Bernanke: Subprime Spillover Will Be Limited
Fed Chairman Ben Bernanke said Thursday subprime mortgage woes do not present a serious problem to the U.S. economy. He went even further, saying its effects on the overall housing market would likely be limited: "Curbs [on subprime lending] are expected to be a source of some restraint on home purchases and residential investment in coming quarters." Asked whether he felt the recent spike in private equity buyouts posed a risk to the banks that lend them money, Bernanke acknowledged significant risk, saying, "I urge banks to closely evaluate the risk that they're taking not only in the context of a highly liquid, benign financial environment, but in one that might conceivably be less liquid and benign." He said the Fed is moving forward on the Basel II framework, already adopted by many European banks, which standardizes how much capital U.S. and foreign banks must hold to protect against losses. Separately, New York Fed President Timothy Geithner warned Thursday the global economy has not entered a new era of permanent stability, and that mania, panic and shocks could still wreak systemic damage. While improved global economic growth may seem to have reduced concern of future fundamental risk, he cautioned that global financial consolidation, increased leverage, and complacency have all raised the risk of a systemic breakdown.
Sources: Bernanke speech, Geithner speech, Wall Street Journal, AFX
Commentary: Ben Bernanke's Fed Offers Investors False Reassurance • Subprime Lenders Tightening Standards; Prime Lending Business As Usual -- Fed Survey • The Fed Rates the Economy
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Marvell: Q1 Revenues Up 22%, But Miss Estimates
Marvell Technology reported preliminary sales for Q1 (ended April 28) rose 22% to $635.1 million, but missed the Street's average estimate of $645.7m. The Company didn't release earnings due to an internal review of its historical stock option practices. In addition, Marvell said it does not expect to meet a June 7 filing deadline for its Q1 Form 10-Q. Despite the sales miss and disappointing Q2 revenue guidance of $645m (vs. the Street's estimate of $683m), shares of Marvell last traded up 0.9% to $17.16 in after-hours activity on volume of 1.7 million, after losing 0.2% to $17.00 during normal trading. Marvell blamed an overall weaker demand environment across some of its markets. A pre-earnings analysis by Schaeffer's Investment Research found what appears to be excessive optimism based on a rather low short-interest ratio of 1.8, representing 3.9% of its total share float; also 64% of analysts who cover the firm rate it a "buy" and front-month call option open interest at the $17.50 strike outnumbers put open interest.
Sources: Marvell Technology Group F1Q08 Earnings Call Transcript, Press release, MarketWatch, Schaeffer's Investment Research
Commentary: Marvell F2Q Forecast Below Street, But Sees Margins Improving; Stock Up AH • Marvell Gains On Options-Related Management Shakeup • Apple's iPhone and the Future of Marvell
Stocks/ETFs to watch: Marvell Technology Group Ltd. (MRVL). Competitors: Agere Systems Inc. (AGR), STMicroelectronics NV (STM), Texas Instruments Inc. (TXN). ETFs: iShares Goldman Sachs Networking (IGN), iShares Goldman Sachs Semiconductor (IGW)
Intuit's Q3 Net Up 23%, Beats, Raises, Shares Jump
Intuit reported Q3 net income rose 23% to $367.2 million, or $1.04/share, on sales growth of 21% to $1.15b. Excluding certain items, EPS totaled $1.13, topping analysts' average estimate of $1.07/share on sales of $1.12b. Shares of Intuit jumped 10.2% to $30.54 in extended trading on volume of 1.09 million, after losing 1% to $27.72 in normal trading. Revenues at its Consumer Tax unit increased 14% to $567m and sales of QuickBooks software to small business climbed 22% to $155m. Intuit raised its fiscal '07 guidance for EPS, $1.15 - $1.17 (from $1.10 - $1.14 previously) and sales, $2.69b - $2.7b ($2.63b - $2.68b previously). Analysts' forecast EPS of $1.34 on sales of $2.65b, per a Bloomberg survey. Intuit announced an $800m share buyback program over three years. It has repurchased $3.7b of shares since '01.
Sources: Intuit F3Q07 Earnings Call Transcript, Press release [pdf], Bloomberg, MarketWatch
Commentary: On Intuit's 'Record' Quarter: As Predictable as the Passage of Time • Intuit Beats Street In Key Quarter; Stock Up After Hours • Profiting From The Tax Industry
Stocks/ETFs to watch: Intuit (INTU). Competitors: H&R Block (HRB). ETFs: Software HOLDRS (SWH), iShares Goldman Sachs Software Index (IGV)
Related: Intuit Q3/FY07 & FY07 Fact Sheet [pdf]
IBM Forecasts Big Profit Jump by 2010
IBM's CFO told an investor briefing Thursday the company's EPS could nearly double by 2010 on cost cuts, acquisitions and stock buybacks. The company also expects software to represent about half of total profit by that year, up from 40% last year. CFO Mark Loughridge sketched out a "road map" of an approximate $5.00 rise in EPS by 2010: 75% from a continuation of the company's recent growth rate; $1 from efforts to cut costs and expand profit margins; $1.10 from over $40 billion in stock buybacks; $1.20 from acquisitions; and $0.90 from retirement-related savings. IBM spent $27 billion on buybacks between 2003 and 2006, and last month, the company's board authorized it to take on debt to buy back another $16.4 billion. Annex Research analyst Bob Djurdjevic considers IBM's goal of $11 EPS by 2010 "pretty realistic," particularly in view of its increasing emphasis on software. "That's where the big profit margins are," he said. Revenue from the software unit rose 8.8% last quarter to $4.25 billion, faster than any other unit. IBM is also expecting emerging country revenue to double by 2010 and forecasts that "virtualization," a new technology that runs multiple operating systems on large computers, will generate an additional $1 billion in gross profit over that period.
Sources: Wall Street Journal, Reuters,
Commentary: IBM: Large Share Buyback Could Give Stock A Boost • Why IBM's Software Position Makes Sense • IBM Moves Into Social Networking: Web 2.0 Meets Enterprise 3.0
Stocks/ETFs to watch: International Business Machines Corp. (IBM). Competitors: Microsoft Corp. (MSFT), Hewlett-Packard Co. (HPQ), Electronic Data Systems Corp. (EDS). ETFs: Internet Architecture HOLDRs (IAH), iShares S&P Global Technology (IXN), Ultra Dow30 ProShares (DDM)
Conference call transcripts: Q1 2007
WPP Group Buys 24/7 Real Media for $649 Million
British advertising powerhouse WPP announced Thursday it is acquiring Internet ad company 24/7 Real Media for $649 million. Microsoft was also rumored to be a suitor. WPP will pay $11.75 per 24/7 share, a 4% premium to the company's Wednesday close. The deal is expected to close in July. WPP expects the deal to hurt earnings in 2007 and 2008 by approximately 1% and anticipates $5 million in cost savings. 24/7's shares have appreciated almost 45% over the past two months on buyout speculation as consolidation heats up in the online ad space. Last month, Google agreed to buy online ad broker DoubleClick for $3.1 billion and Yahoo bought a remaining stake in Right Media Inc. for $680 million. French company Publicis Groupe has announced it will buy online ad company Digitas for $1.3 billion, and AOL is planning to buy the German company Adtech. "The real catalyst to this was the Google-DoubleClick move," said WPP CEO Sir Martin Sorrell. eMarketer senior analyst David Hallerman: "Offline agencies need the online ad companies for the technology...It’s the most complex form of advertising." 24/7 shares gained over 3% to close at $11.61 Thursday. The last remaining publicly traded online ad companies of scale are ValueClick and aQuantive; their shares gained 2.1% and 4.3% respectively. WPP's ADRs dropped over 2% to $73.24.
Sources: Press release, Wall Street Journal, Forbes, Red Herring, MarketWatch
Commentary: WPP - 24/7 Real Media Rumors: A Deal Makes Sense • 24/7 Real Media Loss Narrows but Misses; Hires Lehman, Shares Jump • 24/7 Real Media Is Considering “Strategic Alternatives”
Stocks/ETFs to watch: 24/7 Real Media, Inc. (TFSM), WPP Group plc [ADR] (WPPGY), aQuantive Inc. (AQNT), ValueClick Inc. (VCLK), Microsoft Corp. (MSFT), Google Inc. (GOOG), Yahoo! Inc. (YHOO).
Conference call transcripts: 24/7 Real Media Q1 2007
Private Equity Eyes Cadbury's U.S. Beverages, Shares Higher
The Daily Telegraph reported two private equity groups are preparing competing £8 billion ($15.8b) bids for Cadbury Schweppes' U.S. beverages unit (brands include Dr. Pepper, 7-Up and Snapple). Shares of Cadbury trading in London were last up 2.2% to 688 pence in morning trading. One private equity group consists of Blackstone Group, KKR and Lion Capital. A rival group includes Bain Capital, TPG and Thomas H. Lee. The Telegraph said Cott Corp. of Canada, the world's leading maker of generic-brand soda, may join one of the groups, but it is unclear which one. Reuters reports Cadbury has received around a dozen expressions of interest in its U.S. beverages unit, according to a source close to the matter. Compelled by activist investor Nelson Peltz, Cadbury hired Goldman Sachs, Morgan Stanley and UBS earlier this year to advise on strategic alternatives for its U.S. beverages unit. Blackstone and Lion Capital purchased Cadbury's European beverages unit in 2005 for £1.85b.
Sources: The Daily Telegraph, Reuters
Commentary: Cadbury Schweppes: Activist Holder Peltz is Moving Fast • Cadbury Schweppes: Peltz Stake Sparks Share Interest • Cadbury: A Deliciously Undervalued Stock
Stocks/ETFs to watch: Cadbury Schweppes (CSG), Cott (COT). Competitors: Coca-Cola (KO), PepsiCo (PEP), Hansen Natural (HANS), Jones Soda (OTCQB:JSDA), National Beverage (FIZ)
Kohl's Beats and Raises, Shares Climb
Kohl's reported Q1 earnings of $0.64/share ($209 million), up 25% from a year ago, and slightly better than analyst estimates of $0.62. Revenue was up 11.6% to $3.57 billion, in line with expectations. Same store sales were up 3.9% on the quarter. The #4 U.S. department store raised its 2007 full-year EPS guidance from $3.68-3.84 to $3.75-3.87, causing shares to surge 3%, but left Q2 guidance unchanged at $0.81-0.85. Analysts commented on Kohl's exciting new lines -- it added clothing from its Chaps line by Polo Ralph Lauren and sold its own brands in an effort to attract middle-income customers from higher-priced rivals like Macy's. Kohl's home category outperformed other products, counter to the general weakness in the housing market: "Kohl's is one of the few retailers that you'll hear talking about strength in the home area," said Keri Spanbauer of Thrivent Investment. President Kevin Mansell agreed:: "I do think we're running contrary to trend... we're taking a lot of market share." Shares are up 8.4% YTD and 30.9% over the past year.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Expecting Continued Weakness From Kohl's • Kohl's & Penney Go Head to Head With Expansion Plans
Stocks/ETFs to watch: Kohl's Corp. (KSS). Competitors: Federated Department Stores Inc. (FD), J.C. Penney Company Inc. (JCP), Sears Holdings Corp. (SHLD), Wal-Mart Stores Inc. (WMT), Nordstrom Inc. (JWN). ETFs: Retail HOLDRS ETF (RTH)
Nordstrom Shares Gain On Beat and Raise Quarter; Same Store Sales Especially Strong
Nordstrom Inc. reported after Thursday's close its first-quarter net earnings climbed 19%, on a same-store sales jump of 9.5%. Profit was $156.8 million, good for EPS of $0.60, up from net of $131.2 million (EPS of $0.48) in the year-ago period. Sales rose to $1.95 billion from $1.79 billion a year earlier, as the company cited sales strength in designer and women's apparel. The numbers beat analyst projections, as gathered by Thomson Financial, of EPS of $0.57 on sales of $1.93 billion. The same store sales figures topped Nordstrom's own projection of mid single-digit growth. TheStreet.com also asserts "a change in the fiscal calendar created a timing shift that also helped sales." Looking ahead, Nordstrom's forecasts for next quarter lags analyst estimates; it sees EPS of $0.62-$0.65, not counting a one-time charge of about $0.08 a share. Wall Street is looking for EPS of $0.76. For the full year, Nordstrom raised EPS projections from a range of $2.78-$2.84 to $2.81-$2.90; Reuters estimates show analysts currently expect EPS of $2.87. Nordstrom shares rose $0.88, or 1.66% to $54.05 in after hours action, after gaining 1.3% in regular trading.
Sources: Nordstrom Earnings Call Transcript, Press Release, MarketWatch, AP, Reuters, TheStreet.com
Commentary: April Same-Store Sales Roundup • Barron's Stocks for a Wealthy America • Try Nordstrom On For Size (But Wait Until After Christmas)
Stocks/ETFs to watch: Nordstrom Inc. (JWN). Competitors: Chico's FAS Inc. (CHS), Jos. A. Bank Clothiers Inc. (JOSB), Federated Department Stores Inc. (FD). ETFs: Retail HOLDRS ETF (RTH), SPDR S&P Retail (XRT), PowerShares Dynamic Retail (PMR)
Related: Nordstrom Investor Relations
ENERGY AND MATERIALS
GE Near Sale of Plastics Division -- WSJ
General Electric is close to a deal to sell its plastics division to Saudi Basic Industries Corp. [Sabic] for about $11 billion, the Wall Street Journal reported Friday. Riyadh-based Sabic was competing with polypropylene manufacturer Basell of Hoofddorp, the Netherlands for the unit. Most analysts were expecting the unit to sell for $8-10 billion. Sabic, one of the biggest non-oil companies in the Middle East, will now be a global leader in the production of quotidian items like grocery bags and plastic toys. GE already has a relationship with the Saudi government via several large contracts to sell it gas turbines for power plants. The company is also opening a medical equipment factory in the country and plans to make specialty chemicals in a JV with a Saudi company. GE CEO Jeffrey Immelt, who took the helm in 2001, has been selling off the company's slow-growing businesses, including the insurance units and the silicone and quartz business. Last year, the plastics unit's operating profit dropped 22% to $674 million.
Sources: Wall Street Journal, MarketWatch
Commentary: GE's Q1 Earnings Up 8% on Strong Global Growth • Stock Portfolio to Weather a Volatility Shock • The Top Dividend Paying ETFs and Stocks
Stocks/ETFs to watch: General Electric Co. (GE). Competitors: Citigroup Inc. (C), Koninklijke Philips Electronics NV (PHG), Siemens AG (SI). ETFs: iShares S&P Global Industrials (EXI), WisdomTree High-Yielding Equity (DHS), WisdomTree LargeCap Dividend (DLN)
Conference call transcripts: Q1 2007
Alliance Data Systems Shares Jump On Blackstone Buyout
Alliance Data Systems shares jumped nearly 25% Thursday after it was announced private equity group Blackstone was taking the company private for a total of $7.8 billion - a 30% premium to Wednesday's closing price. The deal is expected to close by year's end. The deal includes debt assumption of more than $1 billion by Blackstone and offers $81.75 a share, returning Alliance Data Systems to private ownership just six years after it went public. Blackstone will acquire all outstanding shares in the deal. The company handles credit-card purchases for retailers such as J. Crew and Victoria's Secret, and designs marketing programs for clients like Citigroup. Alliance Chairman and CEO Mike Parks believes "by maximizing the value of their investment, this agreement is clearly in the best interests of our stockholders." Shares gained $15.50, 24.62%, to $78.46 on heavy volume of nearly 25 million shares.
Sources: Press Release, Wall Street Journal, Bloomberg, MarketWatch, Financial Times, Reuters
Commentary: Death of Public Companies? Oh, Please! • 'Perfect Strategic Fit': Alliance Data Systems To Buy DoubleClick’s Abacus Division
Stocks/ETFs to watch: Alliance Data Systems (ADS). Competitors: Electronic Data Systems Corporation (EDS), Affiliated Computer Services (ACS), Fiserv (FISV), Global Payments (GPN)
Conference call transcripts: Alliance Data Systems Q1 2007 Earnings Call Transcript
Russia Sues Bank of New York for $22.5 Billion
Russia's Federal Customs Service has filed suit against Bank of New York for $22.5 billion in damages for participating in a money-laundering scheme in the 1990s. The bank says the matter has already been resolved and calls the suit "totally without merit." The bank's shares tumbled nearly 5% Thursday before closing down 1.1% at $40.75. The suit concerns approximately $7 billion that was placed by Russian exporters in Bank of New York accounts between 1996 and 1999 in order to avoid Russian customs. A then-VP of the bank, Lucy Edwards, and her husband -- both Russian emigres -- admitted in 2000 that they had laundered the money. A U.S. investigation concluded in 2005 with the bank consenting to pay a settlement of $38 million and Edwards and her husband sentenced to six months' house arrest and fines of $725,000. The Russian Customs Service never received any proceeds from the settlement. The suit was filed in Moscow, and it is unclear what effect a Russian ruling would have on the bank without an additional ruling from an American or international court. The plaintiffs hold that the money-laundering was particularly egregious during the period in question: the Russian government was so strapped for cash that it eventually defaulted on its debts.
Sources: Press release, Wall Street Journal, MarketWatch, Reuters, Bloomberg
Commentary: A Forensic Accountant's Winners and Losers from Pending Litigation • Bank of NY-Mellon: Historic Merger, Poised for Future Growth • Old Companies Age Gracefully
Stocks/ETFs to watch: The Bank of New York Company, Inc. (BK). Competitors: Citigroup Inc. (C). ETFs: iShares Dow Jones US Regional Banks (IAT), KBW Bank ETF (KBE), Rydex S&P Equal Weight Financials (RYF)
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