Fed Leaves Target Rate Unchanged, As Expected
The Federal Reserve said Wednesday it would keep its federal funds target at 5.25%, the seventh time in a row it has left the rate at its current level; previously the Fed had hiked rates 17 meetings in a row. In its statement, the Fed said U.S. economic growth "slowed," a departure from March's statement in which it called the economy "mixed." Otherwise the statement was largely unchanged from last month's. The Fed said inflation is still its number one concern, and that it expects moderate growth to continue. Economists were unsurprised by the statement; both the rate pause and little-changed statement had been largely anticipated. Steven Wood of Insight Economics: "The Fed is still on hold and probably will be for months, if not quarters, into the future." U.S. stocks continued their climb following the release, and the Dow Jones Industrial Average closed at yet another record high.
Sources: Press release, MarketWatch, Wall Street Journal
Commentary: Why U.S. Stocks Can Move Higher in 2007 • Market Continues To Be Wrong On Its Fed Expectations • FOMC Statement: Economy "Slowed"
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Microsoft Inks Deals with Lenovo, CareerBuilder
In two separate deals announced Wednesday, Microsoft will acquire a 4% stake in CareerBuilder.com for an undisclosed sum, and will preload Lenovo PCs with its Office suite for a total price of as much as $1.3 billion. In addition, CareerBuilder will pay $443 million over seven years to be the exclusive job listings provider on MSN Careers. CareerBuilder is currently co-owned by newspaper owners McClatchy, Tribune Co. and Gannett. The Lenovo deal comes on the heels of a Chinese government law enacted to crack down on rampant software piracy there. Lenovo became the first PC builder to pre-install Windows on all of its China product lines in November 2005.
Sources: Press Release, Wall Street Journal, Reuters, Seattle PI, Hemscott
Commentary: An Alternative Path For Microsoft • Could MySpace Be A Bigger Threat To Microsoft Than Google? • A Monopoly on Desktop and Internet? Why Microsoft Can't Do Everything
Stocks/ETFs to watch: Microsoft (NASDAQ:MSFT), Lenovo (OTCPK:LNVGY). Competitors: Yahoo (NASDAQ:YHOO), Google (NASDAQ:GOOG), Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN), Software HOLDRS (NYSE:SWH)
Deutsche Telecom Misses Estimates, Faces Worker Strike
Deutsche Telekom AG saw its profit fall 58% as its fixed land line business continued to be hit by cancellations, with customers abandoning the company for cheaper alternatives. Europe's largest phone company saw sales rise 4.1% to €15.45 billion, ahead of analyst expectation for revenue of €15.3 billion, but profit came in well below expectations (€459 million vs. analyst expectations of €743 million). It was the fourth straight quarter of falling net income, as nearly 600,000 land line customers abandoned Deutsche Telecom, up from 500,000 in each quarter last year. The company announced it was selling its Club Internet unit in France, as part of its goal to raise 3 billion euros from asset sales in three years to make up for shrinking German sales. In addition, the company is facing a strike from Germany's ver.di trade union over its plan to cut down on costs by relocating 50,000 employees to new units, and giving them pay cuts.
Sources: Wall Street Journal, Bloomberg, AP, Business Week/Spiegel Online
Commentary: Worldwide Fiber to the Home: Stakeholders And Shareholders • Dutch Telecom Consolidation Likely to Accelerate European M&A • Deutsche Telekom Reports Q4 Loss, More Restructuring Expected
Stocks/ETFs to watch: Deutsche Telekom AG (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)
Conference call transcript: Deutsche Telekom HY 2006 Earnings Conference Call Transcript, Deutsche Telecom Earnings Conference Call Transcript (later today)
Yahoo to Shutter North American Auction Sites
Yahoo will shut down its North American online auction service on June 16, according to a posting on the company's website. The service has been online for almost nine years. The company will retain its auction sites in Hong Kong, Singapore and Taiwan. According to media metrics firm Hitwise, market leader eBay took nearly 85% of U.S. site visits in the auction category in the week ending May 5, 2007 against Yahoo's less than 0.2%. The auction site shutdown follows Yahoo's closure of Yahoo! Photos, a service whose offerings intersected those of Flickr, another photo-sharing site on Yahoo. "Yahoo is continuing to align our resources to focus on core strategic priorities and deliver a superior user experience, and as part of this effort, we are re-prioritizing some products," the company said in its statement. Yahoo suffered an 11% decline in profit in Q1 2007. The shedding of the auction and photo sites is consistent with the recommendations in Yahoo executive Brad Garlinghouse's "Peanut Butter Manifesto," sent to employees by email last November and subsequently leaked to the press, in which he urged the company to dispose of unprofitable or overlapping services that spread Yahoo too thin.
Sources: MoneyCentral, TheStreet.com, Internet News
Commentary: Moo Prints and Yahoo's Flickr To Disrupt Getty Images, Vistaprint? • Yahoo Memo Urges Wake-Up Call: Enough of the "Peanut Butter" Strategy! • Yahoo Cut to Sell Based on Valuation
Stocks/ETFs to watch: Yahoo! Inc. (YHOO). Competitors: eBay Inc. (NASDAQ:EBAY), Google, Inc. (GOOG). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcripts: Q1 2007
Related: Yahoo's "Peanut Butter Manifesto"
24/7 Real Media Loss Narrows but Misses; Hires Lehman, Shares Jump
24/7 Real Media reported a Q1 net loss of $56,000, or breakeven in terms of EPS (vs. -$7.52m, or -$0.16/share last year). Adjusted EPS of $0.08 was a penny y/y improvement, but three cents shy of the Street's forecast. A 34% rise in revenues to $57.7m also came up short of analysts' average estimate ($59m). 24/7 expects Q2 pro forma EPS between $0.09 - $0.12, compared to the Street's estimate of $0.13. Its full year EPS forecast of $0.52 - $0.55 tops analysts' consensus estimate of $0.52. In its earnings press release, 24/7 said it retained Lehman Brothers to assist in its assessment of strategic alternatives. On May 1, the New York Post (citing unnamed sources) reported Microsoft was considering a $1b buyout, which sent its shares soaring 20% to $11.97. It rallied 3.7% to $11.10 during normal trading Wednesday and climbed 4.2% to $11.57 in after-hours activity on volume of more than 686,000.
Sources: Press release, Bloomberg, MarketWatch
Commentary: 24/7 Real Media Shares Skyrocket on $1 Billion Microsoft Buyout Rumor • WPP - 24/7 Real Media Rumors: A Deal Makes Sense • 24/7 Real Media Down On “Missed Opportunities” • 24/7 Real Media Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: 24/7 Real Media Inc. (TFSM). Competitors: aQuantive Inc. (AQNT), ValueClick Inc. (VCLK), DoubleClick [privately held, agreed to be acquired by Google (GOOG) in April]
Largest U.S. Retailers Eye Expansion, Cost Savings with Smaller Stores
The Wall Street Journal reports leading retailers including Best Buy, Circuit City, Home Depot and Wal-Mart, are vying to serve more customers, but aim to do so using smaller stores, as they target smaller markets and adapt to ever-smaller consumer electronics. Best Buy's VP of real estate comments, "Whereas you used to lose by having too many stores, now you lose by having too few stores." More than 60% of Americans live within 10 miles of both Best Buy and Circuit City, according to ACNielsen; but the two face rising competition from discount retailers and wholesalers, which are expanding consumer electronics offerings. A majority of planned new store openings this year for Best Buy and Circuit City are expected to be 30% - 40% smaller than average store sizes, at around 30,000 sq. ft. and 20,000 sq. ft., respectively. Both firms stand to benefit from additional cost savings related to smaller stores, for instance, since fewer floor product models and employees are needed -- Best Buy is referenced needing 100 workers, or 20% fewer than its standard-sized stores -- and increased online sales requires less in-store inventory.
Sources: The Wall Street Journal
Commentary: Circuit City: Firing Best Sales Staff Not Good Plan • Circuit City Revises Downward: Where Does That Leave Best Buy? • Key Takeaways From Best Buy, Circuit City Earnings: Vista's Selling Well, TVs Are Cheap
Stocks/ETFs to watch: Best Buy Co. Inc. (NYSE:BBY), Circuit City Stores Inc. (NYSE:CC), Wal-Mart Stores Inc. (NYSE:WMT). Competitors: RadioShack Corp. (NYSE:RSH), Target Corp. (NYSE:TGT). ETFs: Consumer Discretionary SPDR ETF (NYSEARCA:XLY), Retail HOLDRs (NYSEARCA:RTH), Vanguard Consumer Discretionary (NYSEARCA:VCR)
Conference call transcripts: Best Buy F4Q07 (Qtr End 3/3/07) , Circuit City F4Q07 (Qtr End 2/28/07) , Home Depot F4Q06 (Qtr End 1/28/07) , Wal-Mart F4Q07 (Qtr End 1/31/07)
Whole Foods Reports Drop in Quarterly Profit
Shares of natural-foods grocery chain Whole Foods fell up to 6.7% in AH trading Wednesday after the company reported a greater-than-expected 11.2% drop in quarterly profit on store-opening costs and competition from traditional grocers. Fiscal Q2 net income fell to $46 million ($0.32/share) from $51.8 million ($0.36) in the year-ago quarter. Revenue rose to $1.46 billion from $1.31 billion. Analysts were expecting EPS of $0.36 on revenue of $1.49 billion. Same-store sales were up 6% in the quarter against an 11.9% rise a year ago. Preopening and relocation costs surged to $15.6 million ($0.07/share) from $7.3 million ($0.03) a year ago; the company opened a record six stores during the quarter. Whole Foods is forecasting full-year 2007 total sales growth of 13-17% and same-store sales growth of 6-8%. The company's goal is to achieve $12 billion in sales in fiscal year 2010. Whole Foods' shares have fallen 39% over the past year, their first annual decline in seven years, on intensifying competition from Wegman's, Trader Joe's and Safeway. Adding to the company's woes, the Federal Trade Commission has expressed concern about the anticompetitive implications of Whole Foods' pending $565 million acquisition of competitor Wild Oats Markets and has yet to decide if it will contest the deal.
Sources: Whole Foods Market Earnings Call Transcript F2Q07 (Qtr End 4/8/07), MarketWatch, Reuters, Bloomberg, TheStreet.com
Commentary: Whole Foods: Margin Concerns Persist • Downside in Store for Whole Foods • Whole Foods: Love the Company, Avoiding the Stock
Stocks/ETFs to watch: Whole Foods Market, Inc. (WFMI), Wild Oats Markets (OATS). Competitors: Safeway Inc. (NYSE:SWY), WalMart Stores Inc. (WMT), The Kroger Co. (NYSE:KR). ETFs: Consumer Staples Select Sector SPDR (NYSEARCA:XLP), Vanguard Consumer Staples ETF (NYSEARCA:VDC), PowerShares Dynamic Consumer Staples (NYSEARCA:PSL)
TRANSPORT AND AEROSPACE
Magna Says It Won't Take On Debt in Chrysler Bid
Canadian auto parts manufacturer Magna International says it would not take on any debt to finance a purchase of DaimlerChrysler's Chrysler unit, according to a report in the Globe and Mail. The Globe also reports that Stronach wants DaimlerChrysler AG to retain a stake in Chrysler. Magna Chairman Frank Stronach says he expects to finalize a decision regarding the buyout over the next few weeks. The Globe reports that Magna has reached a partnership agreement with Canadian private equity firm Onex Corp. Stronach says the company holds $2 billion in cash, and has no plans of gambling Magna away. German automaker DaimlerChrysler said in February it would consider all options for its struggling North American unit, including a sale. Magna's annual shareholder meeting takes place Thursday. Analysts who follow the company say shareholders are likely to question Stronach on the deal, although the ultimate decision lies in his hands alone due to his majority stake in the company's Class B voting shares. Jennings Capital's Rich Morrow, who follows Magna, says the company may be getting in over its head: "It doesn't begin to address the whole range of skills that are required to be a successful carmaker... It's a whole set of skills for which there's no evidence they exist in Magna today."
Sources: MarketWatch, Reuters, Globe and Mail
Commentary: KeyBanc: 'Increased Likelihood' Magna Will Take Direct Minority Interest in Chrysler • DaimlerChrysler: In The Firm Embrace of Magna International • The Dating Game: Magna Likes Chrysler
Stocks/ETFs to watch: DaimlerChrysler (DCX), Magna International Inc. (NYSE:MGA). Competitors: General Motors Corp. (NYSE:GM), Ford Motor Co. (NYSE:F), Toyota Motor Corp. (NYSE:TM)
Conference call transcript: DaimlerChrysler AG Q4 2006
ENERGY AND MATERIALS
Foster Wheeler Hammers Estimates, Upbeat Outlook, Shares Up Sharply
Foster Wheeler reported its fourth straight quarter of record earnings, as Q1 net income jumped nearly eightfold to $114.8m, or $1.60/share, beating analysts' average estimate of $0.64/share. Revenues rose 78% to $1.15b. Its shares soared 20% on the earnings announcement to $87.75 during normal trading. "A big part of the jump today is the market is finally recognizing the sustainability of the operating momentum that Foster Wheeler has been displaying for the past three quarters," said an Imperial Capital analyst in a phone interview with Bloomberg. In a press release, Foster Wheeler commented: "The fundamentals supporting the markets served by the Company's Global Engineering and Construction Group and Global Power Group remain very robust, with strong global economic growth continuing to drive investment in new and existing oil and gas, refinery, petrochemical and power facilities." Both groups increased their manpower in Q1 and plan to continue increasing capacity.
Sources: Press release, Bloomberg
Commentary: Foster Wheeler, Comverge: Two Clean Energy Stocks Worth Noting • The Long Case for Foster Wheeler: 'White Hot a Year Ago, White Hot Today' • Jim Cramer's Take on Foster Wheeler
Stocks/ETFs to watch: Foster Wheeler (FWLT). Competitors: Fluor Corporation (NYSE:FLR), Halliburton (NYSE:HAL)
Oaktree Capital to Sell Stock to Public -- On a Private Market
L.A. "alternative investment" firm Oaktree Capital Management LLC announced it will raise nearly $700 million in an offering -- but the shares will trade on a private market constructed by Goldman Sachs rather than on a public exchange. Oaktree will sell roughly 13% of itself for $40-44 a unit. The new market, to be called "GS Tradable Unregistered Equity OTC Market," or GSTrUE, will be accessible only to institutions and sophisticated investors, and Oaktree will be its first issue. By offering shares on GSTrUE, Oaktree will sidestep the regulatory oversight that accompanies public share offerings. In addition, shareholders, unlike those of companies whose shares trade on public markets, will have almost no say in how the company's business is conducted. Oaktree has assets worth approximately $42 billion. Fortress Investment Group was the first hedge fund to go public in January, and private investment firm the Blackstone Group has an IPO pending. "We expect that many of our most significant competitors will soon become public," wrote Oaktree founders Howard Marks and Bruce Karsh in the offering memo. "...Choosing not to do likewise would put us at a major disadvantage."
Sources: Wall Street Journal
Commentary: Apollo Management Said to Be Considering IPO • Blackstone Files For $4 Billion IPO, Reveals Untold Secrets • Private Equity IPOs: More Than Meets the Eye
Stocks/ETFs to watch: Goldman Sachs Group, Inc. (NYSE:GS), Blackstone Group (NYSE:BX), Fortress Investment Group LLC (NYSE:FIG), American Capital Strategies (NASDAQ:ACAS), Apollo Investment Corp (NASDAQ:AINV). ETFs: Private Equity Listed Portfolio (NYSEARCA:PSP)
N.E. Journal of Medicine Expresses Doubts About Merck's Gardasil
The New England Journal of Medicine published an editorial Thursday in which two obstetricians contest the efficacy of Merck's cervical cancer vaccine Gardasil and advise policymakers, doctors and parents to take a "cautious approach" to vaccination. The journal also published results of a Merck-financed clinical trial of Gardasil, a drug that attacks two kinds of the human papillomavirus (HPV 16 and 18) believed to be responsible for 70% of cervical cancers. The study found Gardasil 98% effective at preventing precancerous lesions related to HPV 16 and 18 among previously uninfected women, but its efficacy dropped to 44% when the subject group included previously infected women and to 17% when all precancerous lesions were taken into account. George F. Sawaya, M.D. and Karen Smith-McCune, M.D. claim in their NEJM editorial that although the vaccine could ultimately have "profound public health benefit," questions remain unanswered about Gardasil's overall effectiveness, the length of time protection will last, and possible side effects. Other scientists have already suggested the billions expected to be spent on Gardasil might be better spent on Pap smear testing for low-income women. Merck pushed state legislatures to make vaccination a school requirement for 11- and 12-year-old girls before being pressed to withdraw the campaign in February. In related news, Glaxosmithkline Thursday reported that it has applied for FDA approval for Cervarix, its own cervical cancer vaccine. If approved, Cervaris will be Gardasil's first competitor.
Sources: HPV Vaccination — More Answers, More Questions [New England Journal of Medicine], Wall Street Journal
Commentary: Merck Pressured to Halt HPV Vaccine Lobbying • Mandatory Vaccination with Merck's Gardasil Raises Eyebrows • Vaccines Suffer from Poor Public Image
Stocks/ETFs to watch: Merck & Co., Inc. (NYSE:MRK). Competitors: GlaxoSmithKline plc (NYSE:GSK), Bristol-Myers Squibb Co. (NYSE:BMY), Pfizer Inc. (NYSE:PFE), Sanofi-Aventis (NYSE:SNY). ETFs: Pharmaceutical HOLDRs (NYSEARCA:PPH), iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE)
Conference call transcripts: Q1 2007
Goldman Warns China Correction Possible; Shanghai Renews Record High
Analysts at Goldman Sachs issued a report today on China's yuan-denominated A-share stocks (those listed on the Shanghai or Shenzhen exchanges) saying, "Current valuations are demanding and seem to have outpaced the improvement in market fundamentals -- risk of market euphoria is building," according to coverage by Bloomberg. The CSI 300 Index, which tracks A-shares, currently trades at 42x trailing earnings, compared to 19x for the Morgan Stanley Capital Int'l Asia Pacific Index. The CSI 300 is up 86% (in dollar terms) year-to-date, the highest among global benchmarks tracked by Bloomberg. It more than doubled in '06 and has nearly quadrupled since it launched in April '05. Goldman noted valuations exceed earnings prospects, despite earnings (82% Q1 earnings growth for A-shares) coming in ahead of analysts' estimates. Domestic retail investors are lining up for a chance to play the market as record new brokerage account openings and unprecedented daily turnover -- today exceeding all of Asia at $49 billion -- send Chinese benchmarks to new all-time highs, despite continued warnings from the government.
Commentary: Is the Chinese Market Overvalued? • Recent Chinese IPOs On Wall Street - EDU Leads The Pack • US Investors Not Feeling the Chinese Stock Market Sizzle • Nasdaq in the Late 1990's and Shanghai Today: Eerie Similarity
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ)
Related: CSI 300 Index quote and chart
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