U.S. Markets Plummet on Record Volume
The Dow Jones Industrial Average dropped 311.5 points (2.26%) Thursday, its second worst session of the year (in February it fell 416 points in one day), amid investor fears over spiralling subprime mortgage losses, an anemic dollar, and the sudden absence of formerly abundant credit. Intraday lows were 450 points down from Wednesday's close. The Nasdaq fell 1.84%, and the S&P 500 lost 2.33%. While most analysts agree we may not yet have seen the end of the current setback, which has seen the S&P 500 index drop 4.6% over the past week, many were quick to point out that a correction was inevitable. "The basic problem in the market is that we've been up, up and away and needed a correction," said Al Goldman of A.G. Edwards. "I don't think this is going to develop into a 10% correction." From a fundamental standpoint, analysts noted, nothing much has changed. Goldman says there may soon be a buying opportunity: "The best time to buy stocks is when you're least comfortable buying stocks." Others were less optimistic: "It's kind of like catching a falling knife right now," said portfolio manager Edwin Gutierrez of London-based Aberdeen Asset Managers. "I wouldn't be in a hurry to add risk." Portfolio manager Sid Bakst of Robeco Weiss, Peck & Greer said, "As each day has gone by, things have been leaking a bit more, but today there was full-blown carnage." Combined volume on NYSE, Nasdaq, and AMEX exchanges totaled 10.59 billion shares, blowing past the previous volume record by 34%. S&P futures are down 10.25 from Thursday's close as of 7:46 ET.
Sources: MarketWatch, Business Week, Wall Street Journal
Commentary: 2% Market Decline - That's It? • Feeling Vindicated By This Sell-Off - And Looking At Toll Brothers • Suddenly, Investors Can See the Bad News
Stocks/ETFs to watch: SPY, DIA, AGG
WCI Shares Plunge After No Bid Materializes
Shares of Florida homebuilder WCI Communities shed 12.8% in regular trading and another 9.4% in AH trading to close at $8.94 Thursday after the company announced it has not found a buyer. WCI, which put itself up for sale in February, had rejected as insufficient an offer from activist investor Carl Icahn to buy the company for $22 per share. Icahn, whose offer expired in May, planned to oust WCI's management and install a new board of directors. The company's efforts to solicit a superior bid have been fruitless. "[D]eteriorating conditions and uncertainty in the homebuilding and debt markets have made the sale process more challenging," the company said in a release. The tightening credit markets will make it "difficult for the company to sell large amounts of land in the near term and/or recapitalize," wrote Bank of America Corp. debt analyst Andrew Brausa, who downgraded WCI's notes to Neutral from Buy. WCI builds homes in planned communities in Florida, where mortgage loan payments that are one to three months past due increased 30% in Q1 2007 from Q4 2006. "That $22 per share bid looks awfully good now," said Morningstar analyst Eric Landry. "There is a glut of condos that has gotten worse, and investors are more focused on it."
Sources: Press release, Bloomberg, Reuters, Forbes, MarketWatch
Commentary: WCI Communities' Board of Directors Rejects Icahn's Offer • Icahn, WCI Management Trade Barbs at Hint of Hostile Bid; Shares Jump • Contrarian Investors Seek Value in Housing
Stocks/ETFs to watch: WCI. Competitors: LEN, PHM, TOL. ETFs: EES
European Commission Brings Formal Anti-Trust Case Against Intel
The European Commission issued a press release saying it has sent a Statement of Objections to Intel, alleging it has infringed on the EC Treaty rules on "abuse of dominant market position with the aim of excluding AMD" in the x86 CPU market. The EC cites three abuses including Intel (1) provided "substantial rebates" to OEMs conditional on them sourcing primarily or exclusively from Intel, (2) made payments to induce OEMs to delay or cancel the launch of product lines based on AMD CPUs, and (3) made below-cost bids on projects in the server segment. Intel has 10 weeks to reply to the EC's Statement of Objections. Intel's Sr. VP Bruce Sewell commented that the company is "confident that the microprocessor market segment is functioning normally and that Intel's conduct has been lawful, pro-competitive, and beneficial to consumers." The President of AMD Europe said the EC's Statement "... will be a catalyst in opening the global microprocessor markets for the benefit of consumers and PC companies alike." Shares of Intel lost 2% to $24.00 on Thursday. AMD fell 5.5% to $14.73.
Sources: EC press release, Bloomberg, Thomson Financial, Wall Street Journal
Commentary: Is AMD Getting On Its Feet After Intel Knockdown? • Advanced Micro's Earnings Show Out of Control Spending • Intel Reports 44% Q2 Profit Rise; Margins Disappoint • AMD Gains on Revenue Beat Despite Big Q2 Loss
Stocks/ETFs to watch: Intel Corp. (INTC),Advanced Micro Devices Inc. (AMD). ETFs: Ultra Semiconductor ProShares (USD), Semiconductor HOLDRs (SMH), iShares S&P GSTI Semiconductor (IGW), SPDR S&P Semiconductor (XSD)
Earnings call transcripts: Intel Q2 2007, AMD Q2 2007
Infineon Shares Higher in Frankfurt on 4Q Outlook Despite Wider 3Q Loss
Infineon Technologies, Europe's second-largest semiconductor manufacturer, reported its 3Q net loss widened to €197 million ($271m) or -€0.26/share, as revenues declined 11% to €1.75b, missing analysts' average estimate of a net loss of -€146m on sales of €1.8b. On a more promising note, ex-Qimonda, Infineon said it would have earned an operating profit of €13m on 2% higher sales to €995m. Infineon expects more revenue gains in 4Q, ex-Qimonda, driven primarily by its Communications segment. Infineon owns an 85.9% stake in memory-chip maker Qimonda, which suffered a 25% drop in quarterly sales as DRAM prices slumped. Infineon has previously said it eventually wants to cuts its stake to below 50%. Shares of Infineon reversed earlier losses and were last up 2.8% to €12.45. Its ADRs lost 3% to $16.71 Thursday. In a note published this morning, Citigroup reiterated its "1H" (buy/high risk) rating with a target of €14.90. Infineon's earnings call is at 4 a.m. Eastern. Check for Infineon's earnings call transcript later today.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Infineon: A Big Winner In iPhone • Apple's iPhone and the Future of Infineon • Apple Engineered Huge Margins Into Its iPhone
Stocks/ETFs to watch: Infineon Technologies AG (IFX), Qimonda AG (QI). Competitors: STM, TXN, MU, FCS, IRF, BRCM
TheStreet.com Misses Estimates on Weak Subscription Sales
Financial commentary website TheStreet.com reported Thursday that second-quarter EPS was $0.12, flat year-over-year and short of the $0.13 analysts expected. Shares fell by over 14% in early trading. Revenue climbed 20% to $14.9 million, in line with analyst estimates. Of TheStreet's three revenue streams, advertising revenue was up 48%, subscription sales for its premium content gained a paltry 2%, while other revenue (content syndication) almost tripled. Non-financial ad revenue was up 206%, representing 39% of its total advertising revenue in the quarter, vs. 19% a year ago. In early 2008, the company said it plans to launch a redesigned website, and to launch its new MainStreet.com interactive website, which will use an "advertising-sponsored revenue model with a lead generation component." It will provide "mainstream news in the context of its impact on one's financial life." During the quarter, TheStreet entered into an exclusive agreement with Charles Schwab & Co. to provide monthly articles "covering market commentary, technical analysis, stock fundamentals and trading techniques" for Schwab's online newsletter. It also inked a contract with Quattro Wireless, who will help it develop a mobile website that will broadcast wireless video and market updates. On May 29, a Needham & Co. analyst wrote in a note to clients, "TheStreet.com’s transition from primarily a subscription newsletter story to one driven by a high-margin, highly scalable advertising media model is working... While much attention of late has surrounded ad tech firms (e.g. DoubleClick, AQNT, VCLK, etc.), we believe content is still king and that some of the best buys today are online media/content stocks, like TSCM, that haven’t participated in the latest rally." See the full TSCM conference call transcript (available after the call).
Sources: Press release, TheStreet.com, PaidContent.org
Commentary: TheStreet.com CEO: Online Video Ad Market Is 'Astounding' • Why TheStreet.com and Others Won't Be Acquired • Winners and Losers from Peer to Peer Investing
Stocks/ETFs to watch: TSCM. Competitors: DJ, RTRSY, CNET
CNET Slips to Q2 Loss, Lowers Guidance
CNET Networks posted a second-quarter net loss of $76,000 ($0.00 per share) due to costs from an investigation of backdated stock options, on sales growth of 5.2% to $97.2M. Analysts had expected CNET to break even on sales of $100M. CNET lowered its full-year EPS and sales guidance to $1.30-1.39 on sales of $405-430M, from $1.37-1.47 on $425-445M previously. Analysts had forecast EPS of $1.39 on revenue of $431.2M. Shares of CNET gained 1.1% to $8.35 in thin after-hours trading Thursday, after losing 2.8% to $8.26 during the regular session. In a July 13 note, Stifel Nicolaus analyst Kit Spring said, "CNET is a rare media Internet asset left with scale, likely to be coveted by major media companies such as NWS, DIS, VIA, IACI, or NYT, in our view, who are trying to catch up to Internet leaders... We believe CNET shares may be ripe for an activist hedge fund as management seems to believe that a stand-alone strategy makes more sense." CNET is down 9.1$ YTD.
Sources: Earnings Call Transcript, Press release, AP, Bloomberg, MarketWatch
Commentary: Is CNET Networks Worth a Look? • Why CNET, TheStreet.com, WebMD, PlanetOut, The Knot and Answers.com Won't Be Acquired • CNET: Possible 50% Upside In Takeover Scenario
Stocks/ETFs to watch: CNET. Competitors: TSCM, YHOO
Reuters Posts 19% H1 Profit Rise
The Reuters Group, the business news service that has agreed to be taken over by Thomson Corp., reported Thursday that H1 profit was up 19% to £114 million ($234 million) while revenue fell 0.7% to £1.27 billion ($2.6 billion). Excluding items, revenue rose 6.4% and profit was up 36% to £175 million. U.S. dollar weakness and other currency issues cut into H1 revenue by £85 million ($174 million), and the company spent £21 million ($43 million) during the period on costs associated with the £8.7 billion ($17.8 billion) merger. "Against the backdrop of the pending Thomson-Reuters transaction, Reuters stayed focused on driving growth in the first half and delivered the strongest six months of sales and installations in more than five years," said CEO Tom Glocer. Reuters announced it is raising its interim dividend to 5 pence from 4.1 pence per share. The company also said the U.S. Department of Justice has started its antitrust review of the merger and that information is being provided to European and Canadian competition authorities. Reuters ADRs closed down 2% at $76.83.
Sources: Bloomberg, Reuters, Forbes, MarketWatch
Commentary: Cash Flow From Reuters Merger Could Boost Thomson Shares • Reuters Agrees To Merge With Thomson; Regulatory Scrutiny To Follow
Stocks/ETFs to watch: RTRSY. Competitors: DJ, TOC, NWS. ETFs: RCD
Crocs Posts Tripling of Q2 Profit, Raises Guidance
Shares of shoe manufacturer Crocs Inc. surged 15% to close at $58.15 in AH trading Thursday after the company posted a solid Q2 earnings beat and boosted its Q3 and full-year outlooks well beyond Street expectations. For Q2, Crocs posted $224.3 million in revenue, a 162% rise from the year-ago quarter's $85.6 million. The company earned $48.5 million ($0.58/share) in the quarter versus $15.7 million ($0.19) last year. Analysts were expecting EPS of $0.44 on revenue of $192.7 million. For Q3, the company is forecasting revenue of $240-250 million and EPS of $0.58-0.62 on a "better than anticipated" order book. The Street had been expecting Q3 profit of $0.43 on sales of $195.9 million. For full-year 2007, Crocs raised guidance to $810-820 million in revenue and $1.89-1.93 in EPS, up from $670-680 million in revenue and split-adjusted EPS of $1.45-1.48. The new forecasts comfortably surpass prior analyst expectations of $1.56 in EPS on revenue of $712.2 million. Crocs attributes its strong performance to new styles, better distribution, and licensing deals to use the logos of Major League Baseball, Marvel Comics and others. "We are confident that our efforts to further evolve the Crocs brand, first in the U.S. and now overseas…has us well-positioned to capitalize on our near-term opportunities while delivering long-term growth and opportunities in the years ahead," said CEO Ron Snyder.
Sources: TheStreet.com, AP I, II, Wall Street Journal, Bloomberg, MarketWatch
Commentary: Don't Get Caught With Your Crocs Down • Crocs Not Yet Priced For Perfection • The Crux of Crocs' Valuation
Stocks/ETFs to watch: CROX. Competitors: DECK, NKE, TBL. ETFs: JKK
ENERGY AND MATERIALS
Baker Hughes Posts 75% Drop in Q2 EPS
Texan drilling company Baker Hughes reported Q2 profit of $349.6 million ($1.09/share), down from $1.40 billion ($4.14) in the year-ago quarter when the company recognized a $1.04 billion gain on an asset sale. Analysts were expecting EPS of $1.09. Factoring out the sale of its interest in WesternGeco, last year's Q2 earnings were $359.8 million ($1.07/share). Q2 2007 revenue was up 15% to $2.54 billion from $2.20 billion in the year-ago quarter. The company's shares fell 5.8% on July 13 after it warned quarterly profit would likely come in at $1.07-1.09 a share, $0.10-0.12 below Street expectations at the time. The company has authorized a buyback of up to $1 billion of its common shares in addition to an existing authorization to repurchase $1.21 billion of common stock. Baker Hughes was hit in April by an eight-year low in Canadian drilling. "Canada's hurt everyone," said Argus Research analyst David Rewcastle, who rates Baker Hughes shares "buy."
Sources: Press release, MarketWatch, Bloomberg
Commentary: Baker Hughes Drops On Q2 Earnings Warning • Baker Hughes CEO To Investors: 'Keep the Faith'
Stocks/ETFs to watch: BHI. Competitors: HAL, SLB, SII. ETFs: OIH, IEZ, RYE
Lazard Looking to Sell U.S. Brokerage House -- Report
Investment bank Lazard Ltd. is in talks to sell off its U.S. brokerage business -- Lazard Capital Markets -- to Natixis' Bleichroeder, according to a report in Friday's Les Echos, a French business newspaper. Sources say the two companies initiated negotiations over the past year, and that a deal could be finalized by the end of 2007.
Commentary: Lazard Shares Fall on Insider Sales • Lazard Shares Jump Nearly 4% on Beat Quarter
Stocks/ETFs to watch: LAZ. Competitors: GS, MER, MS. ETFs: IAI, VFH
Related: Lazard Capital Markets website
KKR Might Postpone IPO -- WSJ
Buyout firm Kohlberg Kravis Roberts & Co., squeezed by a newly challenging debt market, may have no choice but to postpone its plans for an IPO, according to the Wall Street Journal. In an indicator of how inhospitable the market has become, KKR rival Blackstone Group, which went public a month ago at $31, is now trading 20.8% below its offering price. Blackstone is less exposed than KKR to trouble in the credit markets, since it is diversified into real estate, a hedge fund of funds and a restructuring-advisory business. KKR, meanwhile, is attempting to close 11 deals valued at $140 billion, including a $44 billion takeover of TXU Corp. and a $28 billion buyout of First Data Corp. Debt investors are less eager than they were to finance such deals. The Journal notes that if investors refuse the deals, KKR's bankers will require it to reduce terms, add equity or bring in new investors -- all of which would add to KKR's risk while cutting its returns. That in turn would "leave previous valuation estimates in tatters, which could be enough to stop the IPO in its tracks."
Sources: Wall Street Journal
Commentary: KKR Files for $1.25 Billion IPO • PowerShares Private Equity ETF As A Tell On PE's Top • Pimco Chief Bill Gross: 5-10% Correction May Be Ahead
Stocks/ETFs to watch: BX, FIG. ETFs: KCE
Earnings call transcripts: Fortress Investment Group Q1 2007
Amgen Posts Slim Revenue Rise on Enbrel Sales
World-leading biotech company Amgen Inc. reported a 3.4% rise in Q2 revenue on sales of rheumatoid arthritis drug Enbrel, which compensated for a decline in sales of anemia drug Aranesp. Q2 net came in at $1.02 billion ($0.90/share) from $14 million ($0.01) a year ago, when the company's acquisition of Abgenix erased $1.1 billion in profit. Excluding items, net profit was $1.27 billion ($1.12/share) versus $1.24 billion ($1.05) last year. Analysts were expecting $1.06. Revenue edged up to $3.73 billion from last year's $3.6 billion, in line with Street forecasts. (See earnings call transcript.) Amgen shares have fallen about 20% this year on safety concerns about anemia drugs Aranesp and Epogen, which represent approximately half the company's revenue. Aranesp's Q2 sales were $949 million, down 10% from last year. Enbrel sales, by contrast, were up 14% to $823 million. "This has been a difficult period and this quarter’s low growth is a reflection of that reality," said CEO Kevin Sharer. Amgen lowered its full-year EPS forecast to $4.28 from $4.30-4.50. Its shares fell 1.75% to close at $56.16.
Sources: Bloomberg, New York Times, Dow Jones
Commentary: Cancer Stocks: Lagging Again • David Neubert's Top Ten Holdings • Amgen’s Story Gets Better And Better
Stocks/ETFs to watch: AMGN. Competitors: BAX, JNJ, NVS. ETFs: BBH, PKW, PRFH
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