Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:55 AM EST
S&P 500: -1.40; 1,525.60
NASDAQ 100: -2.25; 1,945.50
Dow: -11.00; 13,597.00
NIKKEI 225: +0.16%; 18,240.30 (+28.62)
HANG SENG: +1.25%; 21,954.67 (+270.00)
S&P/ASX 200: -0.15%; 6,387.00 (-9.90)
BSE SENSEX 30: +0.61%; 14,499.24 (+87.29)
FTSE 100: -0.85%; 6,592.50 (-56.80)
CAC 40: -1.01%; 6,031.82 (-61.47)
XETRA-DAX: -1.62%; 7,959.56 (-130.93)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.93%; $69.50 (+$0.64)
Gold: -0.35%; $657.70 (-$2.30)
Natural Gas: +0.65%; $7.44 (+$0.05)
Silver: -0.34%; $13.205 (-$0.045)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Luxottica Acquires Sunglass Maker Oakley for $2.1 Billion
Number-one global eyewear maker Luxottica Group said it will buy U.S. sunglass maker Oakley for $29.30/share ($2.1 billion), a 16% premium to its Wednesday close. Luxottica says it expects to save $134 million over the next three years. Athletes favor Oakley sunglasses, saying they can be worn in direct sunlight and punishing physical conditions without eye strain. CEO Leonardo Del Vecchio said, "Significant changes in market dynamics require industry leaders to perfect a mix of best-in-class products and marketing with technical and operational capabilities." The purchase compliments Luxottica's Ray-Ban, Chanel, Polo Ralph Lauren and Versace lines, among others. The company also said Oakley's Bright Eyes and Sunglass Icon stores will compliment its LensCrafters and Pearle Vision North American retail chains. Caboto Equity Research's Gianluca Pacini said, "Nobody can touch Luxottica now... It's the industry's No. 1 player, with the sports brands, luxury brands and optical retailers." European research firm Cheuvreux raised its price target on Luxottica from €27 to €29.50. The companies expect to complete the transaction in H2 2007. In options trading Wednesday, 1637 Oakley Aug. $25 calls changed hands, rising $0.85 to $2.15 -- six times their average daily volume. In pre-market trading, Luxottica shares are up 8.6%, and Oakley shares are up 14%.
Sources: Press release, Reuters, Dow Jones, Bloomberg
Commentary: Summer Sale -- Don't Forget Your Sunglasses • OptiBoard discussion pre-acquisition
Stocks/ETFs to watch: Oakley Inc. (OO), Luxottica Group S.p.A. (LUX)
Related: Oakley Inc. history
AES Posts Q1 Loss on Sale of Venezuelan Utility, Misses Estimates
AES Corp. swung to a Q1 net loss of $455 million, or -$0.67/share (vs. $348m, or $0.52/share last Q1), hurt by the sale (at a $638m loss, -$0.94/share) of its majority stake in a Venezuelan utility company that was nationalized. Adjusted EPS of $0.27/share (vs. $0.39/share last Q1) came up three cents short of the Street's consensus estimate. Earnings from continuing operations totaled $119m, or $0.18/share, compared to $330m, or $0.49/share in the prior year's Q1 when it sold assets and emission credits. Revenues rose 11% to $3.12b. AES said net cash from operating activities increased 14% to $581m, compared to $509m last year. Its Q1 earnings release was delayed due to restating of earnings from earlier periods because of accounting mistakes. Shares of AES fell 2.7% to $21.16 in normal trading Wednesday, but recouped 1.2% to $21.42 in light after-hours trading. No pre-market trades were reported as of 08:45 EDT.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Utility Consolidation: Companies to Watch • Legg Mason's Bill Miller: Buys, Sells, Portfolio • Chávez's Latest Ideological Shtick Sends Venezuelan-Related Equities Lower
Stocks/ETFs to watch: AES Corp. (AES). Competitors: Mirant Corp. (MIR), Duke Energy Corp. (DUK), Endesa SA (ELE). ETFs: PowerShares Dynamic Utilities PUI
H&R Block Reports Net Loss On Subprime Woes, Misses Estimates
H&R Block's recent quarter saw its net income rise 9%, to $1.81 a share, below analyst estimates, but the company swung to an overall net loss on charges related to its ailing subprime-mortgage unit. The firm also projected current fiscal year estimates below consensus analyst expectations. Including losses related to its Option One subprime mortgage unit, H&R reported a net loss of $85.6 million, good for EPS of negative $0.26. Option One's losses totaled $676.8 million in the latest quarter; not counting that loss, earnings from continuing operations were $591.3 million (EPS of $1.81 a share vs. EPS of $1.63 in the year earlier period). Revenue rose 8% to $2.35 billion; Thomson Financial consensus estimates were for EPS of $1.88 on revenue of $2.44 billion. H&R Block announced it's selling Option One to Cerberus Capital Management for $300 million less than the value of the unit's tangible net assets later this year. Looking to the current fiscal year, H&R Block projects EPS in a range of $1.25-$1.45 a share; consensus estimates are for earnings of $1.47 a share. H&R shares are lower by 2.2% in pre-market trading, as of 8:13 a.m. EST.
Sources: Press Release, Wall Street Journal, Reuters, AP, Briefing.com
Commentary: H&R Block's Dividend Bluff • Profiting From The Tax Industry • H&R Block Grabbing Intuit's Business
Stocks/ETFs to watch: H&R Block (HRB). Competitors: Intuit Inc. (INTU), Jackson Hewitt Tax Service Inc. (JTX)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Yesterday, the stock market was hit for a variety of reasons, but most pointed to the financial sector, as higher interest rates and concerns due to the closing of two big hedge funds by Bear Stearns received much attention. The 10-year Treasury bond fell 10/32, raising its yield to 5.125, but that was in contrast to even lowerprices last week when at one point the 10-year traded as high as 5.32%.
At the close, the Dow was off 146 points at 13,489, the S&P 500 lost 21 to close at 1,513, and the Nasdaq was off27 at 2,600. The NYSE traded 1.67 billion shares, and the Nasdaq crossed 2 billion; breadth on both exchanges was negative at 3/1 on the Big Board and slightly more than 2/1 negative on the Nasdaq.
The stock market ignored a drop in crude oil prices (July contracts), which closed at $68.19 (off 91 cents). And the Amex Energy ETF (XLE) fell $2.07 at $69.07 following new highs on Tuesday when it traded as high as $70.62.
What the Markets Are Saying
It appears that a double top may have formed, but this is not yet certain -- in order for that to be triggered, we would have to see a closing low below the reversal low of 1,487 on June 8. However, it is time to exercise a little caution since some of our favorite sentiment indicators are close to bullish extremes, which could limit the upside even if the current highs are exceeded.
Put/call ratios are just about where they were prior to the February 27 pullback, and the Investors' Intelligence poll is showing an 18.9% bearish reading. Also some of the internal indicators, such as Moving Average Convergence/Divergence [MACD] and stochastics, have just flashed a short-term sell signal. But that doesn't mean that this will amount to any more than the regular corrections that we've seen this year, and so the bulls will likely view the weakness as another buying opportunity.
Today's Trading Landscape
Today, look for the leading economic indicators report and the Philadelphia Fed report. There should be no significant earnings due today, so all eyes will be on the bond market and any news regarding hedge funds and their troubles. Further unwinding of positions there could have a negative impact on the stock averages.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise on Higher Chip Prices, Japan Exports; Samsung Leads Gain Asian stocks advanced for a sixth day, the longest winning streak in almost eight months, after prices of computer-memory chips jumped and a report today showed Japan's export growth almost doubled in May.
• Japan's Export Growth Almost Doubles, Buoyed by Shipments to China, Europe Japan's export growth almost doubled in May, buoyed by shipments of cars and electronics to China and the European Union.
• HSBC Plans to Refocus on Emerging Markets, New Asia Chief Executive Says HSBC Holdings Plc (HBC), the world's third- largest bank by market value, will step up expansion in emerging markets such as India after mounting mortgage defaults at its U.S. unit crimped profit, the company's incoming Asia chief said.
• Taiwan Raises Benchmark Rate by More Than Expected to Stem Funds Outflow Taiwan's central bank raised its benchmark interest rate for a 12th straight quarter, increasing borrowing costs twice as much as expected to stem a flow of funds leaving the island and to ward off inflation.
European Headlines (via Bloomberg.com)
• European Stocks Drop, Led by Banks, Insurers; Deutsche Bank, Tesco Decline European stocks fell the most in two weeks as rising bond yields in the U.S. and Europe pushed banks, insurers and retailers lower.
• Deutsche Bank, Hedge Funds Fined $8.4 Million After Insider-Trading Probe Four hedge funds and Deutsche Bank AG (DB) were fined a combined 6.25 million euros ($8.4 million) by France's market regulator after an insider trading probe into a Vivendi Universal SA (OTCPK:VIVEF) securities sale in 2002.
• Europe's Manufacturing, Service Growth Unexpectedly Accelerated This Month European manufacturing and service industries making up two-thirds of the economy grew at an unexpectedly rapid pace in June as companies hired workers and invested in offices and equipment.
• EDF Shares Rise to Record; Market Value Overtakes Total on Nuclear Outlook Electricite de France SA overtook Total SA (TOT) as the euro-region's biggest company by market value after analysts raised their stock-price targets on prospects nuclear power generation will keep growing.