Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:53 AM ET
S&P 500: +9.50; 1,418.75
NASDAQ 100: +13.00; 2,013.00
Dow: +58; 12,830
NIKKEI 225: +0.58%; 15,222.85 (+87.64)
HANG SENG: -1.51%; 27,210.21 (-416.41)
SHANGHAI SE COMPOSITE: -1.97%; 4,861.11 (-97.74)
BSE SENSEX 30: -0.62%; 19,127.73 (-119.81)
FTSE 100: -1.36%; 6,096.50 (-84.00)
CAC 40: -1.02%; 5,402.48 (-55.91)
XETRA-DAX: -1.35%; 7,465.33 (-102.03)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -2.22%; $95.53 (-$2.17)
Gold: -1.63%; $813.00 (-$13.50)
Natural Gas: -1.17%; $7.63 (-$0.09)
Silver: -2.16%; $14.51 (-$0.32)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Cigna to Acquire Great-West Healthcare for $1.5B
Cigna announced late Monday it has signed a definitive agreement to acquire Great-West Healthcare, the healthcare division of Great-West Life & Annuity, Inc., for approximately $1.5 billion in cash. Cigna said it will also fund around $400M of additional capital to support the acquired business. Cigna said it anticipates the acquisition to be accretive to its 2008 EPS outlook of $4.00 to $4.20 (vs. analyst estimates of $4.29/share) and beyond, "by achieving synergies related to managing medical costs, capturing operating expense synergies and growing membership over time." The transaction is expected to be completed during the first-half of 2008, subject to standard regulatory approvals and customary closing conditions. "Great-West Healthcare’s capabilities clearly complement our own. This transaction will broaden our distribution reach and provider network in key geographic areas of the country, particularly the Western regions of the United States, and expand the range of health benefits and products we offer employers and their employees," commented Cigna CEO H. Edward Hanway. Great-West Healthcare is based in Denver and serves 2.2 million members, including 1.5M members with employer-based insurance. Shares of Cigna rose 0.6% to $49.31 on Monday and added 1.5% to $50.04 in thin after-hours trading.
Commentary: Insurance Stocks: Shooting Down An Overwrought Valuation Metric
Stocks to watch: CI. Competitors: AET, UNH, WLP. ETFs: IHF, PTJ, PTH
Staples Net Falls 5% but Tops Estimates, Issues Strong Guidance
Staples saw its Q3 net earnings fall 5% Y/Y, topping EPS estimates by $0.02 on an adjusted basis, and predicted "earnings per share growth of approximately 15% for both the fourth quarter and the full year." The company grew sales 9% despite a 3% decline in North American same-store sales and forecast continued "high single digit" sales growth in Q4 and FY2008. Shares were up 10.53% in pre-market trading Tuesday (as of 8:41 AM ET). "While the economic environment in North America remains challenging, we are pleased to deliver profitable growth," said Chairman and CEO Ron Sargent (full earnings call transcript later today). Q3 adjusted EPS were $0.42 on sales of $5.17 billion; analysts were expecting adjusted EPS of $0.40 on sales of $5.1 billion, on average. The company expects international growth to remain a major sales driver, with low double-digit sales growth expected in local currencies, versus total growth (including U.S. operations) in the high single-digits. Based on its current estimates, Staples expects Q4 EPS of $0.53 and FY2008 EPS of $1.70. Current consensus analyst estimates are for Q4 EPS of $0.48 and FY2008 EPS of $1.63.
Commentary: Staples: Accelerating Growth in a Decelerating Market • Office Depot Is Cheap Relative To Peers Staples and OfficeMax
Stocks/ETFs to watch: SPLS. Competitors: ODP, OMX. ETFs: PMR
Earnings call transcript: Staples Q2 2007
American Eagle Q3 EPS In-line, But Sales Miss
American Eagle Outfitters reported a fractional drop in third-quarter net income to $99.4 million, but earnings per share increased by a penny to $0.45, in-line with analysts' average estimate. Sales rose 7% to $744.4M, missing expectations of $753M. American Eagle said same-store-sales during the quarter rose 2%. The company cited heavier discounting to clear out unsold merchandise for its profit decline. American Eagle was also forced to increase promotions of winter wear due to unseasonably warm weather. Potentially further impacting its bottom-line is the likelihood of even more discounting and promotions this holiday season, in order to attract shoppers struggling with paying higher prices for oil and food. "In the third quarter we delivered a strong operating margin of 20.3% even though sales were below our original plan. These results reflected the benefits from operational improvements, expense management and technologies that have become inherent in our business over the past several years," commented CEO Jim O'Donnell. (Earnings call transcript later today). American Eagle expects Q4 EPS between $0.67 to $0.70, compared to analyst estimates of $0.70. It repurchased 2.4M shares during Q3 for approximately $58.5M. Shares of American Eagle fell 3.1% to $21.37 on Monday, but were last up 2.0% to $21.80 in thin pre-market trading.
Commentary: Despite Strong Financials, American Eagle Flies Far Below Its Fair Value • American Eagle's Current Price Provides Good Entry Point Into Strong Retailer • Retail on Sale - Barron's
Stocks to watch: AEO. Competitors: ANF, GPS, PSUN
Expedia, eLong Partner in Chinese Corporate Travel Foray
Internet travel leader Expedia (EXPE) said Monday its corporate travel unit will foray into China in a partnership with its subsidiary, China's number-two online travel firm eLong (LONG). The deal marks Expedia Corporate Travel's first move into Asia; it already has operations in the U.S., Canada, France, U.K., Spain, Italy, German and Belgium. "Our entry into the Asia-Pacific region is part of our commitment to grow with the needs of our customers," said Jean-Pierre Remy, president of Expedia Corporate Travel. "Many of our existing customers and prospects already do business in China, so we have a clear opportunity to better service the needs of these clients by being where they need us to be." In a note to investors, Citigroup analyst Catherine Leung wrote, "Corporate Travel in China is an attractive market opportunity. Managed corporate travel is not a widely implemented concept among local companies in China, though China has the fourth largest business travel market globally, and corporate travel accounts for over half of China's large, fast-growing travel market." Leung says the Chinese corporate travel market is currently led by American Express (AXP), followed by Ctrip (CTRP) which entered the market in 2006.
Tech Data: Strong Earnings, Weak Outlook
Shares of IT product distributor Tech Data (TECD) were up 2% in pre-market trading Tuesday after the company more than doubled its net income and posted record Q3 revenue. Adjusted net income of $40.9 million ($0.73/share) was up 128% from last year's $18 million ($0.33/share), well ahead of the $0.60/share analysts polled by Reuters expected. Net sales of $5.92 billion, up 9.1% from $5.43 billion, were a record for the quarter, and beat analyst estimates of $5.88 billion. "Steady market conditions during the quarter... drove record third-quarter net sales and a significant improvement in operating income year-over-year. Our European operations continue to strengthen and gain traction in the marketplace," CEO Robert Dutkowsky said (full earnings call transcript later today). Gross margin was up 23 basis points to 4.79% from last year, for which the company credited "solid improvements in the company's pricing and inventory management practices in Europe." Looking forward, Tech Data said it expects Q4 sales of $6.35 to $6.5 billion, weaker than the $6.52 billion analysts had been looking for. Shares of Tech Data's number-one competitor, global powerhouse IT distributor Ingram Micro (IM), are up 1.3% over the past three months, while Tech Data's shares have languished, falling almost 11%. "In contrast to its largest competitor, Ingram Micro, Tech Data is making no plans to expand into Asian markets. This will put the company at a disadvantage in terms of global scale," Morningstar analysts told investors in an Oct. 25 note.
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Stocks opened higher yesterday thanks to preliminary results from "Black Friday" that indicated sales were up 8.3% versus last year. But the euphoria ended when UBS (NYSE:UBS) downgraded both Fannie Mae (FNM) and Freddie Mac (FRE) to "neutral" from "buy," and the focus again turned to the sour mortgage situation.
Additional sellers piled on when it was reported that Citigroup (NYSE:C) is planning a huge layoff that could amount to cutting 15% of its positions, mostly in the mortgage-related areas.
More selling resulted from a comment by Sen. Chuck Schumer [D-N.Y.] indicating that he would urge an examination of Federal Home Loan Bank of Atlanta's lending practices to Countrywide Financial (CFC). That report not only drove CFC to lose another point but resulted in even more selling of the financial sector.
So what looked to be a strong carry-through of buying from Friday in the morning resulted in taking back Friday's gains and more by the afternoon.
At the close, the Dow Industrials were off 237 points at 12,743. The S&P 500 was down 33 points at 1,407, and the Nasdaq retreated by 56 points to 2,541. The NYSE traded 1.5 billion shares and the Nasdaq 2.1 billion shares. Breadth was negative on both exchanges to the tune of about 3-to-1.
The January crude oil contract traded lower by 48 cents, closing at $97.70, and the Amex Energy SPDR (NYSEARCA:XLE) closed at $71.49 down $2.56. The December gold contract gained $1.80, closing at $826.50, and the Philadelphia Gold/Silver Index [XAU] finished the day at $169.51, off $6.56.
What the Markets Are Saying
Yesterday, the bulls failed to hold the crucial line of support at S&P 1,430, ending close to the day's low of 1,407.22. Other important indices, like the Dow Industrials and the NYSE Composite broke support, as well, though by just a fraction compared to the S&P.
However, there is a wide band of support that ranges from the March 5 closing low of 1,374 to the Aug. 14 closing low of 1,406 that could still stem the tide of selling, and sentiment readings are so oversold now that a rebound is more likely than a rout.
The yellow caution flag is now out but today will probably open higher as a result of more positive news from the banks. Look for a reversal, but if the bulls can't get it going soon the yellow flag will turn to red.
Today's Trading Landscape
Today the University of Michigan Consumer Confidence reading and then the Case-Shiller home price index (which is expected to be down 5% year-over-year) will be released.
We also expect earnings from the following companies: American Eagle, Analog Devices, Dress Barn, Jackson Hewitt, Marvell Technologies, Pep Boys, Remy Cointreau, Semtech, Sigma Designs, Sonic Solutions, Talbots and Tech Data.
An injection of $7.5 billion investment capital into Citigroup (C) from the investment arm of Abu Dhabi is the big story this morning, but it is not the only positive news for the beleaguered banks. In England, Barclays (NYSE:BSC) said that its unsecured credit situation has "improved" and further charges are "negligible." And in Germany and France business confidence numbers were more positive than expected.
Asian Headlines (via Bloomberg.com)
Asian Stocks Drop for First Time in Three Days; Samsung Electronics Falls Asian stocks fell for the first time in three days after South Korea's president cleared the way for a probe into Samsung Group and Goldman, Sachs & Co. said HSBC Holdings Plc may have to increase writedowns.
Samsung to Face Independent Probe of Bribery Allegations, South Korea Says South Korean President Roh Moo Hyun said he will appoint an independent investigator to probe bribery allegations against Samsung Group, escalating a corruption scandal that has engulfed the nation's largest industrial group.
Yen Falls as Citigroup Sells Stake to Abu Dhabi Fund, Carry Trade Resumes The yen fell against the world's 16 most-active currencies after Abu Dhabi said it will buy a stake in Citigroup Inc., giving investors confidence to buy higher- yielding assets with loans from Japan.
Sanyo Plans to Invest $3.2 Billion Yen Over Three Years to Revive Earnings Sanyo Electric Co., the electronics maker bailed out by Goldman Sachs Group Inc. and other creditors, said it will invest 350 billion yen ($3.2 billion) in its operations to revive earnings growth. The stock surged.
Universal Studios, Posco to Build $3.1 Billion Theme Park in South Korea Universal Studios, owned by General Electric Co., and partners will build a $3.1 billion theme park in South Korea, its third resort in Asia, the nation's Gyeonggi provincial government said.
Astellas Buys Agensys for $387 Million to Develop Antibodies-Based Drugs Astellas Pharma Inc., Japan's second- largest drugmaker, agreed to buy Agensys Inc. for as much as $537 million in cash, creating a U.S.-based biotechnology unit with at least seven potential cancer treatments.
European Headlines (via Bloomberg.com)
European Stocks Drop, Led by ArcelorMittal; Rio Tinto, Nokia Shares Fall European stocks retreated for a second day, led by basic-resource producers and technology companies, on concern losses related to subprime mortgages will slow economic and profit growth.
Business Confidence in Germany, France Unexpectedly Increased in November Business confidence in Germany and France unexpectedly rose in November, suggesting European companies are coping with record oil prices and the euro's gain.
Nokia Increases Share of Global Mobile-Phone Market; Samsung Tops Motorola Nokia Oyj, the world's largest maker of mobile phones, increased its market share for the fifth straight quarter, while Samsung Electronics Co. overtook Motorola Inc., a survey showed.
Smith & Nephew Recalls Knee Implants Citing Higher-Than-Usual Iron Content Smith & Nephew Plc, Europe's largest maker of knee and shoulder implants, recalled 575 knee implants because the products contained higher than usual amounts of iron.