Today - Wednesday, December 11, 2013
12:31 PMU.S. Steel defended at Morgan Stanley, but shares -1.7%
- U.S. Steel (X -1.7%) has edged lower since Morgan Stanley went against the grain with its upgrade a month ago, so the firm is out defending its optimistic view.
- On skepticism over X's cost cutting program, the firm believes management was right when it decided to not set a concrete cost savings target; as a result, the firm thinks each individual cost savings announcement over the coming year will be its own incremental positive catalyst, and the dispersion of announcements will make life more difficult and less predictable for short sellers.
- The firm also says the impact of lower iron ore prices will be more than offset by improvements to earnings power from Project Carnegie cost savings, fixed cost absorption, and enhanced pricing power as operating rates rise.
12:25 PMGannett ticks up on UBS Conference revenue, EPS commentary
- Gannett (GCI +1.2%) shares tick up after management provides a strategic update at the UBS Global Media and Communications Conference: "Based on the trends thus far in the quarter ... we are comfortable with the higher end of [a $0.63-$0.67 estimate] range," CFO Victoria Harker said.
- The company also provided an update on Q4 broadcasting revenue expectations, forecasting a 20% Y/Y decline after excluding an additional week in Q4 2012. The Q4 comparison was "challenged by a record level of political spending in the fourth quarter last year." Stripping out political spend, broadcasting revenue is expected to be 17% higher Y/Y.
- As was previously announced, Gannett will expand a pilot program that integrated USA Today into print and e-editions of 4 local newspapers and was "embraced enthusiastically by subscribers" to 35 markets in early 2014.
12:20 PMIcahn Enterprises tumbles for a 2nd day
- "If Carl Icahn is selling, do you want to be buying," asks Andrew Bary in Barron's. "Probably not." Icahn Enterprises (IEP -13.6%) extends yesterday's big post-secondary offering decline as Bary reminds the stock trades at a hefty premium to NAV of about $75 per unit.
- While it might be worth some premium to invest alongside Carl Icahn, says Bary, 80% is probably far too much (it's less since the article was published!).
- By contrast, you can invest with the Tisch family in Loews (L -1.3%) at a discount to NAV, and Berkshire Hathaway (BRK.A, BRK.B) trades at just 1.3x book.
- "Icahn can do the math and he seems to think the company's units are at least fully priced given the equity offering, which will add to his war chest as he pursues his distinctive brand of activist investing."
12:16 PMSocGen cuts Nokia to Hold, upgrades Ericsson to Buy
- Eleven months after upgrading Nokia (NOK -1.8%) to Buy, SocGen has cut shares to Hold.
- Nokia, which is up 78% since SocGen issued its upgrade, is selling off following the downgrade. The ratings cut is overshadowing a bullish coverage launch from Citi (made as part of a broader sector launch).
- In tandem with downgrading Nokia, SocGen has upgraded mobile infrastructure rival Ericsson (ERIC +0.8%) to Buy. Ericsson's YTD gains are far smaller than Nokia's.
12:11 PMPDC Energy -6.7% after unveiling $647M capex budget for 2014
- PDC Energy (PDCE -6.7%) slides after announcing a 2014 capital budget of $647M, targeting organic growth within its inventory of liquid-rich projects in the core Wattenberg Field and Utica Shale.
- Production for 2014 is seen averaging 9.5M-10M boe/day, up 34% Y/Y, with 60% in crude oil and natural gas liquids; guidance includes a reduction in dry gas volumes due to the anticipated closing of the sale of its shallow Upper Devonian assets and the suspension of drilling in its Marcellus Shale assets.
12:08 PMLimited impact for MCO names from budget deal: Deutsche
- "Any hopes of a roll-back of the 2% Medicare sequestration cuts were dashed as more details of the plan were revealed over the course of the evening," Deutsche's Scott Fidel notes, referencing the new U.S. budget agreement.
- "In fact," Fidel continues, "under the budget deal the 2% Medicare payment cuts will actually be extended by two years through 2023."
- Nevertheless, Deutsche doesn't think anyone was expecting much in the way of a roll-back anyway, and as such, the bank sees limited impact for MCO names.
- AET, CI, HNT, HUM, UNH, WLP
12:08 PMBlackRock: Stay nimble
- "2014 is the year to squeeze more juice out of risk assets. But investors should be ready to discard the fruit when it starts running dry," says BlackRock's Ewen Cameron Watt in the firm's 2014 Investment Outlook. "Beware of traffic jams: easy to get into, hard to get out of."
- Behind the view is the idea central banks (U.S., U.K, Canada, China, to name a few) are poised to begin tightening monetary policy.
- BlackRock doesn't believe stocks are yet in a bubble, but its "risk indicator" - measuring enterprise value against earnings adjusted for volatility - is nearly as high as just before the dotcom bust. "The ratio of the two is the key. High valuations combined with low volatility can make for a lethal mix. This market gauge sounded the alarm well before the Great Financial Crisis."
- Broad large-cap ETFs: PRF, VUG, VTV, SDOG, VV, SCHX, MGK, DEF, SCHG, SCHV, PWV, FLAG, MGV, DOD, JKD, FEX, EQL, IWY, EZY, JKE, PWB, IWX, FTC, JKF, EEH, SPXH, TRSK, SFK, FWDD, PXLC, ALTL, PXLV, GVT, RWG, FNDX, PXLG, IELG
12:06 PMNQ Mobile slumps; SA contributor criticizes financials, conflicts of interest
- While relying heavily on baseball analogies, SA contributor Robert Zangrill takes aim at NQ Mobile's (NQ -7.1%) financial metrics, as well as various conflicts of interests he sees in the company's business dealings.
- Zangrill notes NQ has grown its revenue/employee by 817% over the last five years, and estimates the company is "on pace to generate about 20% more in revenue per computer than any other software company did in 2012."
- These eye-popping figures lead Zangrill to believe NQ is either "lying about its revenue, or ... has discovered the greatest business model ever - one that requires no capital investment, no assumption of risk, not even the headache of having to deal with additional employees."
- Much like Muddy Waters, Zangrill also thinks NQ is "round tripping" revenue via deals with affiliated parties. Among other things, he points out NQ relies on a payment processor owned by its former marketing chief, and has multiple directors with ties to a major Asian billing software provider.
- Shares are currently down ~50% from where they traded before Muddy Waters' allegations arrived in late October.
12:00 PMMarkets slide further on budget deal
- Dow -0.45%.
- 10-yr -0.06%.
- Euro +0.27% vs. dollar.
- Crude -0.8% to $97.72.
- Gold -0.12% to $1259.6.
11:55 AMUBS out positive on new Cardinal, CVS JV
- Cardinal Health (CAH +0.6%) "expects the JV to be neutral to EPS in FY14 (ending in June), but should be accretive in FY15, w/ greater accretion in FY16," UBS notes, referring to the new generic sourcing entity the company has created with CVS Caremark.
- Analyst Steven Valiquette sees a $0.10-0.22 pro forma EPS opportunity by 2016.
- Price target raised to $77 from $70.
11:55 AMBP says Shah Deniz FID on Trans Atlantic Pipeline expected Dec. 17
- The BP-led (BP +0.6%) Shah Deniz consortium likely will make the financial investment decision on the Trans Adriatic Pipeline on Dec. 17, a BP official says.
- In June, the consortium - which also includes Statoil (STO), Total (TOT) and Azerbaijan state-owned Socar - chose TAP to transport natural gas from Shah Deniz in Azerbaijan via Turkey, Greece, Albania, across the Adriatic Sea and into Europe.
- The final shareholder structure in the planned Trans Anatolia natural gas pipeline also will be made clearer next week; sources have said TOT may not pick up an option to acquire a 5% stake in the pipeline, while STO may take a smaller stake than its option for a 12% holding.
11:46 AMDeutsche a fan of NorthStar spinoff plan
- "We believe the separation of the asset management business will create value for shareholders, as the management company will trade at higher multiples than the traditional mortgage REIT and real estate business," says analyst Stephen Laws, reiterating his Buy rating on NorthStar Realty (NRF +16.2%) after the announced spinoff plan for the asset management business.
- His $12.50 price target is a "conservative valuation" given it values the asset management business at 12x 2014 cash available for distribution - the low end of a likely range of 12-18x. He also believes CAD is likely to show continued expansion thanks to growth in the non-listed REIT business as well as potential new income streams from managing additional funds.
- Earlier coverage
11:44 AMWho isn't testing drones?
- Deutsche Post's DHL successfully tested drone delivery of one of its packages at a facility in Germany, according to Slashdot.
- Though Amazon (AMZN -0.2%) started a little bit of a firestorm when CEO Jeff Bezos brazenly predicted drone delivery within four or five years, the approach of the delivery giants (FDX, UPS) has been more tempered and pivots on using them at distribution centers or on campuses as a cost-cutter - instead of dropping deliveries at doors.
- Analysts can't quite figure out where Bezos' head is on the drone issue (FAA, privacy, terrorism, scale vs trucks) other than thinking every billionaire is allowed a pet project or two.
11:27 AMBig stock gains this year bode well for next ... or not
- 2014 could be a good year for stocks if history going back to 1927 holds, says LPL's Jeffrey Kleintop, who finds double-digit average positive returns in the years following 25-30% gains for the S&P 500. In fact, he says, most big years were followed by several years of strong advances.
- Mark Hulbert - focusing on the DJIA and going back to the late 1890s - finds the advantage following 20% plus gains disappears. "The stock market’s odds in a given year are almost completely independent of what it did in the previous year."
- S&P 500 and DJIA ETFs: SPY, SH, DIA, SSO, SDS, IVV, SPXU, UPRO, VOO, DOG, RSP, DXD, RWL, EPS, UDOW, SDOW, DDM, BXUB, TRND, SFLA, BXUC, BXDB