Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:05 AM ET
S&P 500: +0.10; 1,449.20
NASDAQ 100: +0.20; 1,898.00
Dow: -4.00; 13,145.00
NIKKEI 225: +1.07%; 15,901.34 (+168.86)
HANG SENG: +0.62%; 21,729.35 (+133.72)
SHANGHAI SE COMPOSITE: +1.03%; 4,955.21 (+50.35)
BSE SENSEX 30: -3.04%; 13,989.11 (-438.44)
FTSE 100: +0.23%; 6,092.70 (+14.00)
CAC 40: +0.28%; 5,414.49 (+15.11)
XETRA-DAX: +0.33%; 7,432.30 (+24.77)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.34%; $70.88 (-$0.24)
Gold: +0.30%; $668.50 (+$2.00)
Natural Gas: -2.47%; $5.89 (-$0.15)
Silver: -0.17%; $11.880 (-$0.02)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Target's Q2 Earnings Rise In Line With Expectations
Target Corp. said Tuesday morning Q2 net income rose 13% on a 9.5% gain in revenue, meeting analyst expectations. The number-two U.S. discount chain (behind Wal-Mart) said it earned $686 million ($0.80/share) on revenue of $14.62 billion, up from $609 million ($0.70/share) on revenue of $13.35 billion a year ago. On average, analysts were expecting EPS of $0.80 on revenue of $14.67 billion. Same-store sales rose 4.9%. Target recently added $4 generic-drug prescriptions and flat-panel TVs, paralleling moves made by rival Wal-Mart. CEO Bob Ulrich affirmed the company's full-year earnings target: "We continue to believe Target will deliver strong sales and profit performance in 2007 and generate another year of profitable market share growth. We also continue to believe that $3.60 remains within the range of likely outcomes for our full-year 2007 earnings per share," he said (see full earnings call transcript later today). One analyst had words of praise for the retailer: "It's been a tough environment, but they seemed to have been driving traffic... I'm continually impressed at how well they execute on the displays and the merchandising," said Patricia Edwards of Wentworth, Hauser & Violich. Shares are up 1.6% to $60.05 in pre-market trading; they have gained 18.7% over the past year.
Sources: Press release, MarketWatch, Bloomberg
Commentary: Target Corporation Won't Sell Credit Operations • Why Target is an Investment and Wal-Mart is a Trade
Stocks/ETFs to watch: TGT. Competitors: WMT, COST. ETFs: RTH, XLY
Earnings call transcript: Target F1Q07
Key OMX Shareholders Agree to All-Share Payment by Nasdaq -- FT
U.S. stock exchange Nasdaq is attempting to convince key shareholders of Nordic exchange operator OMX AB to accept an all-share payment for their stakes, the Financial Times reported Tuesday. If enough shareholders agree, the Nasdaq will be able to make all-cash bids to hedge funds, in an effort to entice them to sell their shares. Hedge funds own nearly 25% of OMX AB, and are likely to favor cash over Nasdaq stock. Nasdaq CEO Bob Greifeld said Tuesday in an interview two significant shareholders, Nordea Bank and Investor AB, have already agreed to accept all stock buyouts. He is continuing to meet with other institutional investors, and said that many were beginning to understand that the long-term value of Nasdaq's stock-and-cash bid was greater than Borse Dubai's all cash bid. Greifeld, however, did acknowledge that Nasdaq would probably have to increase its bid of $3.7 billion in order to beat Borse Dubai's current $4.0 billion cash bid. On Monday, Nasdaq announced it was selling its 31% stake in the London Stock Exchange and was using the money for a share buyback and to retire debt (full summary).
Sources: Financial Times, Reuters
Commentary: Nasdaq OMX Bid Aided by Swedish Politics • Borse Dubai Trumps Nasdaq's OMX Bid • The Nasdaq Is a Buy on Valuation and Growth Catalysts
Stocks/ETFs to watch: NDAQ. Competitors: CME, BOT, ICE, ISE, NYX
Staples Q2 Net, Sales Up 11%, In-line with Estimates
Staples reported Q2 net income increased 11% to $178.8 million, or $0.25/share, on sales of $4.29B, matching analysts' average estimates. Staples' international revenue rose 18% to $602.4M, benefiting from a weak dollar, while North American sales increased a more modest 5% as same-store-sales fell 2%. The company expects Q3 and full year EPS growth of 15%, representing $0.41 (in-line with estimates) and $1.48 (topping estimates of $1.44), respectively. Q3 and full year sales are forecast in the low double-digits, with N. American comps slightly negative to flat in Q3 and flat for the full year. Staples said it repurchased 8.1M shares for $198M during Q2 as part of its new $1.5B buyback program. Staples' earnings call is at 8 a.m. Check for Staples' earnings call transcript later today. Shares of Staples were unchanged at 8 a.m. in thin pre-market trading after gaining 0.3% to $23.31 on Monday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Office Depot Is Cheap Relative To Peers Staples and OfficeMax • Stocks With the Most Analyst Love • Staples Announces $1.5 Billion Stock Buyback
Stocks/ETFs to watch: SPLS. Competitors: ODP, OMX. ETFs: PMR
American Eagle Q2 Earnings Beat; Issues Soft Guidance For Q3
Mall teen retailer American Eagle on Tuesday reported results that topped consensus analyst estimates Tuesday morning (check back later for AEO's most recent earnings call transcript). By the numbers, net income climbed 12.8% to $81.3 million, good for EPS of $0.37, versus EPS of $0.31 a year ago. Revenue was up 16.8% to $703.2 million, from $602.3 million in the year-ago period. Consensus estimates were for slightly lower EPS and sales of $0.36 and $698 million respectively. Same store sales rose 2% on a y/y basis, while gross profits as a percentage of sales declined 2.7% to 45% on a y/y basis. Looking to next quarter, American Eagle forecast EPS of $0.47-$0.48; analysts had been expecting EPS of $o.50 next quarter. Shares were higher by 3.5% in composite trading Monday.
Sources: Press Release, MarketWatch, Reuters
Commentary: American Eagle: Great Brand At a Low Flying Price • American Eagle Outfitters From a 'Silent Partner' Standpoint • American Eagle's Q1 EPS In-line, Shares Fall on Guidance; Buyback Expanded
Stocks/ETFs to watch: AEO. Competitors: ANF, GPS, PSUN, URBN. ETFs: RTH
Earnings call transcripts: American Eagle Outfitters Q1 2007
Saks Q2 Loss Narrows, But Worse Than Expected, Sales Up 15%
Saks reported a narrower Q2 loss of $24.6 million, or -$0.17/share, on sales growth of 15% to $694.1M. Analysts had expected -$0.15 on sales of $684.6M, on average. Same-store-sales increased 13.2% during the quarter and were up 14.9% in July. Saks' bottom line was negatively impacted by employee retention, severance and transition costs. In a press release, CEO Stephen Sadove commented, "Nearly all merchandise categories performed well in the quarter ..." adding that Saks "generated solid performance across all geographies and store sizes." Sadove is "very pleased with the progress made year-to-date on many fronts," but said the company "still has a long way to go." Saks is targeting an operating margin of about 4% in 2007 and aims to double it over the next three years. Comparable store sales are expected in the high-single digits. Shares of Saks were last up 1.2% to $18.15 in thin pre-market trading after climbing 3% to $17.94 on Monday.
Sources: Press release, Bloomberg, MarketWatch
Commentary: July Same-Store Sales Roundup • 10 Stocks That Should Shine In The Next 12 Months • Saks: The Revival is Worth Watching
Stocks/ETFs to watch: SKS. Competitors: M, JNY
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Today's Market (via Sam Collins, ChangeWave.com)
Daily Market Outlook
Like a dark horse in the final lap, the market rallied in the last 90 minutes yesterday, after first trading higher on the opening, then lower at mid-session. It was a mixed bag day with the materials and industrials sectors leading the way from very oversold positions last week.
The late rally started as a result of evidence that funds were getting to the borrowers who were hurt the most. But financial stocks failed to respond, with Merrill Lynch (MER) off 1.5%, American Express (NYSE:AXP) down 0.4%, and JPMorgan Chase (NYSE:JPM) down 1.1%. There was an emphasis on quality, with 18 of the Dow 30 index up; Alcoa (NYSE:AA) led the way up 3.0% and Honeywell (NYSE:HON) rose 2.5%.
But trouble again surfaced for Thornburg Mortgage (TMA), which said that it was forced to sell a "substantial" part of its triple-A-rated mortgage security portfolio, and Countrywide Financial (CFC) saw added problems as it started laying off workers from its loan origination department. On the bright side, Lowe's (NYSE:LOW) beat estimates and rose 6.1%. There seemed to be as many bears as bulls after the Fed's cut in the discount lending rate, but in the end the bulls took the day by a slim margin.
At the close, the Dow Industrials gained 42 points at 13,125. The S&P 500 was off a fraction at 1,446, and the Nasdaq was up 4 at 2,509. The NYSE traded 1.5 billion shares and at the Nasdaq 1.7 billion shares traded. Breadth was positive on both exchanges: New York 10/7 and the Nasdaq 15/14.
Crude oil (September contract) was off by 86 cents and closed at $71.12 a barrel after weather forecasters targeted the Yucatan as the most likely landfall for Hurricane Dean, away from the vital drilling facilities in the Gulf of Mexico. The Amex Energy SPDR (NYSEARCA:XLE) gained 2 cents at $67.52. The December gold contract lost 30 cents, closing at $666.50 an ounce and the Philadelphia Gold/Silver Index [XAU] gained $2.60 to close at $131.96.
While this week has gotten off to a solid start, it's important to understand the market events we saw last week: Following the largest five-day decline by the Dow Industrials since July 2002, and then a scary 344-point plunge to its lows on Thursday, stocks staged a dramatic recovery on record volume (2.96 billion shares on the NYSE). After it was over, the Dow had lost just 160 points, or 1.2%. The S&P 500 was down for the year through Wednesday's close, but after the biggest rally in four years, on Friday it closed down by only 0.5% for the week.
The biggest news of last week, which overshadowed everything else, was the Fed's lowering of the discount rate by 0.5% to 5.75%. Although the move is somewhat symbolic, the psychological impact was enormous. And by doing it now, the Fed avoided an "official" cut in the Fed Funds rate, dodging an impression that it was bailing out hedge funds while at the same time providing a safety valve for the "generally sound depositary institutions."
What the Markets Are Saying
From a technician's viewpoint, yesterday's action couldn't have been better as volatility dropped, volume declined, and few sellers appeared to spoil Friday's big party. But to keep the celebration going, the bulls will have to absorb the selling that will come when more bad news hits the tape. To do that, they will have to contain the sellers to the support areas marked by the close of the S&P 500 on Thursday at 1,411 and the intraday low of 1,370.
Although the 1,370 mark matches the March-14 low (1,364), the more important number is 1,411 since that is also very close to the 325-day exponential moving average that we have mentioned numerous times. Weeks ago, we said that this could turn out to be the major support area for the market and we're seeing more evidence of that.
Today's Trading Landscape
Today look for earnings from Affiliated Computer Services (ACS), AGL Energy (AGK), American Eagle Outfitters (NYSE:AEO) (read above), Analog Devices (NASDAQ:ADI), BJ's Wholesale Club (NYSE:BJ), Dick's Sporting Goods (NYSE:DKS), Jack Henry (NASDAQ:JKHY), Medtronic (NYSE:MDT), Pep Boys (NYSE:PBY), Saks Inc. (NYSE:SKS) (read above), Staples (NASDAQ:SPLS) (read above) and others.
There are no economic reports due today. Energy prices will probably drop as a result of Hurricane Dean's detour from the Gulf oil fields, but so may the stocks of major producers. Further, Capital One Financial (NYSE:COF) said it is cutting 1,900 jobs and closing its wholesale mortgage business, so with two negatives it will be difficult for the broad market to make headway today.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Extend Rebound as U.S. Economy Concerns Ease; Nintendo Gains Asian stocks rose for a second day, led by raw-materials producers, amid growing confidence the U.S. economy will withstand a rout in credit markets.
• China Raises Interest Rates for a Fourth Time This Year to Cool Economy China raised interest rates for the fourth time since March to cool the world's fastest-growing major economy after inflation surged to a 10-year high.
• Dollar Falls Against Euro, Yen on Speculation Fed Will Cut Interest Rates The dollar fell against the euro and yen as traders increased bets the Federal Reserve will reduce its overnight lending rate between banks.
• BHP Billiton May Report Record Profits on Rising Nickel, Iron Ore Prices BHP Billiton Ltd. (NYSE:BHP), the world's biggest mining company, may post an eighth-straight record half- yearly profit because of increasing demand from China and higher commodity prices.
European Headlines (via Bloomberg.com)
• European Stocks Advance; Michelin, BASF, ASML, Bank Sarasin Pace the Gains European stocks advanced for a third day on speculation that the U.S. Federal Reserve may lower interest rates.
• German Investor Confidence Falls to Eight-Month Low as Stock Markets Slump Investor confidence in Germany, Europe's largest economy, fell more than economists forecast to an eight-month low in August as equity markets tumbled.
• Bank of England Loans at Penalty Interest Rate for First Time in a Month The Bank of England said it loaned money at its penalty interest rate for the first time in more than a month after the U.S. subprime mortgage crisis prompted commercial banks to seek loans from other central banks.
• SachsenLB Owns $4 Billion in Subprime Investments, Person Familiar Says Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about 3 billion euros ($4 billion) in investments linked to U.S. subprime mortgages, according to a person with knowledge of the matter.
• ECB Loans Less Money to Banks Than a Week Ago, Paring Emergency Funding The European Central Bank loaned less money to banks than it did a week ago, paring back emergency funding pumped into the money market to avert a breakdown in lending.