Central Banks Scramble to Calm Anxious Markets
In their first real acknowledgement of a potential credit crisis, numerous central banks injected money into their respective economies or said they would do so, as authorities tried to calm anxious investors. Thursday, the European Central Bank [ECB] pumped a record €94.8 billion into money markets after France's largest investment bank, BNP Paribas, said it was freezing redemptions in three of its funds that have holdings in U.S. asset-backed securities. The bank issued a statement noting "tensions in the euro money market." The U.S. Federal Reserve injected $24B into the U.S. system, about $9B more than average. On Friday, the Bank of Japan injected one trillion yen ($8.4B) into its money markets after equity markets plunged 2.4%. Notwithstanding the short-term liquidity injections, central banks still appear largely unwilling to relax interest rates. Australia's CB raised rates on Wednesday, as did South Korea's on Thursday -- citing the inflationary risk of excess liquidity. The BoJ is widely expected to raise rates within the month. CBs are largely thought to believe a healthy correction is long overdue, in the face of lenders who were becoming increasingly complacent about risk. Speaking Thursday in Washington, President Bush said he was confident the markets could hold their own without significant government intervention: "I am told there is enough liquidity in the system to enable markets to [self-]correct," he said. On Tuesday, the Fed acknowledged a tightening in credit availability, but reiterated its primary focus remained on inflationary risks. Traders currently forecast a 60% chance of a rate-cut to the Fed's 5.25% target rate in September. In Thursday trading, the Dow Jones Industrial Average fell 387.18 points (2.83%) to 13270.68. Update: The ECB said Friday it will hold a three-day €61 billion tender to add additional liquidty to the market. The bank said it received 62 bids totalling over €110 billion on Thursday's tender.
Sources: Reuters, Wall Street Journal, MarketWatch
Commentary: Irrational Exuberance Got Buried Yesterday: Now What? • Today's Correction Was Liquidity Driven • Fools Rush In: Too Smart for Their Own Good
Stocks/ETFs to watch: DIA, SPY, AGG
NVIDIA Beats Estimates, Plans Stock Split
NVIDIA said late Thursday its Q2 net earnings doubled and revenue jumped 36% on strong demand for its graphics chips in both desktop and notebook computers. Gross margins climbed almost 3% to 45.3% from 42.5%. The company also said it plans a three-for-two stock split on or about Sept. 10. Net income was $172.7 million ($0.43/share) on revenue of $935.3 million, compared to $86.7M ($0.22/share) on revenue of $687.7M a year ago. After one-time items, EPS of $0.51 beat analyst estimates of $0.43 on revenue of $860 million. NVIDIA chips are used in HP, Lenovo, Acer and Apple PCs, and in Sony's PlayStation 3 game consoles. Desktop products saw 37% growth y/y, while notebook products' growth jumped 129%. For Q3, NVIDIA forecasted 5-7% sequential revenue growth, which means sales of $982M-$1B; analysts had been calling for $939M and EPS of $0.49. "As the leading and only dedicated GPU [graphics processing unit] company in the world, our opportunity has never been more exciting as the number of applications and digital devices that benefit from the GPU continues to grow," CEO Jen-Hsun Huang said (see full earnings call transcript). "The stock is down [in AH] because expectations were absurdly high," analyst Nicholas Aberle said. "The second quarter was enormous." "Competition has disappeared. Nvidia has eaten their lunch," said ThinkEquity Partners' Eric Ross. "Demand is incredibly strong." Shares dropped 2.02% in AH trading following the report.
Sources: Press release, MarketWatch, Bloomberg
Commentary: NVIDIA Shares Hit All-Time High on Analyst Actions, New Chips • Apple's iPhone and the Future of Nvidia • The Long Case for Semi Stocks
Stocks/ETFs to watch: NVDA. Competitors: AMD, CREAF, INTC. ETFs: USD, XSD, IGW
IPhone Screen May Develop Dead Spots -- Analyst
Reports of non-responsive spots on the iPhone's touch-screen raise concerns over the device's long-term viability, an analyst told clients in a note Friday. Nomura International analyst Richard Windsor said the iPhone's screen makes use of a chemical reaction to provide touch sensitivity based on heat. The technology, he said, was bought from a defunct Finnish company that had attempted to produce a similar device, but gave up after finding the chemical film began to degrade and lose its sensitivity after extensive use. Windsor said the problem typically appeared within 3-6 months. Apple was likely aware of the problem and should have fixed it, he wrote, but said only time will tell whether all is well with the iPhone touch-screen.
Commentary: iPhone Competitors: Research in Motion • Possible Delay in Launch of Faster iPhone • Apple: The Best Is Yet To Come
Stocks/ETFs to watch: AAPL. Competitors: RIMM, MOT, NOK, PALM
EchoStar Posts Strong Cash Flow and Ebitda Growth
Number-two U.S. direct broadcast satellite TV provider EchoStar Communications said Thursday its second-quarter profit jumped 33% on a 12% rise in revenue from increases in its customer base and in prices. The company, parent of the Dish Network, reported net income of $224.2 million ($0.50/share) on revenue of $2.76 billion, vs. $168.8 million ($0.38/share) on revenue of $2.47 billion in the year-ago quarter. Both income and revenue were in line with analyst forecasts of $0.50/share on revenue of $2.8B. Gross subscriber additions were up 26,000 to 850,000. Net additions were 170,000; analysts had expected a stronger 210,000. EchoStar ended the quarter with 13.59 million subscribers. Average monthly revenue per subscriber rose 5% to $66.06 as customers opted for pricier high-definition products. Pre-marketing cash flow, a key broadcast metric, was up a record $101 million q/q. Ebitda [earnings before interest, taxes, depreciation and amortization] growth was 23%, outdoing a much-weaker 11% pace in Q1. Shares fell 3.8% to close at $38.30 on Thursday, but regained 2.7% to $39.33 in AH trading after the earnings report. EchoStar's earnings conference call is scheduled for 12 p.m. ET (see full transcript later).
Sources: Reuters, Dow Jones
Commentary: Applauding EchoStar's Execution • Satellite TV: EchoStar No Cheaper than DirecTV
Stocks/ETFs to watch: DISH. Competitors: DTV, CMCSA, TWC. ETFs: PPA
Home Depot Falls Most In Four Years, Likely To Cut Sales Price of Supply Unit
What seemed like a sure-thing $10.325 billion sale of Home Depot's contractor-supply unit to private equity groups Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice two months ago is now unlikely to go down as planned. Home Depot released a statement Thursday saying discussions were taking place with the aforementioned private equity groups with the "purpose of restructuring the previously announced agreement for the sale of HD Supply. These discussions could result, among other things, in material changes to the terms and financing of the transaction, including a reduction in the $10.325 billion purchase price." The announcement sent shares down 5.32% in composite trading Thursday, on heavy volume of 37.1 million shares -- the biggest single-day fall in more than four years. With a liquidity squeeze making it difficult for private equity groups to fund leveraged buyouts, it is unclear as of yet how much Home Depot will have to reduce the price of its supply unit to make a sale more palatable to the buyers. The unit accounts for 13% of Home Depot's revenue. The company reported total revenue of $81.5 billion in 2006.
Sources: Bloomberg, AP, Reuters, MarketWatch, Dow Jones Newswires
Commentary: Home Depot Sells Supply Unit for $10.3B, Boosts Share Buyback • Is Home Depot's Share Buyback At Risk? • Home Depot Lowers 2007 Earnings Guidance
Stocks/ETFs to watch: HD. Competitors: LOW. ETFs: RTH, XLY
Earnings call transcripts: Home Depot Q1 2007
July Same-Store Sales Roundup
Retailers reported July same-store sales Thursday. Collectively, the month was a weak one for the sector. On average, retailers missed the forecasts of analysts surveyed by 1.5%, with almost 75% of retailers posting below-estimate sales gains. Notable beats include Nordstrom, which doubled analyst estimates of 4.5% same-store sales growth, and Saks, who posted a 14.9% gain vs. a 5.6% loss in June. Big losers included Abercrombie & Fitch, which saw same-store sales fall 4.0% vs. expectations of a milder -0.9%; Aeropostale lost 11.9% vs. forecasts of a 1.6% gain; American Eagle, who was expected to gain 3%, lost 6%; and Pacific Sunwear missed forecasts of a 3.6% gain, dropping 4.6%. Much-watched retailers Costco and Wal-Mart both bested expectations. Retail sales from February through June climbed 2.3% vs. 3.9% in 2006, according to ICSC chief economist Michael Niemira. Some consumers don't feel as wealthy because of declining home values, he said. "We're just not at a stage where there's anything compelling for the consumer to buy, and the consumer doesn't really feel like buying much," said Brean Murray Carret & Co. analyst Eric Beder. "The fall season will be very difficult outside of back-to-school." (See full same-store sales table).
Sources: Reuters, MarketWatch, Bloomberg
Commentary: June Same-Store Sales Roundup • May Same-Store Sales Roundup • April Same-Store Sales Roundup
Stocks/ETFs to watch: ANF, ARO, AEO, ANN, BEBE, BKE, CACH, CTR, CHS, PLCE, CBK, DEBS, DBRN, GPS, HOTT, JOSB, LTD, MWRK, PSUN, ROST, SSI, SMRT, TJX, URGI, WTSLA, WLSN, ZUMZ, BONT, DDS, GOT, KSS, M, JWN, JCP, SKS, DUCK, TGT, WMT, CVS, LDG, RAD, WAG, HVT, SHRP, FCPO, FDO, FRED, BJ, COST, CULS, PSMT
ENERGY AND MATERIALS
AES Beats Estimates, Continues Alt-Energy Expansion
Independent power producer AES Corp.'s second-quarter profit and revenue came in well ahead of analyst expectations, sending shares up $0.83 (4.5%) to $19.19 in after-hours trading. AES attributed its results to higher electricity prices and foreign exchange gains.Second quarter net income rose to $247 million ($0.36/share) on revenue of $3.34 billion, vs. $175 million ($0.26/share) on revenue of $2.86 billion a year ago. Analysts polled by Reuters expected EPS of $0.21 on revenue of $2.97B. AES said it continues to expand into alternative energy during the quarter, acquiring two U.S. wind farms with 186 megawatts, a 49% stake in a joint-venture that plans to construct and operate a potential 225 MW of wind energy in China, and completing the construction of a 233 MW wind farm in Texas. In its core business, AES started its first project in Jordan (a 370 MW gas-fired power plant) and acquired a 51% stake in a 390 MW pipeline in Turkey. "We had a strong quarter in terms of both our operational results and building our growth pipeline," said CEO Paul Hanrahan. AES has a stake in over 120 power generation facilities in 26 countries, with a combined net generating capacity of 35 GW of power. It sells electricity to utilities and other energy marketers through wholesale contracts or on the spot market, and directly to customers. Shares have lost 16.7% YTD.
Sources: Press release, AP, Reuters, Hoover's
Commentary: AES: A Deeper Dig In The Accounting House • Utility Consolidation: Companies to Watch
Stocks/ETFs to watch: AES. Competitors: DUK, ELE, MIR. ETFs: PUI, RYU
SEC Looking for Irregularities at Big Wall Street Firms -- WSJ
The SEC is combing the books of major U.S. banks and brokerage firms to make sure they aren't hiding subprime-related losses, the Wall Street Journal reports. People familiar with the inquiry said the SEC is worried Wall Street firms may be marking down clients' inventory at a faster rate than they mark down their own holdings, particularly because few big companies reported substantial subprime losses in their most recent quarterly earnings, despite the current market turmoil. Among the first firms being investigated are Goldman and Merrill Lynch, sources said, adding the inquiry would ultimately include all top-five Wall Street firms. Subprime-related assets are difficult to value because they aren't listed or traded on a public exchange. "No one really knows how to price asset-backed securities and CDOs and that's a real problem in the market now," says Ann Rutledge of R&R Consulting.
Sources: Wall Street Journal
Commentary: Accountants Failing Investors With 'Fair Value' Accounting • Searching for a Market Bottom • Loan Insurer ACA Capital May Be Toast - Barron's
Stocks/ETFs to watch: GS, MS, LEH, MER, BSC. ETFs: IAI, KBE, KCE
Accredited Home Lenders Gets Regulatory Approval for Sale to Loan Star
Accredited Home Lenders announced Friday it has received regulatory approval from states representing over 95% of its loan production, thereby satisfying one of the primary conditions to closing its acquisition by an affiliate of the Lone Star Fund private equity group. Accredited shares plunged last week after the company said it could be forced out of business if it did not succeed in amending its lending covenants, while at the same time saying it didn't expect the need to obtain regulatory approval will prevent the transaction from closing, and that it expects the tender offer to close in the third quarter (see full summary). Accredited agreed in June bought out by private-equity firm Lone Star for $400 million ($15.10/share). The merger is still pending, and shares ($6.13) currently trade well below the acquisition price, as traders worry whether the deal will close. Friday's announcement should substantially increase that likelihood.
Sources: Press release
Commentary: Mainstream Media Gets It Wrong On Accredited Home Lenders Buy Out • Accredited Home Lenders is on Life Support
Stocks/ETFs to watch: LEND
S&P Ratings Downplays European Fallout
Standard & Poor's said Friday it doesn't foresee widespread negative rating changes to Western European banks due to their exposure to U.S. subprime mortgage-related investments and current market volatility. "Although we expect that a number of banks will incur revaluation losses as a result of the spread widening, and to a lesser extent credit losses from the impairment of securities holdings, these alone are unlikely to materially change the improved and generally strong fundamental credit quality of the industry as a whole," it said, adding the European and global economic outlook remains sound, and corporate and emerging market credit quality remains supportive.
Commentary: BNP Paribas Hit by Subprime • Time To Go Short On Volatility • Market Sinkhole Alert: Look Out Below
Stocks/ETFs to watch: VEA, EFA
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