American Home Mortgage Closes Its Doors
Mortgage lender American Home Mortgage Investment Corp. will shut down most of its operations on Friday, the company announced late Thursday night. "Bankruptcy is the next logical step," said JMP Securities analyst Steve DeLaney. The closure comes two days after the company's shares plummeted 90% on news that its banks had cut off its credit lines. American Home will lay off all but 750 of its 7,400 employees. "It is with great sadness that American Home has had to take this action which involves so many dedicated employees," said CEO Michael Strauss. "Unfortunately, conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative." All operations will be closed down except for the thrift and servicing businesses "to preserve the value of... remaining assets." American Home specialized in adjustable-rate and Alt-A mortgages geared toward borrowers with relatively good credit histories. The company's collapse suggests that the effects of the housing downturn are no longer contained within the subprime market. Its shares shed 50% to $0.72 in AH trading.
Sources: Bloomberg, TheStreet.com, Reuters, New York Times
Commentary: American Home Mortgage Plummets on Bankruptcy Fears • The AHM Meltdown: Symptom of a Much Larger Problem • American Home Mortgage: The Liquidity Crunch Claims Another Victim
Stocks/ETFs to watch: AHM. Competitors: IMH, NFI. ETFs: REM
Telus Won't Counterbid on BCE -- Globe and Mail
Telus will walk away from rival Canadian telecom BCE, choosing not to counterbid against the Ontario Teachers Pension Plan, largely because of its inability to get regulatory guidance on which assets it would have to sell in order to get federal regulatory approval, The Globe and Mail reported Friday. The Ontario Teachers Pension Plan has agreed to buy BCE for $35 billion ($42.75/share), but it had been widely expected that Telus would come back with a sweetened offer. Telus has seeking guidance from Ottawa and the Canadian Competition Bureau in considering a counter-bid before BCE holds its shareholder vote in mid-September. However, sources say, the company has decided not to proceed after being told guidance would not be forthcoming. It was unwilling to bid without first knowing which remedies the government might insist upon, "since a wireless divestiture would have a major impact on value of the acquisition."
Sources: Globe and Mail
Commentary: Telus Won't Rule Out A Bid For Bell Canada, Reports Q2 Results Friday • In the Hunt for BCE, Time is on Telus' Side • Telus to "Trump" Ontario Teachers' Bid for BCE?
Stocks/ETFs to watch: BCE, TU
Openwave Loss Widens, Sales Fall, New Executives Named
Openwave Systems reported its fiscal 4Q net loss expanded to $91.8 million ($1.11/share), partially attributed to discontinued operations and other one-off items. Its adjusted per share loss of $0.13 was two cents better than analyst expectations. Sales fell 18.4% to $68.1m, compared to analysts' average estimate of $71.2m. Openwave reported a one-to-one book-to-bill ratio. Regarding its executive management, Openwave said Dr. Jean-Yves Dexmier was named chief financial officer, replacing Harold Covert, who left for personal reasons. Former Nortel executive John Boden was named senior vice president of product management. Also, Michael Wallis-Brown, a former Nokia executive, was selected as general manager for the Asia-Pacific region. Shares of Openwave fell less than 1% to $5.30 in light extended trading Thursday, after gaining 2.5% to $5.35 during the regular session.
Sources: Press release, MarketWatch, TheStreet.com
Commentary: Openwave Posts Earnings & Names New CFO • Openwave Systems: Correction Unjustified, Shares On Sale • What Will Oracle Buy Next?
Stocks/ETFs to watch: OPWV. Competitors: CMVT.PK, MSFT, NOK
Take-Two Plummets On 'Grand Theft' Delay; Sony, Microsoft May Be Affected
Take-Two Interactive Software's shares plummeted Thursday in AH trading after the company revealed it would be required to delay, by as much as six months, the release of 'Grand Theft Auto [GTA] IV'. The delay, which means the newest GTA will not be out in time for this holiday shopping season, forced Take-Two to lower its guidance and incur a large loss in its current fiscal year, which concludes in October. Take-Two had previously forecast and reaffirmed full year sales of $1.2-1.25 billion and break-even EPS. It now expects full year sales of $950 million to $1 billion and a per-share loss of $1.25-1.35 excluding one-time items. Shares fell 18.69% in after-hours trading on the announcement. Take-Two was expecting to sell 10 million copies of GTA IV in the 12 months following its release. According to Wedbush analyst Michael Pachter, Take-Two will likely have to "fully draw down their $100 million line of credit, and depending on the timing of the revenues from GTA, they may be very low on cash by early next year." GTA IV was slated for release on both Sony's PS3 and Microsoft's Xbox 360. Analysts expressed concern that sales of the gaming consoles could be hurt during the holiday season on the delay of GTA, one of the most popular selling video games of all time. Xbox might be less affected, with the newest version of best-seller Halo being released in October.
Sources: Press Release, Bloomberg, MarketWatch, Reuters, Dow Jones Newswire, Financial Times
Commentary: Take-Two Interactive In Need Of Adult Supervision • Take Two Announces Restructuring Plan • Take Two Announces Restructuring Plan; Posts Q2 Loss
Stocks/ETFs to watch: TTWO, SNE, MSFT. Competitors: ATVI, ERTS. ETFs: IGV, SWH, PSJ
Earnings call transcripts: Take-Two F2Q07
NetApp Tanks On Preliminary Earnings Miss
Enterprise storage company Network Appliance Inc.'s shares tanked in after-hours trading on a preliminary earnings release which sees it missing prior earnings and sales estimates by a wide margin. CEO Dan Warmenhoven was "disappointed with [NetApp's] performance," blaming the weakness on a slowdown in spending by some of the company's top customers, including the likes of Oracle and the U.S. Army. The company said EPS will be between $0.08 and $0.09, far lower than the $0.14 to $0.15 NetApp was predicting. Revenue will come in between $684 million and $688 million, vs. the $745 million to $753 million the company was forecasting. NetApp has grown sales 30% or more in each of its last six quarters, and while analysts were expecting a slowdown to 23% in the company's FQ1 2008, the current numbers represent growth of just 10%-11%. Analysts had been expecting EPS of $0.17 on sales of $751 million. The company reports earnings on August 15. Its shares are already down 27% this year, not including Thursday's after-hours decline of 18.43%.
Sources: Press Release, MarketWatch, Bloomberg, AP, TheStreet.com
Commentary: Network Appliance Tumbles On Slashed Forecast • Network Appliance Guides Q1 Below Forecasts; Shares Plummet • Is Network Appliances on Sale? • Network Appliance: Another Sign Of Trouble For U.S. Enterprise IT Spending
Stocks/ETFs to watch: NTAP. Competitors: EMC, HPQ, IBM. ETFs: IAH, PHW
Earnings call transcripts: Network Appliance F4Q07
Activision Swings to Record Q1; Raises Guidance
Shares of entertainment software company Activision gained 5% to close at $18.30 Thursday after the company posted a record Q1 profit after a year-ago loss and raised guidance for the full year. The company reported fiscal Q1 net income of $27.8 million ($0.09/per share) versus a loss of $18.3 million (-$0.07) in the year-ago quarter. Excluding items, profit came in at $32.8 million ($0.11/share), ahead of analyst expectations of $0.07. Revenue was $495.5 million, a 163% gain from last year's $188.1 million and again besting analyst forecasts of $446.7 million. (See complete earnings call transcript.) The strong results were attributable primarily to the success of games Guitar Hero II -- the top-selling console game in the U.S. -- and Spider-Man 3. Activision is forecasting a Q2 net loss of -$0.04/share on revenue of $250 million. Analysts had been estimating a net loss of -$0.05 on revenue of $252 million. The company has raised its full-year 2008 EPS forecast to $0.51 ($0.61 excluding items) from $0.45 and its revenue forecast to $1.87 billion from $1.8 billion. Analysts had been expecting EPS of $0.51 ($0.60 excluding items) on revenue of $1.86 billion.
Sources: Press release, Reuters, TheStreet.com, Game Daily, Wall Street Journal, MarketWatch, Bloomberg
Commentary: Earnings Preview: Five Companies That Could Surprise • PC Games Making a Comeback • Activision: Will Guitar Hero Bring Even Brighter Days?
Stocks/ETFs to watch: ATVI. Competitors: ERTS, THQI, TTWO. ETFs: IGV
Fiserv to Acquire CheckFree for $4.4 Billion
Information management system provider Fiserv announced Thursday it will acquire electronic payment processing company CheckFree for $48 per share in cash, or $4.4 billion -- a 30% premium to CheckFree's Wednesday close. The combination will allow Fiserv to incorporate CheckFree's bill-payment services into its own account-processing and risk-management services. The combined company is expected to have revenue of approximately $6 billion and to add to Fiserv's earnings in 2008. Fiserv anticipates the combination will result in cost savings of over $100 million and $125 million in revenue synergies. "For people who pay bills online, in most cases they're using CheckFree's capabilities at their bank sites,'' said Fiserv CEO Jeffery Yabuki. "That's the premium service and we think it's a huge growth engine for the future." The transaction follows the purchase by Bank of New York of Mellon Financial for approximately $16.5 billion in stock and the acquisition by State Street Corp. of Investors Financial Services for $4.2 billion. CheckFree recently bought payment software consultant Carreker and online banking software company Corillian. In related news, CheckFree announced Thursday that it is projecting EPS for fiscal 2007 (ended June 30) of $1.35-1.37 and adjusted EPS of $1.87-1.89, ahead of analyst forecasts of $1.84.
Sources: Press release, MarketWatch, Bloomberg, Wall Street Journal, Dow Jones
Commentary: Fiserv, Oracle, SAP and Financial Services IT • Fiserv Showing Strong Growth
Stocks/ETFs to watch: FISV, CKFR. Competitors: FIS, TSS, MA, ORCC. ETFs: BHH, PSJ, PWO
Earnings call transcripts: Fiserv Q2 2007, CheckFree F3Q07
TRANSPORT AND AEROSPACE
Toyota Posts Double-Digit Profit, Sales Growth, Reiterates FY Guidance
Toyota Motor Corp. reported FQ1 2008 net income climbed 32% to ¥491.54 billion ($4.12B), on a 16% rise in revenues to ¥6.52T ($54.8B). Toyota was helped by a weak yen, which boosted its profit by ¥100b ($840M), as rising overseas sales offset domestic weakness. Toyota maintained its full-year (ending in March) guidance for net income of ¥1.65T and operating profit of ¥2.25T on sales of ¥25T. A Tokyo-based Credit Suisse analyst commented, "Toyota is a very conservative company." He added, "they will probably raise their forecast at the end of the second quarter to reflect the weaker yen and stronger sales." Shares rose 0.1% to ¥7,080 ($118.89 ADR equiv. at ¥119.1/$1) in Tokyo before the report. Its ADRs lost 0.5% to $118.59 on Thursday. Toyota issued a press release saying it will repurchase up to 5 million ordinary shares for up to ¥40b between Aug. 7 and Aug. 17. Separately, Bloomberg reports Toyota's plug-in electric car may have less than half the range of rival General Motors', according to people familiar with both companies' programs. GM is targeting a post-charge range of 40 miles.
Sources: Press release, Bloomberg I, II, Wall Street Journal
Commentary: July Auto Sales Hit Nine-Year Low • Japanese Exporters Look Poised to Profit from Weak Yen • Here Come the Hybrids: What's Behind The Prius' Success?
Stocks/ETFs to watch: TM. Competitors: HMC, NSANY, GM, F, DCX. ETFs: ADRA, EWJ, ITF
Related: Toyota Investor Relations Q1'FY08 Financial Results
ENERGY AND MATERIALS
Chesapeake Beats Estimates, Will Sell Assets to Fund Aggressive Drilling Program
Number-two U.S. independent natural gas producer Chesapeake Energy said Thursday Q2 net profit climbed 44% to $518 million ($1.01/share) from $360M ($0.82) a year ago. It also announced it would sell a portion of its wells in Appalachia in order to pursue a more aggressive drilling program. Excluding mark-to-market hedging gains and other one-time items, EPS of $0.71 topped analyst estimates of $0.65. Revenue jumped 33% to $2.1 billion from $1.58B a year ago -- beating forecasts of $1.63 billion. Natural gas production was up 20% to 156.1 bcf [billion cubic feet], more than compensating for a 1% in average realized price of $7.97 per tcf. Chesapeake boosted its total production growth forecast to 18-22% in 2007, up from a previous 14-18%, and to 14-18% in 2008 from a previous 10-14%. The jump is the result of an accelerated drilling program, and an extra 40 mcf/day of natural gas equivalent resulting from a $310M July deal with Anadarko Petroleum. To fund the accelerated program, the company will sell properties in West Virginia and Kentucky, from which it expects proceeds of at least $600M. In a post-earnings note, Citigroup analyst Gil Yang called the move positive, saying it "indicates the company is actively managing assets and not just growing the portfolio." Rival Devon Energy is the number-one U.S. independent natural gas producer. Shares rose 2% to $35.34 in AH trading.
Sources: Press release, Dow Jones, AP, Bloomberg
Commentary: Falling Natural Gas Prices Haven't Affected Stocks (Yet) • Chesapeake Energy: Hedging Its Way to the Top • Chesapeake Energy Corporation: Follow the Smart Money
Stocks/ETFs to watch: CHK, APC, DVN. ETFs: IEO, PUW
Accredited Home Lenders Plunges, Regains on Clarification
Shares of Accredited Home Lenders Holding fell 35.3% in regular trading Thursday after the company said it could be forced out of business. But the stock regained 25.4% in AH trading after it issued a statement noting its auditor did not include a "going concern" warning in its delayed 2006 annual report. The 10-K filing warned that if the company is unsuccessful in amending covenants with its lenders, subsequent defaults "would have a material adverse impact on our ability to fund mortgage loans and continue as a going concern." A "going concern" statement in regulatory filings is often seen as a precursor to bankruptcy. But when used by the company and not its auditor, it carries less weight. "Accredited's auditors never used the term 'going concern,'" Friedman, Billings, Ramsey analyst Scott Valentin said in an interview. "I think some reports earlier today read too much into the company's statement." Shares traded as low as $3.90, a 50% drop, and closed down over 35% at $5.31. In AH trading, after the follow-up statement, shares climbed over 25% to $6.70 -- still 18% below Wednesday's close. In June, Accredited agreed to be bought out by private-equity firm Lone Star for $400 million ($15.10/share); the merger is still pending. Shares currently trade well below the acquisition price as traders wonder whether the deal will be closed. Accredited's auditor referred to the Lone Star bid, saying that if it doesn't close, or if conditions deteriorate further, the company's viability is uncertain. Accredited said late Thursday it doesn't expect the need to obtain regulatory approvals will prevent the transaction from closing, and that it expects the tender offer to close in the third quarter. "It's now a foot race between getting regulatory approvals and trying to maintain liquidity," Valentin said, noting that if its financial woes start to concern regulators, it could make it more difficult to get approval.
Sources: 10-K filing, Press release, Wall Street Journal, MarketWatch
Commentary: Defining Two Camps Of Subprime Lenders • Accredited Home Lenders: Survival in the Quicksand of Subprime • Accredited Home Lenders, Maybe Not So Accredited [24/7 Wall St.]
Stocks/ETFs to watch: LEND. Competitors: FNM, FRE
FDA Delays Pozen's Trexima Again
Shares of painkiller manufacturer Pozen Inc. plunged 43% to close at $9.93 Thursday after the FDA declined for the second time in a year to approve its migraine drug Trexima. This was the shares' steepest fall since they plummeted 61% the last time the FDA delayed the drug's approval. The agency is concerned that an early study, in which megadoses of Trexima were given to Chinese hamsters, suggested a possible cancer risk. It has instructed Pozen and its partner, GlaxoSmithKline, to provide more data, which might require a new test on humans. Trexima, a combination of Glaxo's Imitrex and the over-the-counter painkiller naproxen, has already completed all three human trials usually required for approval. The companies hope to get the drug to market before 2008, when a generic version of Imitrex will be released. Glaxo is faced with looming generic competition on several fronts as patents expire, and has seen its share price drop 13% since its diabetes drug Avandia was linked to heart attack risk three months ago. "We all know it's a difficult regulatory environment," said Pozen CEO John Plachetka. "We see examples of it every day. Given where the agency is today they might wanna be in a position to say, 'Yeah, we ran it (the Chinese hamster issue) down'."
Sources: Wall Street Journal, CNBC.com, Bloomberg, TheStreet.com
Commentary: JAMA: GlaxoSmithKline-Pozen Combination Treatment Increases Anti-Migraine Effectiveness • Pozen's Trexima Begins Six Month FDA Review • Pozen: On Track With New Pain Medications
Stocks/ETFs to watch: GSK, POZN. Competitors: AZN, ENDP, NVS, SNY. ETFs: EKH, OTP, ADRU
Earnings call transcripts: GlaxoSmithKline Q2 2007
Boston Scientific Will Keep Endosurgery Unit
Medical device manufacturer Boston Scientific is abandoning plans to spin off a minority stake in its endosurgery business. The company had explored the sale as a means of raising cash to pay off some of the $7 billion in debt it took on during its $27 billion acquisition of Guidant, but has concluded that a sale would reduce shareholder value. "Our decision to retain the endosurgery group is the first in a series of steps we plan to take to advance our strategy of restoring growth, increasing shareholder value and continuing to build a broad, diversified company," said CEO Jim Tobin. The unit, which produces devices used in the treatment of digestive, urological and gynecological disorders and also certain cancers, is expected to generate $1.4 billion in revenue this year (a fifth of overall revenue). The company's stent business has been hurt by fears of blood clot risk, and defibrillator sales have declined after several recalls. Since the Guidant acquisition, Boston Scientific's shares have dropped by a third. The company's credit rating was also cut in July after it missed analysts' quarterly earnings expectations. The shares gained 1.82% Thursday to close at $13.43.
Sources: Dow Jones, Bloomberg, New York Times
Commentary: The Long Case for Boston Scientific • Boston Scientific Considers IPO for Endosurgery Unit
Stocks/ETFs to watch: BSX. Competitors: JNJ, MDT, STJ. ETFs: IHI
Earnings call transcripts: Boston Scientific Q2 2007
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