Nintendo Looks to Sustain Popularity of DS, Wii
Nintendo offered a rare look at into its corporate policy meeting (held Friday), in which it not only discussed recent financial results (Q2 earnings summary), but also corporate strategy and how it will attempt to keep "casual" gamers -- a key factor in Nintendo's newfound popularity -- connected to its DS and Wii consoles. In recognition of the DS being the "(handheld) platform with the greatest market penetration ever," with over 53M units sold globally as of September, Nintendo's president Satoru Iwata commented, "This is the first device that is portable and wireless and anybody can use. And with so many devices out there, it would be wasteful to not turn it into a tool." Nintendo plans to go beyond games and offer more practical uses, such as expanded wireless connectivity, particularly outside of the home. As for the Wii, Mr. Iwata said it will take time for the console to become more widespread (more than 13M units have been sold since last year's launch), but Nintendo is planning to form partnerships with third-parties to offer more Internet-based features. A TV channel listing feature will be made available in Japan by March, while a downloadable Wii game gift service will begin worldwide in December. Nintendo's ordinary shares climbed 4.6% to ¥70,800 on Monday. Its ADRs lost 2.1% to $75.38 on Friday.
Commentary: Nintendo Raises Forecast; FQ2 Mostly In-line • Nintendo's Growth Restrained by Wii Production Shortage • Halo 3 Propels Monthly Xbox Sales Above Wii For First Time
Stocks to watch: OTCPK:NTDOY. Competitors: SNE, MSFT
Related: Nintendo Policy and Financial Results Briefing web cast and Supplementary Information (.pdf)
Covad Communications Group Accepts $304 Million Buyout
Covad Communications Group Inc. has signed a definitive agreement to be acquired by Beverly Hills private equity group Platinum Equity in a $304 million, $1.02/share, all-cash deal. Covad provides voice and data communications products, including broadband Internet, data communications, Internet access connectivity and voice over Internet protocol (VoIP) telephony, to consumers and businesses. Covad's board unanimously approved the buyout, which values the San Jose, CA provider of integrated voice and data communications at a 59% premium to Friday's closing price. The transaction is subject shareholder approval as well as customary closing conditions, including FCC approval and the approval of state public utility commissions in many of the states in which Covad operates. The deal is expected to close in 2Q08. According to Covad CEO Charles Hoffman, "our Board of Directors has determined that the substantial premium to the current market price provided by this transaction offers the best value for our stockholders... Platinum’s approach will bolster the successful execution of Covad’s business strategy while providing the resources and support necessary for sustained growth."
Commentary: Covad Agreement Lifts Shares in MicroCap VoIP Player Vodavi Technology • Cramer on DVW
Stocks to watch: DVW
Fox/NBC Online Media Venture Hulu.com Debuts
Hulu.com, an online television and movie distribution joint-venture between NBC (owned by General Electric) and Fox (owned by News Corp.) is set to launch today for select users in beta phase. Hulu.com is already regarded as having the web's largest selection of "professional" media, compared to rival YouTube's (owned by Google) massive collection of user-generated videos. NBC and Fox executives are looking to spread their media content including television shows and movies as broadly as possible. AOL, Comcast, Microsoft's MSN network, MySpace and Yahoo will serve as Hulu.com content distributors, with Hulu.com serving as the flagship site. Hulu.com will generate revenues from advertisements that will appear as overlays and in traditional, but shorter commercial breaks. However, operating costs are expected to be high and ever-growing due to sever and file transmission expenses related to the high-quality content. Aside from YouTube, Hulu.com faces competition from Walt Disney's ABC.com and from CBS, which is partnered with AOL.com and Joost. Still, Hulu.com is reportedly hopeful of attracting more media companies to the venture, including reaching a distribution agreement with YouTube.
Commentary: Google to Buy TV Demographics Data from Nielsen • Disney's ABC Network Is Big Winner In New TV Season • TV Studios Deliver Free Shows In A Distribution Land Grab
Stocks to watch: GE, NWS. Competitors: GOOG, DIS, CBS
Host Hotels CEO Nassetta Quits, Takes Top Spot at Hilton
Marriott Hotels owner Host Hotels & Resorts announced Monday morning the abrupt departure of CEO and President Christopher Nassetta, and named long-time company insider, W. Edward Walter (currently CFO and Executive VP) its new CEO and President, effective immediately. Nassetta will take the helm at the newly private Hilton Hotels, whose purchase by private equity group Blackstone Group LP was completed Wednesday for $47.50 a share. According to Host Chairman of the Board, Richard E. Marriott, new CEO "Ed Walter has been involved in every area of the Company's operations and has been an integral part of each of our major transactions over the last ten years, including our conversion to a REIT in 1998, the restructuring of our balance sheet and, most recently, our $3.5 billion acquisition of hotels from Starwood." Outgoing CEO Nassetta oversaw the company during "12 years of outstanding service during which the size of the Company more than doubled, the stockholder value was significantly enhanced, and the brand diversification of the Company's portfolio was substantially improved." He will remain there through the end of November to help smooth the transition leading up to his departure. Blackstone plans to grow the Hilton luxury brand under Nassetta, with 40,000 new rooms under construction and another 57,000 in the development phase. Nassetta was named 'best chief executive among all REITs' by Institutional Investor in January. Host Hotels is the nation's largest REIT.
Commentary: Anticipating October Close For Blackstone's Hilton Buyout • Hilton Hotels' Two Track Governance • Hilton's Time is Done; Wyndham Still Has Room to Grow
Stocks to watch: HST, BX, HLT. ETFs: RWR, ICF, FTY
Earnings call transcript: Host Hotels & Resorts Q3 2007
TRANSPORT AND AEROSPACE
Record Oil a Boost for Southwest Airlines -- Reuters
Rising oil prices are usually bad news for airlines, so with crude trading at an all-time high many carriers are likely hurting given the fact that fuel is one of the industry's largest expenses -- but not Southwest. According to Reuters, the carrier, which is the lone big-time price hedger among the U.S. airlines, has hedged 90% of its anticipated fuel needs at an average cost of just $51/bbl., well below the record $93.20 crude traded at on Monday. Southwest's hedging success, Reuters said, is evident in its Q4 fuel-price forecast as it expects to pay $1.80/gallon of jet fuel, which is some $0.50/gallon less than most carriers and $0.70 below UAL Corp.'s forecast. AMR Corp., Reuters noted, has hedged about 40% of its expected Q4 needs, capping prices at $69/bbl. Nevertheless, even as other carriers are forced to raise prices because of rising fuel costs, Reuters said Southwest likely will be unable to step in and cut fares because it has the fastest-rising non-fuel costs among the carriers.
Commentary: Earnings Improvement In The Airline Business Continues • Is $100 a Barrel Conservative? • Southwest Airlines Should Put LUV in Its Logo
Stocks to watch: LUV. Competitors: AMR, JBLU, CAL, UAUA, DAL, LCC
Earnings call transcript: Southwest Airlines Q2 2007
ENERGY AND MATERIALS
Record Oil a Boost for Southwest Airlines -- Reuters
International Growth Will Protect GE From U.S. Downturn - Immelt
In an interview with the Financial Times, General Electric Chairman and CEO Jeffrey Immelt said the conglomerate will likely be protected from a downturn in the U.S. economy by the strength of emerging economies like those of China and India. Immelt anticipates that GE's international sales will grow 10-15% per year over the next few years. Sales in China and India are expanding by 20% per year, a trend he believes will continue. Immelt's forecasts support the concept of economic "decoupling" -- the notion that strength in developing markets will support the global economy if the U.S., "traditionally the world's economic locomotive," loses steam. Lending further support to this theory is the fact that the E.U. passed the U.S. in 2007 as the main destination for Chinese exports. Japan's trade surplus gained 63% in September despite a 9% drop in exports to the U.S. GE's prospects are particularly bright, according to Immelt, because demand for infrastructure-related projects like gas turbines and water treatment plants, as well as for alternative energy technologies like wind and nuclear, continues to grow around the world. "If you look at our nuclear business now it gives us annual sales of about $1 billion and this is likely to expand fivefold in the next five to 10 years," Immelt said. Water treatment is "just the kind of business that suits GE to be in," he said: "[I]t's a global field with a lot of potential in the emerging economies."
Commentary: Has GE Stubbed Its China Toe? • China, U.S. and India Driving Water Infrastructure Spending • Is Anyone Immune to the Ripple Effect of the Unfolding Financial Crisis? • Jeffrey Saut: It's Time To Own Tangibles
Stocks to watch: GE. Competitors: C, PHG, SI. ETFs: EXI, IYJ, PRFN, VIS, UXI, XLI
Earnings call transcript: General Electric Q3 2007
Merrill CEO Stan O'Neal Is Out - WSJ
Stan O'Neal, the CEO of Merrill Lynch, is being forced to leave the firm, the Wall Street Journal reported Sunday. Last week, the firm disclosed an $8.4 billion writedown for Q3, far worse than the $5 billion it warned of three weeks prior -- a "sickening" loss, in the words of former Merrill CEO Daniel Tully (full story). Merrill's stock price, which has dropped by about a quarter since the magnitude of the losses began to come out in early October, rebounded 8.5% to $66.09 Friday on rumors of O'Neal's pending resignation. No successor has been named, but contenders include BlackRock CEO Laurence Fink, Merrill co-president Greg Fleming, NYSE Euronext CEO John Thain, and Bob McCann, who runs Merrill's brokerage division. At O'Neal's urging, Merrill had accumulated a CDO inventory of $32.1 billion and a subprime mortgage security inventory of $8.8 billion. Those stockpiles generated the massive losses disclosed last Wednesday. O'Neal, who is known for a unilateral, take-no-prisoners managerial approach, had not adequately communicated the reasons for the catastrophic writedown to the board, according to an unnamed source. The "final straw" came when O'Neal asked Wachovia CEO G. Kennedy Thompson -- without prior consultation with the board -- whether Wachovia would consider buying Merrill (full story). Despite the turmoil in the executive suite and the impact of the credit crunch, the firm is expected to survive, thanks to its $70 billion in cash and salable securities. "[T]here could be a disruptive change in strategic direction or more write-offs, all occurring when the credit markets remain unsettled," said Scott Sprinzen, an MD at Standard & Poor's. "But Merrill Lynch's liquidity is very strong, so that is not a great concern we have right now."
Commentary: Merrill CEO Discussed Merger with Wachovia, Angering Board - NY Times • Merrill CEO Approaches Wachovia Without Board Approval; Grounds For Dismissal? • Who Will Rescue Merrill?
Stocks to watch: MER. Competitors: GS, MS. ETFs: IAI, KCE, IYG
Earnings call transcript: Merrill Lynch Q3 2007
UBS Confirms Loss; More Writedowns possible
UBS confirmed Monday it would report a Q3 loss of 600M-800M Swiss francs on Tuesday and said further writedowns were possible going forward. The announcement came after a weekend report speculating the loss may be bigger than predicted early this month when UBS said it would take a 4B franc charge related to its fixed-income portfolio, after larger than anticipated write-downs led Merrill Lynch to the biggest quarterly loss in its history last week. The loss will be UBS's first in five years. The bleeding may not be over, however, as UBS said the portfolio "remains exposed to further deterioration in the U.S. housing and mortgage markets as well as ratings downgrades for mortgage-related securities, which could lead to further writedowns on the positions." Even though it noted that Q4 had begun with good results, UBS said it "is not assuming that the quarter will continue as positively as it has begun, or that current difficulties will be resolved in the short term." That uncertainty has led some to question the bank's standing, as one money manager said: "UBS was always supposed to be stable, and this year the losses are worse than at other banks."
Commentary: Debt Writedowns: The Universal Banks' Turn • The Writedown Leaderboard: Merrill Now in First • UBS's Q3 Loss: The First of Many?
Stocks to watch: UBS. Competitors: DB, MER, C, CS, HBC. ETFs: EKH, EWL, IXG
Earnings call transcript: UBS Q2 2007
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
• Now trading at about $68, bulls believe shares of Weyerhauser (WY) could surpass $100 if a reorganization, such as selling off the company's containerboard business or, most appealing, conversion to a timberland real-estate investment trust, takes place. "With different engines under the hood, there's a huge amount of value there," one analyst said. (Full summary)
• Merck & Co. (MRK) has re-established itself as a premier drug developer, launching novel products such as its Gardasil cervical cancer vaccine and Januvia oral diabetes medication, which helped it achieve a 47% Q3 profit rise and raise its outlook. Many believe there's still room for shares to rise, with some predicting $70. (Full summary)
• Although Motorola (MOT) beat Q3 forecasts and upped Q4 guidance, Barron's says last week's share spike doesn't account for Motorola's rising competition. Global cellphone sales rose 15% in Q3, but Motorola continues to lose market share to rivals like Nokia and Samsung. (Full summary)
• The destruction from California's wildfires could prove a boost to the state's economy. One economist said homebuilding would stimulate the economy for the next 6-12 months; among those with a major presence in the state are Standard Pacific (SPF) and KB Homes (KBH). Allstate (ALL), with a 13.4% share, is the most highly-exposed publicly-held insurer. (Full summary)
• The financial industry's $20B mortgage securities writeoff—to date—is not done. One analyst expects earnings to trend 5-10% lower, while shares reflect a projected earnings growth rate of 9% for Merrill (MER) and 18% for Goldman Sachs (GS). He thinks financials' book values will be further re-evaluated downward and sees an industry bottom only when their shares trade for less than book and offer higher dividend yields. (Full summary)
• The Street should be paying closer attention to chemical maker FMC Corp. (FMC), shares of which have more than quadrupled over the last five years and, given its prospects, could rise at least another 15% over the next year. Now trading at $53, one analyst believes the shares should be closer to $60 if they were given the same multiple as their peers, and at $65 with the higher multiple he says they deserve given stable earnings. (Full summary)
THIS WEEK'S IPOS
• Four Foreign IPOs: Giant Interactive, Scope Metals, Akela Pharma, CNinsure
• Two Biotech IPOs: Nanosphere Inc., Genoptix
• Software IPO: Deltek Inc.
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