you its direction.
Today's Trading Landscape
There are two important reports today -- the 10 a.m. factory orders report, which is expected to be up by 2.2%, and 30 minutes after that we'll get the Energy Department's report on oil stocks. The next significant report is Friday's jobless rate.
Also, look for earnings from Allergan (NYSE:AGN), Alvarion (NASDAQ:ALVR), Applebee's (APPB), Andersons (NASDAQ:ANDE), Barrick Gold (NYSE:ABX), Hecla Mining (NYSE:HL), PrimeWest Energy (NASDAQ:PWI), Sunoco (NYSE:SUN), Superior Energy (NYSE:SPN), Symantec (NASDAQ:SYMC), Transocean (NYSE:RIG) and VeriSign (NASDAQ:VRSN), among others. This morning, Time Warner (TWX) (read above) beat earnings forecasts by 2 cents, and Teva Pharmaceutical (NASDAQ:TEVA) also beat estimates by 2 cents.
In Asia today, stocks are strong. And if factory orders come in close to the forecast, look for the attention to shift again to earnings and for another possibly strong day for stocks.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Gain, Led by BHP Billiton on Metals Demand; Toyota Declines Asian stocks rose for the first time in four days, led by BHP Billiton Ltd. (NYSE:BHP) and Sumitomo Metal Mining Co. after the price of metals gained.
• Hyundai Motor's Profit Unexpectedly Falls for Fifth Quarter on Sales Slump Hyundai Motor Co., South Korea's biggest automaker, reported an unexpected fifth straight drop in profit as a stronger won compounded a slump in sales of Sonata sedans and Tucson sport-utility vehicles.
• Fujitsu Offers $569 Million for GFI of France to Expand Business in Europe Fujitsu Ltd. (OTCPK:FJTSY), Japan's second-biggest personal computer maker, offered to buy France's GFI Informatique SA for 419 million euros ($569 million) to add clients such as Vodafone Group Plc (NASDAQ:VOD) and trim a reliance on its domestic market.
• Aiful, Japan Consumer Lenders Report $14 Billion Loss on Refund Provisions Aiful Corp., Japan's largest consumer lender by assets, and its three nearest rivals had a combined $14 billion loss last year as demands for interest refunds forced them to add more to provisions than analysts expected.
• Coates Hire Shares Rise After Buyout Approach; Value Jumps to $1.4 Billion Shares of Coates Hire Ltd. rose the most in more than five years after Australia's largest machinery rental company said it's been approached by buyout firms.
European Headlines (via Bloomberg.com)
• Stocks in Europe Rise, Led by BSkyB, Novo Nordisk; Publisher Shares Climb European stocks gained after British Sky Broadcasting Group Plc (BSY) and Novo Nordisk A/S (NYSE:NVO) reported earnings that topped analysts' estimates and News Corp.'s (NWS) bid for Dow Jones & Co. (DJ) fueled speculation of takeovers among publishers.
• BSkyB Profit Tops Estimates as Broadband Internet Attracts New Subscribers British Sky Broadcasting Group Plc (BSY), the satellite pay-TV company chaired by Rupert Murdoch, posted better-than-anticipated third-quarter profit as broadband Internet clients doubled. The stock rose the most in four years.
• Sweden to Sell 8 Percent of TeliaSonera, Worth $2.9 Billion, to Investors Sweden will sell a 19.7 billion-krona ($2.9 billion) stake in telephone company TeliaSonera AB to institutional investors in the new government's first asset sale.
• Allianz First-Quarter Profit Surges 80 Percent on Gains From Asset Sales Allianz SE, Europe's biggest insurer, said first-quarter profit surged 80 percent, boosted by gains from the sale of shareholdings in Germany.