Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.


Market Shrugs Off Disappointing Durable Goods Figures

The Commerce Department announced Wednesday that orders for durable goods dropped by 4.9% in August. The number was worse than economists' forecasts of a decline of 3.1%, showing that business spending fell greater than expected during last month's financial turmoil. Excluding transportation, orders were down 1.8%. In July, durables actually advanced 5.9%; August's decline was the first since May. Though the numbers disappointed, the markets shrugged them off as futures were virtually unchanged after the release. "These data capture little, if any, of the impact of the market turmoil," explained Ian Shepherdson, chief economist at High Frequency Economics. He said traders ignored the number because it will have very little effect on future Fed decisions.
Sources: TheStreet.com, WSJ
Commentary: Sell the U.S. Market Before OctoberConsumer Confidence Lowest in Two Years
Stocks/ETFs to watch: SPY, QQQQ, DIA


AMR Urged to Spin-off Frequent Flyer Program

FL Group hf of Iceland, an international investment company specializing in private-equity and strategic equity investments, has sent a letter to AMR Corp.'s (parent of American Airlines) Board of Directors, urging the company to spin-off its AAdvantage Frequent Flyer program, which FL Group says could boost shareholder value by more than $4 billion. FL Group said it owns 8.3% of AMR, making it the company's largest shareholder. AMR's share price has fallen by nearly 50% year-to-date, for a loss of about $5 billion in market capitalization. "After taking a close look at the company over an extended period of time, our suggestions include monetizing assets, such as AAdvantage, that can be used to reduce debt or return capital to shareholders. We believe that there is no time to lose given the recent developments in the market place," commented FL Group CEO Hannes Smarason. Shares of AMR gained 1% to $21.77 on Wednesday and were last up 3.35% to $22.50 in thin Thursday pre-market trading.
Sources: Press release, Bloomberg
Commentary: Russell 1,000 Stocks With the Lowest PE/Growth Ratios21 Airline Stocks to Keep You Flying High This SummerScreening for Potential Buyout Targets
Stocks/ETFs to watch: AMR. Competitors: NWA, DAL, UAUA, LUV, JBLU
Earnings call transcript: AMR Q2 2007


Microsoft Banks $170 Million in First Day of Halo 3 Release

Microsoft said Wednesday Halo 3, the company's new game exclusive to Xbox 360, was responsible for $170 million in sales in the first 24 hours it was available. The number topped Halo 2, which drummed up $125 million in sales on its first day out in November 2004. Microsoft had called the Halo 3's release "the biggest entertainment launch in history," and it might have a point, after it beat movie releases for mega hits like Spider-Man 3 and book launches like Harry Potter and the Deathly Hollows. "The initial demand we've seen for Halo 3 has been astounding and the game is on track to become the number-one gaming title of all time," Jill Hamburger, vice-president of movies and games at Best Buy, said. The game was launched in 37 countries and is expected to boost sales of Microsoft's Xbox 360. Microsoft shares finished Wednesday down 0.24% to $29.49.
Sources: MSN Money, CNN
Commentary: Microsoft May Go Public With Yahoo Bid - NY PostMicrosoft's Halo 3 Receives Near Perfect Ratings
Stocks/ETFs to watch: MSFT. Competitors: SNE, ERTS.
Earnings call transcript: Microsoft F4Q07 (Qtr End 6/30/07)

Vonage Falls to New Lows on Verizon Patent Case Decision

The U.S. Court of Appeals for the Federal Circuit upheld two patent verdicts against Vonage, from a Virginia jury decision in March, which found Vonage had infringed on three patents held by Verizon. The jury awarded Verizon $58 million in damages and future damages of 5.5% on Vonage revenues during the appeal process. Vonage said it was pleased with the decision to vacate the '880 patent and damages, but "remains confident" it has not infringed on the patent. However, the '880 is considered less significant than the '574 and '711 patents, and a lower court is expected to uphold the $58M in damages due to the 880's limited impact, as previously stated by both Vonage and Verizon. "In the meantime, it's business as usual. We have had our workarounds for the 711 and 574 patents in place for some time and will remain focused on providing a great customer experience," commented Vonage Chief Legal Officer Sharon O'Leary. On Tuesday Vonage lost a patent infringement case against Sprint and was ordered to pay $69.5M in damages. Shares of Vonage plunged 26% to $0.96 on Wednesday, setting new all-time closing and intra-day ($0.89) lows.
Sources: Press release, Associated Press, CNET
Commentary: Vonage Loses Patent Case to Sprint; Shares TankBest, Worst Performing Stocks of 2007Vonage 2Q Loss Narrows, Tops Estimates, But Subscriber Growth Drops
Stocks/ETFs to watch: VG, VZ, S


Bed Bath & Beyond Beats, Announces $1B Buyback

Bed Bath & Beyond reported fiscal Q2 net income increased 1% to $147 million or $0.55/share, beating estimates by $0.03, while sales rose 10% to $1.77B, in-line with expectations. Same-store-sales at locations open at least a year were up 2.2% (compared to +4.8% last year), helped by lower prices and back-to-school demand. Co-Chairman Warren Eisenberg said on a conference call the company's "market share continues to expand" and it will open its first Canadian store this year (see full earnings call transcript). Bed Bath & Beyond forecasted fiscal Q3 earnings to be flat to low-single digit percentage growth from the $0.50/share it earned last year, if demand is sustained. Q4 EPS is expected to decline in the low to middle-single digits from the $0.79/share earned last year. Bed Bath & Beyond said its Board of Directors authorized a new $1B share repurchase program, the company's fourth since 2004, for a cumulative buyback of $3B when the latest program is completed. Shares of Bed Bath & Beyond initially surged in after-hours trading by as much as 7.1% to $36.29, but last traded up 1.4% to $33.83 over their regular session close of $33.83 (+1.9%).
Sources: Press release, Bloomberg, MarketWatch
Commentary: Bed Bath & Beyond: Solid Ratios and a Good PriceWall Street's Overlooking Bed, Bath, & Beyond's Long Term ValueGabelli Multimedia's Larry Haverty Picks Five 'Elephant in the Room Stocks'
Stocks/ETFs to watch: BBBY. Competitors: TGT, WMT. ETFs: RTH, PRFX, XLY


Iron Ore Prices Seen Rising 30% in 2008

Bloomberg reports analysts' median estimate of $66.40/ton for 2008 prices of iron ore benchmark shipments from Australia represents a 30% increase compared to $51.47 in 2007. Sustained high demand from China's steelmakers, who are said to be raising production 15%, is credited for the expected price increase. Mining companies and customers are scheduled to begin annual price negotiations in October for shipments starting in April. A Melbourne, Australia-based Goldman Sachs commodities analyst, says demand will outstrip supply for years, resulting in price increases until 2010. Merrill Lynch analysts in a report published Wednesday, said low inventories at China's ports and supply shortages could push prices higher by more than 50% in 2008. HSBC expects price increases of 40% in Australia and 30% in Brazil. BHP's ADRs lost 1.7% to $75.71 on Wednesday, but were last up 1.5% in early trading in the UK. Rio Tinto's ADRs lost 0.75% to $330.32, but were also trading to the upside, by 1.6%, in early activity in the UK. Cia. Vale do Rio Doce's ADRs gained 2.9% to $32.97.
Sources: Bloomberg
Commentary: BHP Billiton: Good Looking Stock With Great Ore10 Steel and Iron Stocks to Strengthen Your PortfolioRio Tinto Rises on Takeover Rumor
Stocks/ETFs to watch: BHP, RIO, RTP. ETFs: SLX

Chevron’s Board Approves $15 Billion Repurchase Program

Chevron, the US's second largest oil company, announced Wednesday its board authorized a three year stock repurchase program for up to $15 billion. The program follows three other repurchase programs completed in 2005, 2006, and September 2007 of $5 billion each. "Our continuing strong cash flows have />enabled us to fund a significant capital program budgeted at almost $20 billion in 2007, increase dividends to our stockholders, repurchase our shares in the market and reduce the company's debt," said CEO Dave O'Reilly. "We believe it is appropriate to continue to return cash to our stockholders through share repurchases." Chevron will acquire shares "from time to time," and may discontinue the program at any time. Company shares were up 1.2% to $92.99 in pre-market trading Wednesday.
Sources: Press Release
Commentary: Chevron's Refinery Investment Should Show Profits In Future QuartersGas Prices Up, Crude Down, Refinery Problems CitedAre Oil Prices Increasing at a Rapid Rate?
Stocks/ETFs to watch: CVX. Competitors: XOM, BP. ETFs: OIH, DBO, IEO, USO
Earnings call transcript: Chevron Q2 2007


Bear Stearns in Talks to Sell 20% Stake – NY Times

Bear Stearns is in talks with outside investors to sell a 20% stake in the firm, according to the New York Times. The list of investors rumored to be involved includes Warren Buffet, Bank of America, Wachovia, and the Chinese companies Citic Group and China Construction Bank. Bear Stearns has been severely hit by the credit crisis in the last two months; it reported a 61% decrease in third-quarter profits last week. NY Times' sources say that Bear's CEO, James Cayne, is looking to sell the stake for a premium close to 20%. Investors are always interested in Warren Buffet's latest investments, as he has come to be known as an elite value investor. There are still questions about the strength of Bear's balance sheet, but an investment from Buffet would definitely boost people's views of Bear's financial credibility. Bear Stearns' shares surged on the news closing up 7.4% to 122.66 on Wednesday.
Sources: New York Times, Reuters
Commentary: Why Goldman Underperformed BearBear Earnings Bad, But Market Response Good
Stocks/ETFs to watch: BSC, BAC, WB. ETFs: IAI

Goldman Analyst Slashes Targets for Merrill

Goldman Sachs analyst William Tanona cut his Q3 EPS target for Merrill Lynch to $0.15, from $1.95 previously, and to $6.75 from $9.05 for the year, citing the possibility of a writedown of fixed-income assets as large as $4 billion resulting in a loss of $1.5B. Analysts were expecting Q3 and full-year EPS of $1.82 and $8.66, respectively. Tanona also lowered his price target on Merrill to $94 from $108 -- the stock has traded between $67 - $99 over the past year. In his note, Tanona said Goldman is "lowering estimates following a weak reporting season from the November year-end brokers" and noted Merrill "appears to be caught in the cross hairs of a number of headwinds in the quarter -- leveraged loan losses, mark to market losses on their CDO exposure, and deteriorating mortgage fundamentals." Rivals Bear Stearns and Lehman Bros. suffered $700M writedowns, while Morgan Stanley had a writedown of $940M and Goldman wrote down more than $1.5B. Shares of Merrill Lynch, which were down as much as 3.1% intra-day Wednesday, lost 0.5% to $71.75 and fell another 0.7% to $71.25 in extended trading.
Sources: Associated Press, Bloomberg, MarketWatch, TheStreet.com
Commentary: Regarding Merrill, Bear: Financials Hardly Out of WoodsProblems Ahead for Brokers - Barron'sPrice/Book Not So Helpful in Assessing Broker-Dealers
Stocks/ETFs to watch: MER. Competitors: GS, MS, LEH, BSC. ETFs: IAI, KCE

Buyers Back Out of $25 Billion Sallie Mae Deal

Sallie Mae announced Wednesday it was told by the group who was planning to buy the company that they will no longer go through with the $25.3 billion deal under the current terms. SLM said it sees no reason for the group, which includes J.C. Flowers, JP Morgan, and Bank of America, to back out of the $60/share agreement. The education lender said it "intends to pursue all remedies available to it to the fullest extent permitted by law." Problems in the deal stem from a House bill that would slash subsidies for student-loan companies (full story). The group of buyers likely sees the bill greatly devaluing the company; Sallie Mae admitted Wednesday that the new law would cut income 1.8% - 2.1% over the next five years. Sallie Mae's shares were rocked early by the news, but bounced back to close down 2.7% to $45.01.
Sources: TheStreet.com, Bloomberg, CNNMoney
Commentary: Prospective Buyers of Sallie Mae Want Discount -- NYTHarman Buyout Shelved: Bleak Outlook for SLM Corp and First Data Deals
Stocks/ETFs to watch: SLM. Competitors: STU, KEY. ETFs: PGF, IYF


Monsanto Jumps on Exec Comments and Buy Rating

Monsanto Co.'s stock continued its upward momentum Wednesday, fueled by a top executive saying the company expects to triple the number of acres outside the US that are being farmed using the company's genetically engineered seeds in the next decade. Brett Begemann, executive vice president of Monsanto's global commercial business said, "Strong global adoption of our proven traits coupled with recent approvals paves the way for expanded growth and sets the stage for new growth, as we look to stack and upgrade these products in the coming years." Jeffries also initiated coverage on Monsanto, slapping a buy rating on the biotech and agriculture giant. "Monsanto is reaping the benefits of extensive investments in research and development and field-testing facilities," Jefferies analyst Laurence Alexander said. "At current levels, we see ample upside return for long-term investors." Alexander has a $100 price target for Monsanto shares, and sees 2007 earnings coming in at $2.00/share, topping analysts' estimates of $1.96/share. Monsanto shares, which earlier in the morning hit an all-time high of $84.45, were trading up 3.0% to $83.30 more recently in midday trading Wednesday.
Sources: MarketWatch, St. Louis Business Journal
Commentary: Monsanto Jumps on Increased OutlookTwo Agricultural Long Ideas: Monsanto and Potash Corp.
Stocks/ETFs to watch: MON. Competitors: DOW, SYT. ETFs: IYM, PYZ


U.S. Market: Understanding Contrarianism and Bubbles
Housing: Futures Say Housing Will Get Worse
Long Idea: Options Trader: Plays on Dow Components
Short Idea: Alcatel-Lucent Still Struggling With Merger
Internet: The Google Express Train Steams Forward
Software: Capturing The 'Halo 3' Release Via ETF
Gadgets: Apple Inc: The Hype Must Go On
Biotech: Expecting Genzyme to Rise on Baird Note
Retail: Free Willi? This Food Stock Looks Cheap
Energy: Kaydon Corp: Great Growth, Phenomenal Management
Financial: First Marblehead: Multiple Uncertainties Hide Underpriced Stock
Asia: Focus Media Spikes 20% On Probe Results
ETFs: A Technical Look at Russell 2000
Hedge Funds: Hedge Fund Replication
IPO Analysis: Virgin Mobile USA: S-1 Filing Shows Best Buy Interest
Jim Cramer: Latest stock picks
Transcripts: Bed Bath & Beyond F2Q07
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