Wall Street Breakfast

by: SA Editors
SA Editors
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MACRO AND HOUSING

Tyco Misses on Breakup Charges

Tyco International said Tuesday morning its Q2 net income dropped 6.7%, falling short of analyst expectations. The diversified conglomerate said net earnings were $835 million ($0.41/share), down from $895 million ($0.43) a year ago. Analysts were expecting $0.47. Tyco took a $0.05/share charge for breakup costs and a $0.02/share charge for restructuring. Sales revenue was up 7% to $10.8 billion on strong Europe and Asia growth. Tyco runs four business segments: Electronics, Fire & Security, Healthcare and Engineered Products & Services. The Electronics and Engineered Products unit saw better-than-expected Q2 growth, it said. Tyco expects 5.5-6.5% Q3 sales growth and 3.5-4.5% organic revenue growth. Tyco International bondholders rejected Monday the company's offer to buy back $6.6 billion of debt securities, which will likely make it Tyco International 08 05 2007 Charteven more expensive for the company to split up. CEO Ed Breen filed in January to split the company into three in an effort to boost share prices. The company plans to spin off its electronics and health-care units to shareholders, while Breen will run the remaining company including ADT security, fire equipment and services, and industrial valves. Shares are up 14.8% over the last year.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Pre-Spinoff Tyco Is A BuyTyco: Breaking Up and Taking OffTyco Shaping Up: Let the Contrarian Investors Rejoice!
Stocks/ETFs to watch: Tyco International Ltd. (NYSE:TYC). Competitors: Honeywell International Inc. (NYSE:HON), Johnson & Johnson (NYSE:JNJ), United Technologies Corp. (NYSE:UTX), Molex Inc. (NASDAQ:MOLX). ETFs: PowerShares Industrial ETF (PRFN), Vanguard Industrials ETF (NYSEARCA:VIS), iShares S&P Global Industrial ETF (NYSEARCA:EXI)

TECHNOLOGY

Icahn Fails to Win Motorola Board Seat - Preliminary Report

Carl Icahn has not been elected to the Motorola board of directors, the company reported after its annual shareholder meeting Monday. The results are preliminary, but their quick release suggests a clear majority voted down Icahn's candidacy. Three or four mutual funds with large holdings apparently gave their backing to CEO Ed Zander, who released a statement after the meeting reiterating management's focus on "executing our plan to improve the performance of our mobile devices business." Next Tuesday, Motorola will unveil new devices based on 3G mobile and Java technologies. Icahn, who holds an approximate 3% stake in Motorola, says he does not plan to sell his shares. "It's a very, very good investment," he said. "It's just a question of do they have good enough management to carry it home." Icahn indicated he was somewhat miffed by management's objections to his taking a seat on the board. "There's no reason they shouldn't have welcomed me with open arms," he said to an amused assembly. "I mean, heck, I'm a nice guy." Some believe Motorola's board has not seen the last of Icahn. " Asset management firm president Tom McIntyre: "Icahn trumpeted quite loudly that the second-half story Ed Zander has been talking about had better prevail or he'll be back with a vengeance."
Sources: Wall Street Journal, Reuters, MoneyCentral
Commentary: Motorola: More's Wrong Than Icahn Can Fix - Barron'sIcahn Publishes Open Letter in Bid for Motorola Board Seat; CEO Zander RespondsProxy Firms Divided on Icahn Board Seat at Motorola
Stocks/ETFs to watch: Motorola, Inc. (MOT). Competitors: LM Ericsson Telephone Co. (NASDAQ:ERIC), Nokia Corp. (NYSE:NOK). ETFs: Broadband HOLDRs (NYSE:BDH), Wireless HOLDRs (NYSEARCA:WMH), PowerShares FTSE RAFI Telecom & Tech (PRFQ)
Conference call transcripts: Q1 2007

INTERNET

News Corp. Closes In on Photobucket

Fox Interactive Media, a subsidiary of News Corp., has signed a preliminary deal to buy web image and video uploading site Photobucket for $250-300 million. An unnamed source stresses that the deal is not yet final and could still fall apart. The deal comes on the heels of a recent dispute between News Corp.-owned MySpace and Photobucket, which saw MySpace block Photobucket from its member pages for a week over an advertising dispute. Viewed as somewhat of a challenger to MySpace traffic by News Corp., MySpace members frequently use Photobucket to store video and pictures for upload. After Google and Yahoo, MySpace users are most likely to leave the social networking site to log on to Photobucket. In March, Photobucket saw 14.2 million unique visitors, more than double the traffic of Kodak.com. This story was first broken Monday by Silicon Valley blog Valleywag.
Sources: Wall Street Journal, New York Times, Valleywag, Red Herring, Tech Crunch, CNet
Commentary: Why News Corp Should Monetize the MySpace ParasitesNews Corp's MySpace Continues to Dominate the Social Networking IndustryOld Media, New School Social Networking: It Could Work
Stocks/ETFs to watch: News Corp. (NASDAQ:NWS). Competitors: Eastman Kodak Company (EK), Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), Time Warner (NYSE:TWX). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS), Vanguard Consumer Discretionary (NYSEARCA:VCR)
Conference call transcripts: News Corporation F2Q07 (Qtr End 12/31/06) Earnings Call Transcript
Related: Photobucket.comMySpace

MEDIA

Reuters, Thomson Confirm They Are Negotiating $17.5 Billion Deal

Canadian financial data company Thomson Corp. is in negotiations to buy Reuters Group plc for ?8.77 billion ($17.5 billion), the two companies confirmed Tuesday. The combination would create the biggest news and financial data company in the world. Thomson plans to offer 352.5 pence in cash and 0.16 Thomson share for each Reuters share. That offer values each Reuters share at 697 pence, a 13% premium to the May 4 closing price. Reuters shares gained 7% to 659 pence after the joint statement was released; they surged a record 25% on May 4, when news broke of a possible takeover. Thomson-Reuters will be run by Reuters CEO Tom Glocer; Thomson CEO Richard Harrington plans to retire when the acquisition is completed. The two companies are expected to have total combined sales of about $11 billion. Reuters would increase Thomson's share of the financial data market to 34% from 11%, bringing it ahead of rival Bloomberg's 33% share. Thomson and Reuters expect combined savings of $500 million within three years. Thomson, Reuters and Bloomberg compete with Dow Jones, which itself received a received a $5 billion takeover offer from Rupert Murdoch's News Corp. on May 1.
Sources: MoneyCentral, Bloomberg, Reuters
Commentary: Thomson/Reuters Merger Would Face Shareholder ObstacleThomson and Reuters: Seeking The 'Smart Pipe' of Financial ContentReuters Merger Speculation: Thomson, News Corp Possible Suitors
Stocks/ETFs to watch: Reuters Group plc [ADR] (RTRSY), The Thomson Corporation (TOC). Competitors: Dow Jones & Co. Inc. (DJ), FactSet Research Systems (NYSE:FDS), The New York Times Co. (NYSE:NYT), News Corp. (NWS)

RETAIL

Wal-Mart Eyes Gottschalks -- Report

Retailing giant Wal-Mart might be considering acquiring the Gottschalks chain of department stores in order to boost its California presence, according to a report in trade magazine Women's Wear Daily [WWD]. Gottschalks shares rose about 4% to $13.94 in midday trading Monday after the report. The publication claims a Gottschalks prospectus has been sent by investment bank UBS to several prospective suitors, including Wal-Mart. Opening bids are reportedly expected in June. Neither Gottschalks nor Wal-Mart has commented on the speculation. In March, Gottschalks reported an approximately 50% drop in 2006 profit to $2.6 million ($0.19/share) on revenue of $683.9 million. WWD claims Wal-Mart will have competition from British grocery chain Tesco, which is planning to expand into the U.S., and Dubai investment firm Istithmar, which is said to be interested in Gottschalks.
Sources: Women's Wear Daily, Reuters, Forbes
Commentary: Tracking Money Flow in Consumer Staples StocksJoel Greenblatt: Buys, Sells, PortfolioOutlooks for Select S&P Dividend Aristocrats
Stocks/ETFs to watch: Wal-Mart Stores Inc. (NYSE:WMT), Gottschalks Inc. (GOT), Tesco plc [ADR] (OTCPK:TSCDY). Competitors: TJX Companies Inc. (NYSE:TJX), Target Corp. (NYSE:TGT), Costco Wholesale Corp. (NASDAQ:COST). ETFs: iShares S&P Global Consumer Staples (NYSEARCA:KXI), Market 2000 HOLDRs (NYSEARCA:MKH)
Conference call transcripts: Wal-Mart F4Q07 (Qtr End 1/31/07)

Sotheby's Posts Earnings Surprise in 'Traditional Loss Quarter'

In what it is heralding as its "strongest first quarter results in its history in a traditional loss quarter," Sotheby's reported net earnings of $24.3 million, versus a loss in the prior-year period, on strong London contemporary art sales.bid Revenue was $147 million, up 54% vs. the prior-year period. EPS was $0.37. Excluding one-time items, EPS was $0.25, way ahead of Thomson Financial consensus analyst estimates of $0.06 on sales of $133.4 million. The company declared a regular quarterly dividend of $0.10, to be paid to shareholders of record on May 31. Looking forward, the company expects strong sales in the second quarter. It did not give specific guidance due to the nature of the auction business. Shares rose $2.11, or 4.22%, to $52.11 in regular trading Monday, after earnings were announced.
Sources: Press Release, Bloomberg, MarketWatch, Reuters, AP
Commentary: Sotheby's May Impressionist Auction Could Bid Up The StockSotheby's Wishful Infeasability: "All Art Deals With the Absurd"Cramer's Take on BID
Stocks/ETFs to watch: Sotheby's (NYSE:BID)
Related: Sotheby's Investor Relations

Macau Resort Leads Wynn to Earnings Beat

Wynn Resorts reported first-quarter earnings after Monday's close that topped consensus estimates handily. Wynn's new Macau resort, which opened in September, provided a big boost to revenue as well as the bottom line.wynn Shares climbed $2.82 (2.77%) to $104.67 in after-hours trading. Wynn posted first quarter net earnings, excluding one-time items, of $72.6 million ($0.67/share) vs. EPS of just $0.03 a year ago. Last year's results don't include the Wynn Macau which was not yet open. Revenue jumped to $635.3 million from $277.2 million. Consensus estimates were for EPS of $0.55 on revenue of $550 million. Wynn Macau's revenue came in at $304.6 million. Gambling revenue at the Wynn Las Vegas was $173.1 million, a 37% rise. The company said its table win percentage (27.6%) was above the expected range of 20%-23%, and exceeded the 19.8% for the first quarter of 2006. Non-casino revenue edged up 1.7% to $195.2 million.
Sources: Press Release, Bloomberg, TheStreet.com, MartketWatch, AP
Commentary: Wynn Resorts Leveraging Two Key Gaming ThemesA Quick Guide to the Major Gambling StocksCramer's Take on WYNN
Stocks/ETFs to watch: Wynn Resorts, Limited (NASDAQ:WYNN). Competitors: Las Vegas Sands (NYSE:LVS), Trump Entertainment Resorts Inc. (TRMP), MGM Mirage (NYSE:MGM), Harrah's Entertainment Inc. (HET)
Related: WYNN Investor Relations

ENERGY AND MATERIALS

McDermott Posts Tripling of Q1 Profit; Shares Rise

Shares of McDermott International surged almost 11% to $65.30 in AH trading Monday after the company reported a near-tripling of Q1 profit on the performance of its Babcock & Wilcox subsidiary and rising demand from the offshore oil industry. Q1 net income came in at $158.1 million ($1.38/share), up from $55.3 million ($0.49) a year ago. Revenue was $1.36 billion against $644.9 million last year. Analysts were expecting Q1 EPS of $0.75 on revenue of $1.27 billion. Operating income reached $192.5 million from $67.7 million. The strong performance was attributable primarily to revenue from Babcock & Wilcox, which came out of bankruptcy in Q1 last year. That unit brought in $655.4 million in revenue this quarter against $189 million in the year-ago quarter (when only one month's worth of results were reported). Babcock & Wilcox, a manufacturer of power generation systems, was in Chapter 11 for about six months while it addressed costs from asbestos liability. McDermott's oil and gas construction services segment, meanwhile, enjoyed an 86% rise in revenue to $550.3 million from $295.4 million last year.
Sources: Press release, MarketWatch, Forbes
Commentary: McDermott International: An Inexpensive Energy Play - Barron'sJim Cramer's Mad Money In-Depth Stock Picks, May 4Building a Climate Change Portfolio
Stocks/ETFs to watch: McDermott International (NYSE:MDR). Competitors: Global Industries Ltd. (NASDAQ:GLBL), NRG Energy Inc. (NYSE:NRG). ETFs: Utilities SPDR ETF (NYSEARCA:XLU), HOLDRS Utilities (NYSEARCA:UTH), iShares Dow Jones US Utilities Index (NYSEARCA:IDU)

FINANCIAL

Amex Patent Paves the Way for Actively Traded ETFs

American Stock Exchange CEO Neal Wolkoff said Monday the Amex now has patents that will enable the launch of the first truly actively managed ETFs -- which he expects to see within the year. To date, almost all of the nearly 500 U.S. publicly traded ETFs replicate an index of securities that is reconstituted periodically. There is no ETF that changes its positions as frequently as daily. Traditional mutual funds are rebalanced daily, but only priced once a day -- at which point the manager buys and sells shares in its active issues to maintain the fund's balance. An up-to-date list of mutual fund holdings is considered confidential. ETFs trade and fluctuate throughout the day. The novelty of the new software is that it enables ETF managers to publish their fund's value intraday, while keeping its asset-mix under wraps. Wolkoff said the Amex already has one 'committed issuer' lined up to open an actively managed ETF, and said others are exploring the idea. "We think there will be a lot of investor demand," Wolkoff said. "The Amex will be able to earn revenue whether we're the transaction venue or not."
Sources: Reuters
Commentary: Vanguard Files For Actively Managed Fixed Income ETFVanguard Could Be First To Offer Actively Managed ETFIn Search of an Actively Managed ETF : Does it Already Exist?
Stocks/ETFs to watch: State Street Corp. (NYSE:STT), WisdomTree Investments Inc. (WSDT.PK), Amvescap plc (AVZ), Barclays plc (NYSE:BCS), Merrill Lynch & Co. Inc. (MER), Bank of New York Company Inc. (NYSE:BK) [ETF issuers]

Debt Trading Drives Deutsche Bank Earnings Beat, But Shares Trading Lower

Deutsche Bank reported Q1 net income increased 30% to €2.12 billion ($2.89 billion), beating analysts' average and highest estimates, as revenues rose 20% to €9.6b, topping analysts' forecast of €8.6b. Revenues from fixed income sales and trading climbed 20% to €3.4b, also beating estimates. A J.P. Morgan analyst said the division deserved "congratulations" and called it "the number one fixed house." Deutsche-Bank-DB-chart-05-07-07 An asset manager at ABN Amro said, "Conditions for investment banking are almost perfect -- the good conditions that we saw in the first quarter are continuing in the second." In early trading in Frankfurt however, shares were down 1.2%, blamed by one analyst on its "lower-than-expected profits in the non-investment banking divisions" which, he said, "take some shine off the very strong investment banking results." Shares hit a new all-time high Monday in NYSE trading. Overall investment banking revenues rose 16% to €5.1b, origination and advisory revenues both increased double digits, but private client and asset management sales were up a modest 3%.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Top 15 Creditors to New CenturySay Ach Ya To Germany: A Global PowerhouseDeutsche vs. Citi: A Study in Wall Street Cultures
Stocks/ETFs to watch: Deutsche Bank AG (NYSE:DB). Competitors: Citigroup Inc. (NYSE:C), Credit Suisse Group (NYSE:CS), UBS AG (NYSE:UBS). ETFs: iShares MSCI Germany Index (NYSEARCA:EWG)

Liberty Mutual to Buy Ohio Casualty for $2.7 Billion

Business insurer Liberty Mutual Group has agreed to purchase Ohio Casualty Corp. for $2.7 billion in cash, or $44 per share. The price represents a 32% premium to the shares' Friday close of $33.32. The transaction, which Liberty Mutual will finance through cash on hand and short-term debt, is expected to close in Q3. In 2006, Liberty Mutual sold policies worth $5.9 billion through independent agents and Ohio Casualty $1.4 billion. Edmund F. Kelly, president and CEO of Liberty Mutual, said the company will pursue other acquisition opportunities -- particularly abroad, where the company now generates 20% of its business. Liberty will fold Ohio Casualty into its Agency Markets unit, a network of 11 companies that sells insurance regionally through independent agents. Ohio Casualty will give Liberty Mutual's agent relationships an increase of about one-third to almost 10,000. "Ohio Casualty has done a tremendous job building up very strong relationships with their 3,400 agencies,'' said a Liberty spokesman. "That's the value that they bring.''
Sources: MarketWatch, Wall Street Journal, Bloomberg
Commentary: 1Q07 Insurance Earnings: What's Working, What's Not (Part V)1Q07 Insurance Earnings: What's Working, What's Not (Part IV)
Stocks/ETFs to watch: Ohio Casualty Corp. (OCAS). Competitors: Allstate Corp. (NYSE:ALL), The Travelers Companies, Inc. (NYSE:TRV). ETFs: streetTRACKS KBW Insurance (NYSEARCA:KIE), PowerShares Dynamic Insurance Portfolio ETF (NYSEARCA:PIC), iShares Dow Jones U.S. Insurance (NYSEARCA:IAK)

HEALTHCARE/BIOTECH

Medtronic, J&J Announce Alliance in Cardiac Arrhythmias

Medtronic and Johnson & Johnson's Biosense Webster have formed a strategic alliance for collaboration on a clinical trial, educational initiatives and a product development program in the area of cardiac arrhythmias (irregular heartbeats). Financial terms of the agreement were not released, but both parties will share costs. Medtronic and J&J are looking to integrate their know-how and technologies [J&J: imaging and navigation; Medtronic: diagnostics and monitoring] from different cardiology markets, with a particular focus on ablation, a treatment option for patients with a common type of arrhythmia. The Wall Street Journal reports St. Jude Medical is a "big player" in ablation and it also competes against Medtronic in pacemakers and defibrillators. The Journal mentions J&J's previous ambitions to acquire such products through its failed acquisition of Guidant Corp., which is now owned by Boston Scientific. Shares of J&J lost 0.3% to $64.26 in normal trading Monday, while Medtronic traded slightly lower, 0.06% to $53.66.
Sources: Medtronic-MDT-chart-05-07-07 JNJ-chart-05-07-07 Press release, The Wall Street Journal
Commentary: J&J Stent Fails Clinical Trial; BSX Shares Jump32 Big Dividend Payers: Buy Now, Profit LaterTracking Money Flow in Healthcare Stocks
Stocks/ETFs to watch: Johnson & Johnson (JNJ), Medtronic (NYSE:MDT). Competitors: Boston Scientific (NYSE:BSX), St. Jude Medical (NYSE:STJ). ETFs: DIAMONDS Trust, Series 1 (NYSEARCA:DIA), Pharmaceutical HOLDRs (NYSEARCA:PPH), Health Care Select Sector SPDR (NYSEARCA:XLV), iShares Dow Jones US Healthcare (NYSEARCA:IYH), iShares S&P Global Healthcare (NYSEARCA:IXJ)

WellCare Shares Surge on 49% Q1 Profit Rise; Company Ups Guidance

Shares of managed care provider WellCare Health Plans gained 8.7% to $90 in AH trading Monday after the company posted a 49% rise in Q1 profit on the back of strong membership growth in Medicare and Medicaid. WellCcare posted earnings of $25 million ($0.60/share) versus $16.8 million ($0.42) in the a year-ago period. Revenue was up 70% to $1.24 billion from $730.4 million the year before. Analysts were expecting EPS of $0.56 on revenue of $1.2 billion. WellCare is projecting Q2 EPS of $1.20-1.25 on revenue of $1.3 billion. The company has raised its full-year 2007 revenue forecast to $5.2 billion from $4.95 billion and its full-year EPS forecast to $4.65-4.75 from $4.10-4.20. Medicaid membership was up 53% to 1.17 billion and Medicare's was up 42% to 1.1 billion. WellCare gained 445 million new members in Georgia and 33 million new members in Ohio after the introduction of new programs that offset losses in membership in Florida and Indiana.
Sources: MarketWatch, MoneyCentral, Forbes, Reuters
Commentary: WellCare Health Plans' Day of Reckoning May Have ArrivedJim Cramer's Mad Money Lightning Round Picks, May 1
Stocks/ETFs to watch: WellCare Health Plans, Inc. (NYSE:WCG). Competitors: AMERIGROUP Corp. (AGP), Centene Corp. (NYSE:CNC), Coventry Health Care Inc. (CVH). ETFs: PowerShares Dynamic Healthcare Services (PTJ), PowerShares Dynamic Aggressive Growth (NYSE:PGZ), PowerShares Dynamic MagniQuant (NYSEARCA:PIQ)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: John Hussman: Avoid Being the Greatest Fool
Housing: Housing Bubble and Real Estate Market Tracker
Long Idea: Goldman: BlackBerry Curve is a Palm Killer, RIM's A Buy
Short Idea: Uranium Energy: Corporate Credibility in Serious Doubt
Internet: Google: Caveat Emptor
Telecom: AT&T's Lightspeed: The Price of Mediocrity Just Went Up
Networking: Sell-Side Research On Nortel
Hardware: Dell-RadioShack Merger? I'm Not Holding My Breath
Software: Seven Challenges Red Hat Faces to Remain Open Source's Finest
Gadgets: Motorola: Hard to See Downside After Icahn's Failed Board Move
Media: Cable Providers Continue To Balk At 'A La Carte' Offering
Healthcare: Is USANA Health Sciences a Fraud?
Biotech: Using Options to Capture Dendreon's Volatility
Retail: Reddy Ice: Aging Company Could Be Headed for the Deep Freeze
Transport: Wabash National Corporation: Washed Out or Hidden Upside?
Gold: Crystallex: Promotion, Politics and Permits
Energy: Chesapeake Energy: Value is the Gas in the Ground
Utility: Eye on GrafTech International
Financial: 130/30 Funds: More Asset Gathering Than Alpha Generation
Asia: US Investors Not Feeling the Chinese Stock Market Sizzle
ETFs: Can ETF Options Offer Cheap Leverage to Reliably Boost Returns?
Hedge Funds: A Closer Look At the Fed Hedge Fund Risk Report
Sound Money Tips: Figure Out Just Where The Time Goes
Jim Cramer: Latest stock picks
Earnings Transcripts: ShengdaTech Q1 2007Regent Communications Q1 2007American Oriental Bioengineering Q1 2007Blue Nile Q1 2007
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