Behold the damage the recession has wrought on the consumer economy: Retailers and automakers have gone bankrupt, restaurants have closed, and malls have become ghost towns. Most businesses dependent on consumer spending, from clothing to computers to appliances, have felt the pinch.

[Slide Show: 10 Products That Boomed During the Recession.]

4:10 PM, Oct 19, 2009 --

• NYSE up 88.3 (1.2%) to 7,222.21.
• DJIA up 96.28 (1%) to 10,092.
• S&P 500 up 10.23 (0.9%) to 1,098.
• Nasdaq up 19.5 (0.9%) to 2,176.

GLOBAL SENTIMENT

Q3 2009 Earnings Call

October 19, 2009 8:30 am ET

Hasbro Inc.’s (HAS) third quarter earnings of 99 cents per share were well ahead of the Zacks Consensus Estimate of 91 cents, reflecting a drop in costs and demand for its movie-based toys. The company had earned 89 cents per share in the year-ago period.

Net revenues for the quarter decreased 1.7% to $1.28 billion from the prior-year quarter. Excluding the adverse impact from a stronger dollar, revenues were up 1% in the quarter. Results reflected challenging economic environment, though the Transformers and G.I. Joe experienced strong demand.

• CME weighs its CBOE options. CME Group (CME) - the largest futures market in the world - is reportedly in early talks to fold Chicago Board Options Exchange (CBOE) into its empire. Sources say a deal could be worth up to $5B, or a 50% premium to CBOE’s current worth, and would give CME the biggest share of trading in listed U.S. options – a market growing at lightening speed. Analysts say any deal could still be months off, however, due to issues over how CBOE's membership interests would be divided.
• C'mon, Ben! Barron's magazine's Andrew Bary urged Ben Bernanke to hike interest rates to a "more normal" 2%, or risk fostering another financial bubble. Barron's says with the economy recovering, the dollar falling, and commodities on the rise, keeping rates near zero will only fuel speculation and anger America's economic partners and foreign creditors - and potentially stoke inflation. Bary worries the Fed is failing to distinguish between normal accommodative monetary policy and crisis accommodative policy.
• Earnings rule the day. Markets will be closely watching a fresh battery of earnings this week - including consumer-related companies such as Apple (AAPL), McDonald’s (MCD), Whirlpool (WHR) and Hasbro (HAS) - looking to see just how healthy the consumer is, and by extension the economic recovery. Last week Bank of America (BAC), Citigroup (C), and General Electric (GE) disappointed, reporting heavy consumer-related losses, which stomped out a rally kindled earlier in the week.
• Citigroup might lose Mexican unit. Citigroup (C) could be forced to sell its highly-prized Mexican subsidiary, Banamex. A case being decided by Mexico's Supreme Court this week will rule on whether the Citigroup arm is in breach of Mexican law that bans foreign governments from owning a stake in domestic banks; some claim an earlier ruling allowing the "transitory" stake was unconstitutional. Banamex accounts for about 15% of Citi's global profits, and has an estimated worth of about $20B. Other banks with Mexican operations that could be affected by the ruling include AIG (AIG), Bank of America (BAC) and Bank of New York Mellon (BK).
• Vivendi to GE: pay up. GE (GE) and Vivendi are at odds to the tune of about $500M over what Vivendi should get for its 20% stake in NBC Universal. The sale is critical to a deal that GE has reportedly been negotiating with Comcast (CMCSA). GE, which owns 80% of NBC Universal, and Comcast are in the midst of due diligence. Vivendi wants to be paid at least book value for its stake, or about $6.3B. sources say. If Vivendi and GE reach an agreement, a deal on the Comcast-NBC Universal transaction could come as soon as next month.
• Drug companies to benefit from healthcare bill. Some healthcare industry executives believe drug companies stand to profit more handsomely than insurance companies from the government’s healthcare overhaul, as coverage extends to some 29M more Americans. Senate Democrats meet this week to write the bill they plan to bring to the floor. With a surge in coverage, drug companies, pharmacies and hospitals would be protected from carrying the cost of customers who can’t afford to pay up. In contrast, insurance companies would no longer be able to reject those with pre-existing illnesses – which could prove costly.
• CIT throws sop to bondholders. Hoping to crank up bondholder support for its debt exchange plan, CIT Group (CIT) said late Friday night that it sweetened terms of the proposed deal. Some junior bondholders will get more stock in exchange for their bonds and higher interest on new debt. The pool of eligible exchange participants will also be enlarged. CIT, one of the largest lenders to small and mid-sized companies, is looking to slash its $31B in bonds by at least $5.7B and to extend debt maturities. Bondholders will have to choose between the exchange offer and a possible prepackaged bankruptcy plan.
• Wall Street insider crackdown coming. The arrest of billionaire hedge-fund chief Raj Rajaratnam late last week could be the tip a much larger sting operation about to strike Wall Street, sources say. The Fed crackdown, brewing for two years, targets large institutional investors such as hedge-fund managers, lawyers and other Wall Street players. Rajaratnam's ring, extending to the likes of IBM (IBM) executive Robert Moffat, a close confidant of IBM's CEO, allegedly reaped some $20M in profits from trading on insider information.
• U.S. customers: beware of UBS mail. U.S. clients of Swiss investment bank UBS (UBS) could be nailed for tax evasion simply by opening their mail. UBS is reportedly warning U.S. clients, via registered mail, that their account details are being sent to U.S. tax authorities. This could give U.S. authorities an early leg up in tracing customers on their tax evasion hit list – well before such details are due to be shared under a U.S.-Swiss double taxation agreement – and in potential violation of Swiss secrecy laws, sources say. In August, Switzerland handed over details of 4,450 U.S. accounts at UBS to settle the tax evasion furor.
• Stagecoach gallops to National's rescue. Just days after being abandoned by CVC Capital, Britain's National Express Group said Stagecoach Group has stepped forward with a preliminary all-share bid valued at £1.7B ($2.8B). The U.K. rail operator said it was considering a share sale over the next few weeks to reduce debt after CVC dropped its £765M bid.

Earnings: Mon. Before Open

• BB&T (BBT): Q3 EPS of $0.23 beats by $0.01. Revenue +16.1%. Provision for credit losses almost doubled to $709M. "Our earnings continue to be negatively affected by a significant provision for credit losses and other costs related to the credit environment." Shares -2.1% premarket. (PR)
• Eaton (ETN): Q3 EPS of $1.21 beats by $0.29. Revenue of $3.03B vs. $3.13B. Sees Q4 EPS of $1.15-1.25 vs. $1.06. (PR)
• Hasbro (HAS): Q3 EPS of $0.99 beats by $0.06. Revenue of $1.28B (-1.8%) in-line. “We believe we can grow revenues in 2009 if our consumer retail takeaway continues to improve in line with recent fourth quarter trends." (PR)
• Weatherford International (WFT): Q3 EPS of $0.13 in-line. Revenue of $2.15B (-15.4%) in-line. North America rig count -52%; international rig count -11%. Shares +1.4% premarket. (PR)

Today's Markets

Asia markets posted strong gains to kick off the week. Europe stocks are higher at midday, and futures look poised to carry solid gains into the open.

Hasbro

Guidance

Analysts are looking for a profit of 93c on revenue of $1.33B. The consensus range is 82c-$1.06 for EPS, and revenue of $1.16B-$1.38B, according to First Call.

The Applied Finance Group (AFG) has a disciplined approach for identifying companies that are expected to outperform and underperform the market by using proprietary metrics and measurements that have been tested and proven through time. Because AFG’s research is fundamentally derived, AFG’s quantitative analysis spans across growth and value stocks, all sectors, industries, and market caps with over 20,000 covered securities globally. Using AFG’s proprietary criteria, AFG publishes a monthly buy/sell list to provide clients with a refined focused list as a starting point for potential investments. AFG clients can then use Value Expectations to further analyze the expectations embedded in a security’s price and to build out their own model to refine an intrinsic value of a company based on their own expectations.

When searching for Large-Cap ideas, AFG’s Buy/Sell list is a good starting place as it has proven to create a significant spread in performance between companies that come up on AFG’s buy list and those on the sell list. Further focusing on companies based on AFG’s proprietary screening criteria (Economic Margin, valuation, quality of earnings, and management’s ability to create shareholder wealth) will save investors time in their research process. The result is a target group of stocks that can help you outperform as well as identify potential torpedoes to avoid in your portfolios.

In recent weeks we have written several blogs (S&P 500 sector stock watch, Attractive stocks under $35, with potential investment opportunities, Solid S&P Value Companies, Cheapest Stocks In the S&P 500), discussing investment opportunities within the S&P 500. These stocks ideas all had favorable scores under The Applied Finance Group's (AFG’s) investment criteria, which includes economic performance, valuation, earnings quality and management’s ability to create shareholder wealth, among other criteria.

Another way that AFG identifies potentially attractive investments is through the use of its Value Expectations interface, which helps investors get a better understanding of the expectations embedded into stock prices. This interface allows us to understand the Sales Growth, EBITDA Margin, and Asset Turnover a company has to deliver in the future to justify its current trading price. In theory and in normal circumstances, if the imbedded future performance is very conservative relative to the company’s historical performance, the stock is regarded as undervalued. The table below displays the implied future Sales Growth (“Priced-in Sales Growth) of the companies we have recently recommended in our recent blogs, assuming their EBITDA Margins and Asset Turnovers stay at 5-year median levels.

The Applied Finance Group’s (AFG’s) goal is to help its clients pick the best stocks in any index, sector or market cap through the use of its Economic Margin (EM) methodology, valuation techniques, and ability to evaluate management’s capability to create shareholder wealth. The EM methodology helps investors understand the true economic profitability a company has earned by making adjustments to correct for some of the common distortions in traditional GAAP accounting practices. The valuation model AFG has built has proven through time to identify mis-priced securities which helps its clients take advantage of those mis-pricings and outperform their chosen benchmark (most commonly the S&P 500).

Below is a list of companies from the S&P 500, one from each major AFG sector (Excluding Financials), that meet AFG’s criteria to be considered as an attractive investment opportunity based on expected improvement in EMs, attractive valuation and a management team following a wealth creating strategy.

By MG Siegler

Increasingly these days you hear the words “Google” (GOOG) and “monopoly” in the same sentence. There is no shortage of fears that the search giant is getting too powerful in the search and online advertising space. But today, the two words are being joined for an entirely different reason: The board game Monopoly is about to launch an online version with Google Maps.

Hasbro Inc. (NYSE:HAS) August 14, 2009 close: $26.61

52-week range: $21.14 (Mar. 9, 2009) - $41.50 (Sep. 19, 2008)

Bullish Calls:

Atmos Energy (ATO), Dominion Resources (D): "That's a sign of strength (at a 52-week high), but since I buy utilities based on yield, I prefer Dominion right here."

As second quarter earnings roll on, an amazingly high percentage of companies are soundly beating estimates - over 70% thus far. To the eternal pessimists out there, it’s no real harbinger because estimates were set embarrassingly low. However we’re not just seeing minor beats, but an increasing number of major beats - beating estimates by 20%, 30%, or more.

Most of this has come from major improvements to gross & net margins, as companies are working harder than ever to wring efficiencies out of their business models. Yes, we all know that revenues are down year-over-year in nearly every industry. But if companies can turn in a fundamentally impressive (albeit lean) quarter, we can go a long way to bringing back the essential art of fundamental investing, which has been on a forced sabbatical for several quarters.

Q2 2009 Earnings Call

July 20, 2009 8:30 am ET

• Saved just before CIT hit the fan. Saved at the last moment, CIT Group (CIT) reportedly agreed on a deal late last night for $3B in rescue financing from a group of bondholders. The financing, which will be backed by unsecuritized assets worth over $10B, carries a high interest rate and doesn't solve CIT's long-term financing problems, but it does buy the lender some time and minimizes bondholders' losses. An announcement is expected this morning before markets open. Shares +97% premarket (7:00 ET).
• Schwab faces civil fraud charges. New York Attorney General Andrew Cuomo plans to sue Charles Schwab (SCHW) for civil fraud connected to the marketing and sale of auction rate securities to clients. According to the official notice sent to Schwab on Friday, Schwab's brokers didn't really understand what they were selling and then failed to tell clients when the market was collapsing. Cuomo said he's open to a settlement but Schwab must agree to buy back securities from investors still stuck with them. Schwab denies the allegations.
• Human Genome scores with lupus drug. Human Genome Sciences (HGSI) announced its experimental lupus drug showed success in late-stage clinical trials. The drug, which many analysts had written off, could be a potential blockbuster if it gets FDA approval, with profit split between Human Genome and its partner GlaxoSmithKline (GSK). Premarket: HGSI +183%, GSK +4% (7:00 ET).
• SAP courts SAF. Business-software giant SAP (SAP) proposed to acquire SAF Simulation, Analysis & Forecasting AG for €11.50 ($16.29) per share. The offer is a 9.5% premium over SAF's closing price on Friday, and two major SAF holders with a total 38% of shares have already agreed to vote for the deal.
• Sinopec, Cnooc buy Angolan oil stake. China Petroleum & Chemical Corp. (SNP), also known as Sinopec, and Cnooc (CEO) agreed to buy a $1.3B stake in an offshore Angolan oil block. China's second- and- third-largest oil producers are buying their 20% stake from Marathon Oil (MRO) and are putting a renewed focus on buying assets in Africa and Central Asia to avoid the political opposition faced by planned acquisitions in the U.S. and Australia.
• Magna's ultimatum. Final bids for General Motors' Opel unit are due today by the close of business in Europe. According to a Russian media report, Magna International (MGA) will make a new offer before the deadline that includes a demand for the right to Opel's intellectual property. Magna reportedly wants to sell Opel cars under its own brand, make any changes it wants to Opel designs and use Opel technology for new models.
• KKR inches closer to listing. Private equity firm Kohlberg Kravis Roberts received unanimous approval from the board of its Euronex-listed fund to combine businesses. The merger with KKR Private Equity Investors brings it one step closer to a New York Stock Exchange listing. KKR also updated its profit outlook, and expects Q2 earnings to be $345M-370M.
• Commercial loans failing rapidly. U.S. banks are charging off failed commercial mortgages at the fastest rate in 20 years. If the pace continues, commercial loan losses could reach $30B by the end of 2009, with regional banks likely to be especially hard hit.
• Friday's failures. Regulators closed four more banks on Friday, bringing this year's total failures to 57 so far and putting the country on track for close to 100 bank failures by the end of the year. The four failures will cost the FDIC nearly $1.1B. (See FDIC statements I, II, III, IV)

Earnings: Monday Before Open

• Eaton (ETN): Q2 EPS of $0.23 beats by $0.06. Revenue of $2.9B (-32.2%) vs. $3B. Shares (PR)
• Halliburton (HAL): Q2 EPS of $0.30 beats by $0.03. Revenue of $3.5B (-22.1%) vs. $3.4B. (PR)
• Hasbro (HAS): Q2 EPS of $0.26 beats by $0.03. Revenue of $792M (+1%) vs. $797M. (PR)
• Johnson Controls (JCI): FQ3 EPS of $0.25 beats by $0.06. Revenue of $7B (-29.3%) vs. $7.4B. (PR)
• Weatherford International (WFT): Q2 EPS of $0.10 misses by $0.06. Revenue of $2B (-10.5%) in-line. (PR)

Today's Markets

European markets and U.S. futures are following Asia up.

Hasbro

Guidance

Analysts are looking for a profit of 23c on revenue of $797.08M. The consensus range is 19c-26c for EPS, and revenue of $725M-$825M, according to First Call.

Bullish

Paccar (PCAR): "That's on fire. This business is doing much better than people realize. I would buy buy buy..at below 30 you will say 'Wow, how did I get a chance to get that stock so cheaply?"

The extremely strong opening delivered by the Transformers movie sequel could bode well for Hasbro's (HAS) sales in the coming months.

The film, Transformers: Revenge of the Fallen, racked up domestic ticket sales of more than $200 million in the 5 days since its opening on Wednesday. This financial performance exceeded expectations, and narrowly missed setting the record for 5-day revenues set last year by the Batman sequel, The Dark Knight.

Transformers: Revenge of the Fallen from Viacom's Paramount (VIA) and Steven Spielberg's DreamWorks Studio is already breaking some major records, making it likely to be the biggest film of the year.

It opened in over 4,200 U.S. theaters Wednesday, bringing in an estimated $55 million at the box office, $16 million of which was from post-midnight shows early Wednesday morning, the best opening day ever for a Wednesday release.