Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM ET
S&P 500: -16.25; 1,501.25
NASDAQ 100: -19.75; 2,203.75
Dow: -126; 13,516
NIKKEI 225: -1.50%; 16,268.92 (-248.56)
HANG SENG: -5.01%; 28,942.32 (-1,526.02)
SHANGHAI SE COMPOSITE: -2.48%; 5,634.45 (-143.36)
BSE SENSEX 30: -1.93%; 19,590.78 (-385.45)
FTSE 100: -1.27%; 6,447.40 (-83.20)
CAC 40: -0.84%; 5,672.24 (-48.18)
XETRA-DAX: -0.54%; 7,806.73 (-42.76)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -1.99%; $94.02 (-$1.91)
Gold: -0.10%; $807.70 (-$0.80)
Natural Gas: -3.83%; $8.10 (-$0.32)
Silver: +0.25%; $14.635 (+$0.036)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
WellCare Preliminary Q3 Results Beat Estimates; Shares Surge
WellCare Health Plans, whose stock plunged 77% over the past week after the company's offices were raided, told investors Monday Q3 net income jumped 67% on strong membership gains in its Medicare plans for seniors. Preliminary third-quarter net income rose to $72.4 million ($1.71/share), from $43.3 million ($1.06/share) a year ago. Revenue rose 41.7% to $1.43 billion, while total membership was up almost 8% to 2.43 million. Analysts polled by Reuters had forecast EPS of $1.52 on revenue of $1.36B. The company said late Friday it was forming an independent committee to probe the issue, and said it still had not been informed as to what the subject of the investigation is or what impact it might have on the company. The Wall Street Journal reported Saturday a person familiar with the matter claims the raid of WellCare's headquarters by over 200 state and federal agents was prompted in part by allegations WellCare inflated the amount it spent on mental-health care so it could keep funds that should have been refunded to Medicaid, allegedly costing the program more than $35M over five years period (full story). WellCare said Monday it learned of a whistleblower suit filed by a former employee last month, but is unable to determine if the raid was related to the suit, because the complaint is sealed. The company said it would not file Q3 results with the SEC, nor issue additional earnings guidance, and may have to delay full-year results, pending the completion of the committee's probe. Shares jumped 50% to $41 in pre-market trading, down from more than $122 before the raid.
Commentary: WellCare Health Plans' Day of Reckoning May Have Arrived
Stocks to watch: WCG
Sysco Tops Estimates on 16% Profit Growth
Restaurant food distributor Sysco reported strong earnings Monday as it was able to contain costs to offset rising food-price inflation. Net income climbed 16% to $267 million, good for EPS of $0.43, versus EPS of $0.37 a year ago. Revenue rose 8.5% to $9.41 billion. Consensus analyst estimates were for EPS of $0.41 on sales of $9.4 billion. Sysco's operating expenses rose just 3.9% to $1.33 billion from $1.28 billion a year ago, as the company consolidated operations into central distribution centers and redesigned delivery routes to be more fuel efficient. According to CEO Richard J. Schnieders, "Sales growth was in line with our expectations and we're pleased to have leveraged it into 16% EPS growth," (full earnings call transcript later today). Food-cost inflation was 5.9% Y/Y, "as estimated by the change in Sysco's cost of goods." The company plans to increase its sales staff 4%-5% in 2008, in order to improve customer service with its more than 400,000 clients, a list which includes the likes of Wendy's and Aramark. Sysco's shares were unmoved in pre-market trading as of 7:45 AM ET; they are lower by nearly 9% YTD.
Commentary: Six Long-Term Texas-Based Value Picks • Sysco 4Q Profit Up 19%, Beats Street • Sysco Earnings Boost Shares
Stocks/ETFs to watch: SYY. Competitors: PFCG. ETFs: PBJ, PSL
Earnings call transcript: Sysco F4Q07 (Qtr End 6/30/07) Earnings Call Transcript
EnCana Acquires Natural Gas Assets for $2.55B
EnCana Corp., Canada's largest producer of natural gas, announced it will acquire all of its privately-held partner Leor Energy's 50% stake in the Amoruso Field of the Deep Bossier natural gas formation in East Texas for $2.55B. Amoruso Field has two of the five-largest U.S. gas wells drilled since 2002, according to EnCana. In a statement, CEO Randy Eresman commented, "These assets are a seamless fit with our existing production and operations, and they hold tremendous growth potential in the near and longer term. Strengthening our Deep Bossier position exemplifies EnCana’s core strategy – being a leading North American unconventional gas producer." EnCana said the acquisition will be immediately accretive to cash flow and neutral to earnings. EnCana will pay for the acquisition using a combination of cash and debt, with revolving bridge financing with CIBC. The acquisition is expected to close by the end of the year. Shares of EnCana gained 2.5% to $72.48 on Friday.
Commentary: Natural Gas: Big Risk Could Mean Big Opportunities • UBS Goes Cyclical In "12 Stock" List • Encana Corporation Sees Downstream Blessing In Q2 Results
Stocks to watch: ECA. Competitors: CNQ, PCZ. ETFs: EWC
Earnings call transcript: EnCana Corporation Q3 2007
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• Fast food chain Burger King Holdings (BKC) reported net income of $49 million, good for EPS of $0.35, vs. EPS of $0.30 a year ago (full earnings call transcript later today). Sales climbed 10% to $602 million; consensus analyst estimates were for EPS of $0.33 on sales of $597 million. The company increased by 146 its global tally of restaurants to 11,290 in its latest quarter (F1Q08). Shares lost 0.83% in pre-market action (as of 8:06 AM ET) after gaining 6.25% Friday. Shares are up more than 31% YTD. (source: AFX News)
• Southern electric utility Entergy Corp. (NYSE:ETR) saw its Q3 profit gain 19%, to $461.2 million, good for EPS of $2.30, vs. EPS of $1.83 a year ago ($1.80 net of charges). Revenue climbed slightly to $3.29 billion from $3.25 billion a year ago. Consensus analyst estimates were for EPS of $2.17 on sales of $3.42 billion. Entergy said it's on pace to increase its earnings by $1 per share annually, while reaffirming its 2007 EPS forecast of $5.40 to $5.70. (source: AP)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
After Thursday's big 360-point Dow sell-off, investors let the bears have their way for the first couple of hours on Friday, driving the index down more than 120 points by noon.
Most of the selling was again in the financial sector, resulting from a story in the Wall Street Journal about possible "inappropriate transactions that may have been designed by Merrill Lynch (MER) to avoid write-downs that might have been required earlier in the year." As a result, some big banks took big hits as Merrill fell by almost five points (-7.9%). In conjunction, JPMorgan Chase & Co. (NYSE:JPM) lost 2.6% and Citigroup (NYSE:C) lost 2%.
But a strong jobs report for October released before the opening bell and a nice rise in factory orders offset the financial news. At day's end, the conclusion seemed to be that the economy was still in good shape despite the stresses of the subprime mess and its impact on some major financial institutions.
At the close, the Dow Industrials were up 27 points at 13,595. The S&P 500 gained a point at 1,510, and the Nasdaq was up 16 points at 2,810. The NYSE traded 1.7 billion shares, and on the Nasdaq more than 2.4 billion shares changed hands. Advancers were slightly ahead of decliners on both exchanges.
For the week, despite the volatility, the Dow lost 1.5%, the S&P 500 was off 1.7%, but the Nasdaq gained 0.2% as a result of a fine showing from the technology sector.
On Friday, the December crude oil contract gained $2.44 to close at another new record high of $95.93 a barrel. The Amex Energy SPDR (NYSEARCA:XLE) rose $1.05 closing at $75.85. Gold (December contract) rallied to close over $800 per troy ounce to its highest price in 28 years, and it ended the day at $808.50, up $14.80. The Philadelphia Gold/Silver Index [XAU] gained $6.64 to close at $187.64.
What the Markets Are Saying
The financial sector with its poor six-week performance seems to have thwarted a potential breakout on the part of the rest of the market. But despite the bearish bank charts, and breakdowns of the financials (see the S&P Financial Index; XLF), the rest of the market and especially the techs have performed rather well.
However, very high volatility has dominated the markets for the last couple of weeks and expanded the trading ranges of the major indices from the numbers that I've been using for over four months.
Here are the new trading ranges for the major indices:
Dow Jones Industrial Average support at 13,270 and resistance at 14,000;
S&P 500 1,490 to 1,555;
NYSE Composite 9,740 to 10,300;
and Nasdaq support at 2,720 (new high made on Wednesday at 2,859 close).
Friday's market action from a charting standpoint was encouraging, with both the Dow Industrials and the S&P 500 reversing and issuing a buy signal from our internal CBR indicator. However, with the financials in such a precarious position, further deterioration resulting from even more serious losses by members of the group could break them through support and drag the rest of the market with them.
With the exception of new positions in more defensive groups, it is time to hold cash and give this crisis time to work itself out.
Today's Trading Landscape
The Institute for Supply Management (ISM) is the only economic report due today and the consensus expects 54%.
Expect quarterly earnings from the following companies: Activision, Altana Aktiengesellschaft, American Oriental Bio, Anadarko Pete, Atlas Energy Resources, Avi Biopharma, Balchem, Bluegreen, Bois D Arc Energy, Buckeye Group Holdings, Burger King Holdings, Cardinal Health, Career Education, Cedar Shopping Centers, Charles River Labs International, Commercial Net Lease Realty, Compucredit, Comstock Res, Corporate Office Properites Trust, Cousins Properties, Cytogen, Diedrich Coffee, Divx, Dun & Bradstreet, Entergy, Exco Resources, Exelixis, Forest Oil, GMH Communities Trust, Healthcare Realty Trust, Innophos Holdings, Keithley Instruments, Kindred Healthcare, KMG American, Kohlberg Capital, LSB Industries, Marvel Enterprises, Mercury General, Merge Technologies, Metabolix, NBTY, Northeast Utilities, Novatel Wireless, Nu Skin Enterprises, Offshore Logistics, Onebeacon Insurance, Orbotech, Parkervision, Parkway Properties, Pegasystems, Philippine Long Distance Tel, PLC Systems, Primus Telecommunications, PS Business, RAIT Investment Trust, Republic Services, Saga Communications, Sierra Health Services, Simcere Pharmaceutical Group, Stifel Financial, Stone Energy, Strategic Hotel Cap, Sun Microsystems, Sunset Financial Resources, SWS Group, Sysco, Terremark Worldwide, Tetra Technologies, TNS, United Dominion Realty Trust, Validus Holdings, Virage Logic, Voltaire, Warnaco Group, Wauwatosa Holdings, Wilson Greatbatch Technologies, Wilson Greatbatch Technologies, WJ Communications, WMS Industries, and many others.
This morning the news is focused on the big banks again with one of their number, Citigroup (C) that said it will have to take another big write-off -- this time $8-$10 billion. As a result, European banks are selling sharply lower and Wall Street wonders if the lower trading range of the S&P 500 at 1,490 can hold.
Asian Headlines (via Bloomberg.com)
Asian Stocks Drop on Subprime Woes; Hang Seng Index Slides Most Since 9/11 Asian stocks fell after Citigroup Inc. said it will increase writedowns by as much as $11 billion and Chinese Premier Wen Jiabao signaled plans to allow citizens to invest in Hong Kong shares are on hold.
Some Bank of Japan Members Said Low Rates Caused U.S. Subprime-Loan Rout Bank of Japan policy makers said the U.S. subprime mortgage collapse was caused by keeping interest rates too low, signaling their intention to increase the world's lowest borrowing costs to prevent investment bubbles.
ChemChina, Blackstone Offer to Buy Australia's Nufarm for $2.8 Billion China National Chemical Corp., backed by the world's biggest buyout fund Blackstone Group LP, agreed to pay A$3 billion ($2.8 billion) in cash for Nufarm Ltd. to form the world's largest supplier of generic farm chemicals.
China Blocks Goldman Sachs in Purchase of 10 Percent Stake in Fuyao Group Goldman Sachs Group Inc.'s plan to buy 10 percent of Fuyao Group Glass Industries Co. was blocked by the securities regulator after the Chinese company's share price tripled during a yearlong review process.
Australian, New Zealand Dollars Fall on Renewed Concerns About Credit Rout The Australian and New Zealand dollars declined against the yen on renewed concerns about losses at U.S. banks prompted investors to reduce holdings of higher-yielding assets bought with money borrowed in Japan.
European Headlines (via Bloomberg.com)
Qatar Drops $21.9 Billion Sainsbury Bid After Credit Markets `Deteriorate' Qatar dropped its 10.5 billion-pound ($21.9 billion) bid for J Sainsbury Plc after ``deterioration'' in the credit markets and demands by the U.K. supermarket chain's pension fund made the deal too expensive.
EADS to Book Charges of Up to $2 Billion After A400 Military Plane Delayed European Aeronautic, Defence & Space Co., dogged by delays and losses from its Airbus SAS passenger jets, abandoned its profit forecast because the A400M military transport plane won't be delivered on time.
U.K. Manufacturing Unexpectedly Drops; Services Growth Slowed in October U.K. service industries from airlines to banks grew at the slowest pace in 4 1/2 years in October and manufacturing unexpectedly declined in September, adding to the case for a cut in interest rates. The pound fell.
Ryanair Profit to Fall on Ticket Prices; Shares Drop Most in Five Months Ryanair Holdings Plc, Europe's biggest discount airline, said a decline in ticket prices will drive down earnings in the fiscal third quarter. The stock fell the most in five months.
Wavin Plunges by Record After `Market Downturn' Prompts Sales-Forecast Cut Wavin NV, Europe's biggest maker of plastic pipes for sewers, had a record drop in Amsterdam trading after the company lowered its annual sales forecast.