Wall Street Breakfast

by: SA Editors
SA Editors
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MACRO AND HOUSING

NAR Lowers Housing Outlook for a Fifth Straight Time, But Remains Optimistic

The National Association of Realtors lowered its annual housing market forecast again, but remains optimistic. In 2007, it now estimates 6.11 million existing homes will sell, down from June's 6.18 million forecast, and the lowest since 2002's 5.63 million. The median sales price for existing homes will shrink 1.4% to $218,800, down from June's -1.3% prediction, but should rise 1.8% in 2008 with sales rising 4% to 6.37 million. Some 865,000 new single-family home sales are expected this year, down from 1.05 million in 2006. Median 2008 new-home prices will rise 2.2% to $245,400 after a 2.6% drop in 2007 to $240,100. The NAR expects 1.43 million housing starts, including multifamily units, in 2007, and about the same in 2008. There were 1.80 million in 2006. The NY Times says housing figures are skewed because the high-end housing market remains robust while the lower-end tanks. NAR chief economist Lawrence Yun says cities that cut production and inventory will rebound faster, but that the decline in building could still trim another 1% from the home supplies/construction market to $495 billion, a 5-year low. The Fed remains upbeat on contained housing fallout, and bulls are encouraged by an uptick in mortgage applications. Homebuilders, however, continue to report losses, and British regulators have started clamping down on UK subprime lenders.
Sources: NAR Press Release, Reuters I, II, Bloomberg, Curbed SF, NY Times, Twin Cities, Forbes
Commentary: Market Distribution Following Profit Warnings in Housing and RetailA Key Concept In Marginal EffectsIs This the Bottom for Submerging Prime?
Stocks/ETFs to watch: K. Hovnanian Enterprises (NYSE:HOV), Beazer Homes (NYSE:BZH), K.B. Homes (NYSE:KBH), Toll Brothers (NYSE:TOL), Centex Corp. (CTX), Ryland Homes (NYSE:RYL), Pulte Homes, (NYSE:PHM), Lennar Corp., (NYSE:LEN), MDC Holdings (NYSE:MDC), NVR Inc. (NYSE:NVR), D.R. Horton (NYSE:DHI), iShares Dow Jones U.S. Home Construction (NYSEARCA:ITB), PowerShares Dynamic Building & Construction (NYSEARCA:PKB), SPDR Homebuilders (NYSEARCA:XHB)

TECHNOLOGY

Sony Ericsson's Q2 Profit Soars, But Misses; Gains Global Market Share

Sony Ericsson reported a 54% jump in net income to €220 million ($302.5m), on a 37% increase in sales to €3.11b. Its pre-tax profit rose 55% to €327m, while unit shipments grew 59% to 24.9m phones. Analysts had expected pre-tax profit of €383m on sales of €3.09b and unit shipments of 23.3m phones. Sony Ericsson said its global market increased about 3% during the quarter to more than 9%, helped by expanded sales to the mid and low-end segments. As a result and as Sony Ericsson expected, its average sales price fell 13.8% to €125. However, analysts had forecast ASP's of €132. Gross and operating margins improved y/y but declined sequentially. "We expect the market in 2007 to remain competitive, but with recently announced products such as the flag-ship Walkman and Cyber-shot models we aim to continue to grow faster than the market," said company president Miles Flint.
Sources: SNE 12 07 2007 Chart ERIC 12 07 2007 Chart Press release, Bloomberg, Dow Jones, Reuters
Commentary: Mobile Players Take On Apple iPhone With Flat-Rate Mobile Music ServiceGlobal Handset Sales Gain 14% Year/YearSony Ericsson to Target Lower-end Cell Phone Segment
Stocks/ETFs to watch: Sony Corp. (NYSE:SNE), LM Ericsson (NASDAQ:ERIC). Competitors: Motorola Inc. (MOT), Nokia Corp. (NYSE:NOK), Apple Inc. (NASDAQ:AAPL), Samsung [see iShares MSCI S. Korea (NYSEARCA:EWY)]. ETFs: Wireless HOLDRS (NYSEARCA:WMH), iShares MSCI Sweden Index (NYSEARCA:EWD), BLDRS Asia 50 ADR Index (NASDAQ:ADRA)
Earnings call transcripts: Sony F4Q06, LM Ericsson Q1 2007

Motorola Trades Lower in AH on Earnings Warning

Shares of Motorola last traded down 1.7% to $17.65 in extended activity on news it will miss Q2 revenue estimates and its core mobile handset business won't be profitable until 2008. Motorola's preliminary Q2 results put sales between $8.6b and $8.7b, compared to its prior forecast of $9.4b and an average Street average estimate of $9.25b. Motorola now forecasts a Q2 net loss of $0.02-0.04/share from continuing operations, including previously announced charges of $0.03-0.04/share related to workforce reductions and other items. In a separate press release, Motorola announced Stu Reed, executive VP of Motorola’s Integrated Supply Chain organization, has been named president of Motorola’s Mobile Devices business effective MOT 12 07 2007 Chart immediately. There is growing speculation CEO Ed Zander may not be around much longer. The Wall Street Journal mentions outgoing Qwest International Communications CEO Dick Notebaert as a possible successor. Motorola reports Q2 earnings July 19.
Sources: Press release I, II, Associated Press, Bloomberg, MarketWatch, Wall Street Journal
Commentary: Handset Troubles Deepen For MotorolaA 'Plan B' for MotorolaMotorola Earnings: Easy Come, Easy Go
Stocks/ETFs to watch: Motorola, Inc. (MOT). Competitors: Nokia Corp. (NOK), LM Ericsson Telephone Co. (ERIC), Palm Inc. (PALM), Research In Motion Ltd. (RIMM), Apple Inc. (AAPL). ETFs: Broadband HOLDRs (NYSE:BDH), Wireless HOLDRs (WMH)
Earnings call transcripts: Motorola Q1 2007

MEDIA

Murdoch Frustrated Over Dow Jones Talks

At a media conference in Sun Valley, Idaho on Wednesday, Rupert Murdoch expressed frustration at the apparent inability of the Bancroft family, Dow Jones's controlling shareholders, to make up their minds about his $5 billion offer. "They keep changing their minds," he said, without elaborating. Murdoch declined to comment on an attempt by Internet entrepreneur Brad Greenspan, a cofounder of MySpace, to assemble an investor group to make a rival bid. MySpace is now owned by Murdoch's News Corp. Together with supermarket mogul Ron Burkle, Greenspan made a presentation Tuesday to the Dow Jones board, but the meeting was only exploratory. According to the WSJ, "it wasn't clear whether a viable alternative to Mr. Murdoch's rich offer of $60 a share would emerge" from it. Neither Greenspan nor Burkle has commented. Dow Jones and News Corp. have agreed to form a committee that would DJ 12 07 2007 Chart NWS 12 07 2007 Chartapprove the hiring and firing of top Journal editors, but a full proposal for a News Corp. takeover has not yet been presented. Any such proposal would be subject to the approval of the Bancrofts.
Sources: Dow Jones, Wall Street Journal
Commentary: Why Buying Dow Jones Could Be A Money Loser For News Corp.Burkle and Greenspan Present Alternatives to Murdoch Bid for Dow JonesBancroft Trustees Might Hold Final Say on Dow Jones Sale -- WSJ
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NASDAQ:NWS). Competitors: Reuters Group PLC [ADR] (RTRSY). ETFs: PowerShares Dynamic Media Portfolio ETF (NYSEARCA:PBS)
Earnings call transcripts: Dow Jones Q1 2007, News Corporation F3Q07

RETAIL

Yum! Brands Beats and Raises On Strong International Growth

Fast food purveyor Yum! Brands said strong international sales offset weak U.S. sales and increased profits in its second quarter by 11.5%. EPS of $0.39 topped consensus estimates of $0.36 a share, as did revenue of $2.37 billion vs. estimates of just $2.28 billion.YUM 12 07 2007 EarningsChart Yum! raised its full year EPS estimates to $1.63, in line with what analysts were looking for. Worldwide same-store sales were up 2%, dragged down by flat U.S. sales at Yum! mainstays like KFC, Taco Bell and Pizza Hut. China recorded same-store sales growth of 7%, while overall international same-store sales grew by 11%. Yum! CEO David Novak said in the press release this would be Yum's seventh straight year of opening at least 1,000 new restaurants outside the U.S., fueling further growth in the company's bottom line. Yum's shares rose 4.43% yesterday before earnings were reported.
Sources: Press Release, Bloomberg, Dow Jones Newswire, RTT News, TheStreet.com, AP
Commentary: Why I'm Selling Yum BrandsYum Brands Removes Trans Fat From Its List of IngredientsCramer's Take on YUM
Stocks/ETFs to watch: Yum! Brands, Inc. (NYSE:YUM). Competitors: McDonald's Corp. (NYSE:MCD), Burger King Holdings, Inc. (BKC). ETFs: PowerShares Dynamic Food & Beverage (NYSEARCA:PBJ)
Earnings call transcripts: Yum! Brands Q1 2007 Earnings Call Transcript

ENERGY AND MATERIALS

Total Wins 25% Stake in Gazprom's Prized Shtokman Project

Russian state-controlled gas giant Gazprom said Thursday it has chosen Total SA to help develop Shtokman, the world's biggest undeveloped gas field, whose reserves hold enough gas to supply all of Europe for three years. Other companies on Gazprom's shortlist included Statoil ASA, Norsk Hydro ASA, Chevron and ConocoPhillips. Under the deal, Total will receive a 25% stake in a company that will finance and build the project, valued at over $20 billion. The other 75% will be owned by Gazprom, but CEO Alexei Miller said today in an emailed statement the company may offer a 24% stake (leaving it with a majority stake) to one or more additional foreign partners. Foreign expertise is considered crucial in developing Shtokman due to numerous complications, including icebergs. In October, Gazprom shelved its original plan to let multiple foreign partners take equity stakes in the TOT 12 07 2007 Chartproject, saying it would develop Shtokman alone, and bring in outsiders only as contractors. The present decision marks a compromise: Gazprom remains sole owner of the fields license, while Total and any future partners will participate in the company running the project, and share in its profits and risks.
Sources: Bloomberg, Financial Times,
Commentary: Gazprom Intends to Develop Huge Gas Field on Its OwnTotal to Increase '06 Capital Outlay To $14.5 BillionTotal S.A. Offers An Integrated Energy Model
Stocks/ETFs to watch: Total S.A. (NYSE:TOT), Statoil ASA (NYSE:STO), Norsk Hydro ASA (NHY), Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP)

Rio Tinto Trumps Alcoa with $38.1 Billion Offer for Alcan

Mining giant Rio Tinto announced Thursday it is offering $38.1 billion in cash, or $101 per share, for Canada's Alcan Inc. That bid is 32.8% higher than a hostile offer from Alcoa of $28.8 billion, or $76.03 per share. Alcan's board of directors is unanimously recommending that shareholders accept the Rio offer. The new bid represents a 65.5% premium to Alcan's all-time high prior to Alcoa's hostile offer and a 13% premium to Wednesday's close. The combined company will be called Rio Tinto Alcan. The deal is expected to result in after-tax synergies of about $600 million. Should Alcan elect not to complete the transaction, it will owe Rio a $1.05 billion breakup fee. According to Bloomberg, the acquisition will increase Rio's annual aluminum output by a factor of four, to 4.3 million tons -- enough to make 195,454 Boeing 787s. "Rio recognizes that it needs to increase its size, as it has been AA Chart-7-11-2007 16 RTP Chart-7-11-2007 20slipping in terms of market cap relative to others," said commodity strategist Peter Richardson. Aluminum will amount to 32% of Rio's 2008 earnings after the acquisition, up from 9% in 2006, according to Credit Suisse analysts.
Sources: Dow Jones, Bloomberg, Reuters, MarketWatch
Commentary: Alcan in Negotiations with Rio Tinto -- Globe and MailRio Tinto Hires Advisors in Possible White Knight Bid for Alcan -- TelegraphAlcan and Alcoa Takeover Speculation Continues
Stocks/ETFs to watch: Rio Tinto plc [ADR] (RTP), Alcoa Inc. (NYSE:AA), Alcan Inc. (NYSE:AL). ETFs: Materials Select Sector SPDR (NYSEARCA:XLB), iShares Dow Jones US Basic Materials Index (NYSEARCA:IYM), Vanguard Materials VIPERs (NYSEARCA:VAW)

FINANCIAL

Sallie Mae: Buyout Might Not Happen

Shares of SLM Corp. fell 9.65% to close at $52.22 Wednesday -- their steepest drop in 14 years -- after the company announced its $25 billion LBO might not take place. SLM 12 07 2007 Chart The lender was informed by its putative acquirer, a private equity group led by J. Christopher Flowers & Co., that current federal proposals "could result in a failure of the conditions to the closing of the merger to be satisfied." Sallie Mae "strongly disagrees with this assertion" and plans to go forward with the deal. According to Bloomberg, the takeover agreement gives the acquiring group the option to abandon the deal if Congress slashes subsidies to student lenders by more than $16 billion -- and on Wednesday, the House of Representatives voted 273-149 to approve $19 billion in subsidy cuts. The WSJ notes, however, that for the Flowers group to walk away without a breakup fee, it will have to demonstrate that the legislation constitutes a "material adverse" event that was not noted in Sallie Mae's securities filings. If it fails to demonstrate such an event, it will owe Sallie Mae $900 million. Some believe it is the tightening of available debt for LBO financing, and not government subsidies, that is giving the Flowers group pause. "We can't blame the company if it suspects the real reason the buyers want out is the turmoil and changing appetite for risk in the LBO debt markets, rather than the risk for adverse legislation," said Gimme Credit analyst Kathy Shanley.
Sources: Wall Street Journal, Bloomberg
Commentary: Barring Legal Issues Sallie Mae Buyout Projected For SeptemberSallie Mae Buyout Shows Anyone's Fair Game These DaysSallie Mae to be Taken Private for $25 Billion -- WSJ
Stocks/ETFs to watch: SLM Corp. (NASDAQ:SLM). Competitors: Bank of America Corp. (NYSE:DE) (NYSE:BAC), KeyCorp (NYSE:KEY), Student Loan Corp. (STU). ETFs: Financial Select Sector SPDR ETF (NYSEARCA:XLF), PowerShares Financial Preferred Portfolio (NYSEARCA:PGF), iShares Dow Jones US Financial ETF (NYSEARCA:IYF)

HEALTHCARE/BIOTECH

Ventana Rejects Roche's Hostile Takeover Bid Sending Shares To An All-Time High

The hostile takeover battle being waged by Swiss pharmaceuticals giant Roche Holding against U.S. diagnostics maker Ventana Medical Systems is getting ugly. Ventana's outspoken CEO Christopher Gleeson said Wednesday Roche's $3 billion, $75 a share bid was "a non-starter" because it is "way below Ventana's value, as it doesn't reflect our growth potential and the investments we have made." Gleeson went on to scold Roche for "high-handed tactics being used in an effort to deprive our stockholders of fair value." Ventana's Board of Directors, whose respective members own 21% of its shares, advised shareholders to reject Roche's offer. Roche CEO Franz Humer responded in kind, saying the offer was "full and fair." Humer threatened unspecified actions at Ventana's next shareholder meeting, hinting he may run a slate of board members sympathetic to a Roche takeover. Roche wants Ventana because its pipeline of products includes tests to identify patients whose tumors may respond to drugs targeting specific genes, technology that would accelerate development and sales of new cancer drugs for Roche. Humer hinted that Roche RHHBY 12 07 2007 Chart VMSI 12 07 2007 Chartmay be willing to up its bid in a letter to Roche, saying "To the extent that you believe that Ventana has additional information that would support a valuation in excess of our offer, we would be willing to consider it in a negotiation with you." Ventana's shares rose 2.84% to an all-time closing high of $82.53 Wednesday, the 11th straight day they have closed above Roche's offer price.
Sources: Press Release I, II, Bloomberg, Wall Street Journal, Financial Times, AP, Reuters,
Commentary: Roche Offers $3 Billion for Ventana Medical; Shares SoarRoche Recalls Contaminated Drug
Stocks/ETFs to watch: Roche Holdings (OTCQX:RHHBY), Ventana Medical Systems (VMSI). ETFs: Pharmaceutical HOLDRs (NYSEARCA:PPH), iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE)
Related: Roche slide show detailing Ventana Acquisition (.pdf)

Genentech Posts 41% Q2 Profit Rise; Beats Street; Raises Guidance

Genentech reported Wednesday that Q2 net income gained 41%, ahead of expectations, on strong sales of cancer drugs Avastin and Rituxan. DNA 12 07 2007 EarningsChartEarnings came in at $747 million ($0.70/share) versus $531 million ($0.49) in the year-ago period. Excluding items, EPS were $0.78. "The cancer drugs looked very solid and that's the key driver," said Sanford & Bernstein analyst Geoff Porges. Revenue was up to $3 billion from $2.2 billion, impressing some analysts. "They had revenue of $3.3 billion in 2003 and they just broke $3 billion in one quarter," said Montgomery & Co. analyst Shiv Kapoor. Analysts were expecting EPS of $0.71 on revenue of $2.85 billion. Genentech raised its full-year 2007 EPS guidance to $2.85-2.95 from $2.79-2.90. Analysts had been forecasting a profit of $2.92 a share. Sales of Rituxan, a treatment for relapsed or refractory non-Hodgkins lymphoma, rose to $582 million from $535 million in Q1 and $526 million a year ago. Colorectal cancer drug Avastin, which received approval last fall as a nonsmall-cell lung cancer treatment, gained 33% in sales to $564 million from $423 million in the year-ago period and $533 million last quarter. Sales do not appear to have been affected by a European trial that indicated a low dose of Avastin is just as effective as a high one in treating lung cancer.
Sources: Press release, Q2 2007 Earnings Call Transcript, MarketWatch, Wall Street Journal, Bloomberg, Reuters, Dow Jones, TheStreet.com
Commentary: Celgene, Genentech, Gilead: Is Biotech Weakness Creating A Buying Opportunity?Growth Stocks See Multiples Compress; Investors, Make a Shopping ListCancer Stocks Hammered Once Again
Stocks/ETFs to watch: Genentech, Inc. (Private:DNA), Roche Holding Ltd. [ADR] (OTCQX:RHHBY) [majority holder of Genentech]. Competitors: Amgen Inc. (NASDAQ:AMGN), Bristol-Myers Squibb Co. (NYSE:BMY), Glaxosmithkline plc. ETFs: iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB), HOLDRS Biotech (NYSEARCA:BBH), PowerShares Dynamic Biotech & Genome (NYSEARCA:PBE)

GE and Abbott Call Off $8.13 Billion Deal

General Electric and Abbott Laboratories have scrapped GE's planned $8.13 billion cash acquisition of Abbott's in-vitro and point-of-care diagnostics units after the parties were unable to agree on international licenses, regulatory costs and other terms. Abbott had been expecting to gain $6 billion in after-tax proceeds from the January agreement. GE had hoped to use the Abbott businesses to build up its $16 billion-a-year health-care unit, while Abbott had intended to use the sale to concentrate on faster-growing businesses. The deal would have constituted GE's entry into in-vitro diagnostics. The WSJ speculates that the abandonment of the deal might be connected to regulatory problems at an Abbott plant in Texas. The FDA warned that plant in March that its devices were "adulterated" and "misbranded"GE 12 07 2007 Chart ABT 12 07 2007 Chart and ordered swift correction of the problems. Some analysts are not sorry to see the transaction collapse. "It's good that they're not buying this asset," said T. Rowe Price analyst Peter Bates. "It was a business in decline, and GE should be buying back their stock." Neither GE nor Abbott expects the cancellation of the deal to affect their EPS forecasts for 2007.
Sources: Wall Street Journal, Dow Jones, Bloomberg, TheStreet.com
Commentary: Differing Accounts On GE/Abbott DealGE To Acquire Part of Abbott Labs' Diagnostic Unit For $8.13 BillionAbbott Labs: Beware of Inflated Multiple, Disconcerting Study - Barron's
Stocks/ETFs to watch: General Electric Company (NYSE:GE), Abbott Laboratories (NYSE:ABT). Competitors: Merck & Co. Inc. (NYSE:MRK), sanofi-aventis (NYSE:SNY). ETFs: iShares Dow Jones US Pharmaceutical Index (IHE), iShares Dow Jones US Healthcare (NYSEARCA:IYH), Pharmaceutical HOLDRS (PPH)
Earnings call transcripts: General Electric Q1 2007

INTERNATIONAL

BoJ Holds Again at 0.5%; Hike Still Expected in August

The Bank of Japan voted 8-1 to hold its target interest rate at 0.5%, sending the yen lower against the dollar and euro, while late selling pushed the Nikkei down 0.4% to fall below 18,000 for the first time in ten sessions. Global-Central-Bank-Rates-chart-07-12-07 The BoJ's pause was widely expected, especially ahead of parliamentary elections on July 29, but some were surprised by only one dissenting vote (Atsushi Mizuno). In January, Mizuno and two others voted unsuccessfully for a hike, but the following month the BoJ doubled its benchmark rate to the since unchanged target of 0.5%. BoJ Governor Toshihiko Fukui said policy makers are confident in their outlook of the economy, but want to examine more data, referring specifically to Q2 GDP, which will be released the week prior to its next meeting (Aug. 22 - 23). A majority of economists still expect an August rate hike. In its monthly report, the BoJ said the economy is expanding moderately and is expected to continue doing so.
Sources: Bank of Japan I, II (.pdf), Bloomberg
Commentary: BoJ's Nishimura Warns Against Pausing for Too LongJapan: PM Adviser Suggests Diversifying Foreign ReservesJapan: Nomura's July Individual Investor Survey
Stocks/ETFs to watch: Mitsubishi UFJ FG (NYSE:MTU), Mizuho FG (NYSE:MFG), ORIX (NYSE:IX). ETFs: iShares MSCI Japan Index (NYSEARCA:EWJ), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: A Technical Review of the Markets: A Mixed Bag
Interactive Q&A: Jing Lu, Investor Relations Director of China Housing and Land Development, Inc. (NASDAQ:CHLN)
Housing: ZipRealty + Zillow Could Be a Winner
Long Idea: Chuck E. Cheese: Long Term Value Thanks To Demographics
Internet: The Key to Realizing Napster's Value
Hardware: Optimistic Forecast For Syntax-Brillian: The Rollercoaster Ride May Be Over
Chips: NVE Corporation: Prospects Looks Good
Software: Vital Images Drops Hard On Guidance; Now Buyable?
Gadgets: The Video Game Industry: Nintendo Back In The Lead
Media: Can Harry Potter Work His Magic on IMAX?
Healthcare: Ariad Pharmaceuticals vs. Eli Lilly: When Will the Insanity End?
Biotech: Verenium: Green And Promising Emerging Biotechnologies
Retail: Whole Foods CEO John Mackey Makes a Mind-Boggling Mistake
Transport: Penske Auto Exceeds Smart Car Advanced Reservation Goals
Energy: Methanex: World's Largest Methanol Producer Looks Tempting
Financial: Three Direct Stock Purchase Plans: Pfizer, Health Care REIT, IndyMac Bancorp
Asia: International Equity Diversification Still Works
ETFs: Handicapping The ETF Issuers: Barclays Still the Team To Beat
Hedge Funds: Renaissance's New $25B Managed Futures Fund: Perfect Timing?
Small-Caps: Is a New Age Dawning For Aurora Oil and Gas Corp.?
IPO Analysis: Three 'Busted' Biotech IPOs: Amicus, Jazz, Sirtris
Sound Money Tips: Choose a Legal Structure For Your Business (Part 3)
Jim Cramer: Latest stock picks
Earnings Transcripts: Genentech Q2 2007Infosys Technologies F1Q08Audiovox F1Q08
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