Fremont General Soars on Unit Sale to iStar, Lenders' Shares Rise
Shares of battered subprime mortgage lender Fremont General surged 41% to $10.00 on news iStar Financial Inc., a real estate lending and leasing company, will purchase its commercial real estate lending business for $1.9 billion and take up to a 20% stake in the remaining company. Shares of iStar rose 3.9% to $47.60, as other mortgage lender stocks also posted gains. Following the sale to iStar, retail banking will be Fremont's only remaining business. It has 22 branches in California. Gerald J. Ford, a billionaire banker and former chief of Golden State Bancorp, will lead Fremont as its new chairman, along with other executive/managerial replacements including CEO Louis Rampino, who will be succeeded by Carl Webb, also previously of Golden State. Despite the woes of subprime lenders and severe drops in their share prices, there has been broad interest in their assets among private equity and hedge funds. Shares of NovaStar Financial gained 7.0% to $6.38, Accredited Home Lenders rose 4.9% to $13.38 and IndyMac Bancorp climbed 7.1% to $35.09.
Sources: Press release [pdf], Bloomberg, MarketWatch
Commentary: Fremont General Lands Buyer for $2.9 Billion in Subprime Loans • Housing Bubble and Real Estate Market Tracker • New REIT ETFs Open Up Lucrative World of Commercial Mortgages
Stocks/ETFs to watch: Fremont General Corp. (FMT), iStar Financial Inc. (SFI). Competitors: Countrywide Financial Corp. (CFC), Accredited Home Lenders Holding Co. (LEND), NovaStar Financial Inc. (NFI), IndyMac Bancorp Inc. (IMB)
Kerkorian Puts MGM in Play, Shares Jump 27%, Casino Stocks Rally
Shares of MGM Mirage gained as much as 31% to $82.25 intra-day, on news Kirk Kerkorian's Tracinda Corp. -- majority owner with a 56% stake -- intends to negotiate the purchase of the Bellagio Hotel and Casino and CityCenter properties, and pursue strategic alternatives including "financial restructuring" for the remainder of MGM. An S&P analyst commented, "Kerkorian has announced that these assets are in play, and lots of different offers are going to be on the table." Ratings agencies including S&P lowered their outlook for the Company's debt given the possibility of a leveraged buyout. Bellagio is the most profitable hotel and casino in Las Vegas and accounts for 20% of MGM's operating profit. CityCenter is a $7.4b "mega resort" under construction next to the Bellagio, set to open in late 2009. MGM said its board has formed an independent committee to study Tracinda Corp.'s proposal and also consider strategic alternatives. MGM's shares closed up 27% to $79.98, while shares of Wynn Resorts gained 7.4% to $101.15, Las Vegas Sands +5.6% to $80.19, Boyd Gaming +5.5% to $49.64 and Penn National Gaming +3.4% to $51.95.
Sources: Associated Press, Bloomberg, MarketWatch
Commentary: Kerkorian's Tracinda Intends to Purchase MGM Mirage Properties • Tracinda in Talks with MGM Mirage to Buy Bellagio, CityCenter • Kerkorian Sells Off 25% of His GM Stake In Exchange for MGM Mirage
Stocks/ETFs to watch: MGM Mirage (NYSE:MGM). Competitors: Harrah's Entertainment (HET), Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), Boyd Gaming (NYSE:BYD), Penn National Gaming (NASDAQ:PENN)
Sources: MGM Mirage Sched. 13D/A
Staples' Q1 Net Up 12%, In-line, But Weak Guidance Sends Shares Down
Staples reported Q1 net income increased 12% to $209 million, or $0.29/share, matching the Street's consensus estimate, on sales growth of 8% to $4.6b, which came up short of analysts' average forecast of $4.66b. Shares of Staples traded to the downside losing 2.4% to $25.05, on news it expects Q2 and FY EPS at the low-end of its 15% - 20% growth forecast. International revenues rose 16% to $632.8m and profit climbed 47%, helped by a weak dollar. Same-store-sales were up 1% in N. America, as total retail sales increased 2.5% to $2.36b. Double-digit sales growth is expected for the year, while same-store-sales in N. America are seen in the low single-digits. A Deutsche Bank analyst said Staples' earnings were in-line and better than competitors. He said his firm continues to like its valuation, but noted low-end guidance and weakness in N. America "may pressure the stock."
Sources: Staples Q1 2007 Earnings Call Transcript, Press Release, Bloomberg, MarketWatch
Commentary: How Staples Got The Upper Hand Over Office Depot • Office Depot's Working Its Way Up - Barron's • Staples' Q4 Earnings: Consider Stapling This Stock to Your Portfolio
Stocks/ETFs to watch: Staples Inc. (NASDAQ:SPLS). Competitors: Office Depot, Inc. (NYSE:ODP), OfficeMax Inc. (NYSE:OMX). ETFs: PowerShares Dynamic Retail (NYSEARCA:PMR)
Conference call transcripts: Office Depot Q1 2007
American Eagle's Q1 EPS In-line, Shares Fall on Guidance; Buyback Expanded
American Eagle Outfitters reported Q1 net income increased 23% to $78.8 million, or $0.35/share, in-line with the Street's consensus estimate. Its shares fell 4.3% to $28.06 during normal trading and were down as much as 5.3% intra-day, as the Company expects Q2 EPS of $0.34 - $0.36, versus $0.31 last year, but short of analysts' average estimate of $0.38. Revenues rose 17% to $612.4m, compared to analysts' average forecast of $613m. Same-store-sales for locations open at least a year increased 6% during the quarter. American Eagle's Board of Directors authorized an additional 23 million shares for the Company's repurchase program through the end of fiscal 2009. The number of shares authorized for repurchase now totals 27.2 million (it had 226 million weighted average shares outstanding at the end of Q1); it bought back 2.8m shares for about $85.2m during the quarter.
Sources: American Eagle Outfitters Q1 2007 Earnings Call Transcript, Press release [i, ii], Bloomberg, MarketWatch
Commentary: American Eagle Outfitters: Not Much Room For Error • April Same-Store Sales Roundup • The Little Stock that Beats the Market: Joel Greenblatt's Winning Plan
Stocks/ETFs to watch: American Eagle Outfitters (NYSE:AEO). Competitors: Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS), Pacific Sunwear of California (NASDAQ:PSUN), Urban Outfitters (NASDAQ:URBN). ETFs: Retail HOLDRs (NYSEARCA:RTH)
ENERGY AND MATERIALS
Alcan's Board Advises Rejecting Alcoa's Bid; BHP in Talks with Alcan -- report
Alcan's Board of Directors unanimously recommended shareholders reject Alcoa's $27.6 billion unsolicited takeover offer Tuesday, sending shares of both firms higher in extended trading. An article published early Wednesday by the Globe and Mail reported Alcan's CEO Dick Evans said the Company is in "ongoing discussions with other third parties," with sources saying it has begun talks with BHP Billiton. Evans reportedly refused to rule out any scenario, even one where Alcan would launch a bid for Alcoa. Shares of Alcoa lost 0.1% to $38.95 in normal trading, but gained 1.8% to $39.64 in after-hours activity. Alcan also lost 0.1%, to $81.03, but climbed 3% in extended trading to $83.50. BHP's ADRs lost 1.6% to $50.75. A BHP spokeswoman declined to comment. Alcoa said it is studying Alcan's response. Alcoa's offer of $58.60 and 0.4108 of its shares, values Alcan at around $75/share, or about 11% below its last trade in the after-hours. In a press release Tuesday, Alcan's Chairman of the Board said Alcoa's offer "does not adequately reflect the value of Alcan's extremely attractive assets, strategic capabilities and growth prospects, does not offer an appropriate premium for control of Alcan, and is highly conditional and uncertain."
Sources: Press release, Globe and Mail
Commentary: Alcan/Alcoa Merger: This One Won't Be Easy • UBS: Alcan Worth More Than Alcoa Offering • Alcoa to Make Hostile Bid for Alcan
Stocks/ETFs to watch: Alcoa Inc. (NYSE:AA), Alcan Inc. (NYSE:AL), BHP Billiton (NYSE:BHP). Competitors: Aluminum Corp. of China Ltd. (NYSE:ACH), Novelis Inc. (NVL), Kaiser Aluminum Corp. (NASDAQ:KALU), Quanex Corp. (NYSE:NX), Tredegar Corp. (NYSE:TG), Arcelor Mittal (NYSE:MT). ETFs: SPDR Metals & Mining (NYSEARCA:XME), PowerShares FTSE RAFI Basic Materials ETF (PRFM), Vanguard Materials VIPERs (NYSEARCA:VAW)
Conference call transcripts: Alcoa Q1 2007
Medtronic's Q4 Net Up 10%, Beats Street, Shares Higher in AH
Medtronic posted a 9.7% rise in fiscal Q4 net income to $812 million, or $0.70/share, topping analysts' average estimate on an adjusted basis: $0.66/share vs. $0.62/share. Sales increased 6.9% to $3.28b. Its shares last traded up 3.1% to $52.40 in after-hours activity. Medtronic said it will no longer issue quarterly guidance and will offer more general full year outlook. Sales increased across all of its divisions. However, a Morgan Stanley analyst warned, "Strong growth will only magnify the channel stocking issues that management has been denying all along," referring to implantable defibrillators, which accounted for 23% of sales in Q4 with 30% growth overseas. Medtronic expects revenues to rise in the low double-digits for the full year, in-line with analysts' forecast, while EPS growth is seen "somewhat faster" than revenue. Separately, positive results were released for ongoing studies of its Endeavor drug-coated heart stent, for which it expects to receive FDA approval in the second-half of this year. Shares of Medtronic gained 0.5% to $50.80 during normal trading.
Sources: Press Release, Bloomberg, MarketWatch
Commentary: Medtronic, J&J Announce Alliance in Cardiac Arrhythmias • J&J Stent Fails Clinical Trial; BSX Shares Jump • Oakmark Funds' Bill Nygren: Buys, Sells, Portfolio
Stocks/ETFs to watch: Medtronic (NYSE:MDT). Competitors: Boston Scientific Corp (NYSE:BSX), Johnson & Johnson (NYSE:JNJ), St. Jude Medical Inc. (NYSE:STJ). ETFs: iShares Dow Jones US Medical Devices (NYSEARCA:IHI), Health Care Select Sector SPDR (NYSEARCA:XLV), iShares Dow Jones US Healthcare (NYSEARCA:IYH)
U.S-China Strategic Dialogue Begins, Expectations Reportedly Low
The second biannual U.S.-China Strategic Economic Dialogue kicked off Tuesday. "Against the ever-deepening economic globalization today, confrontation does no good at all for problem-solving, and pressure and posturing can only make the situation more complex," said China's Vice Premier Wu Yi in her opening remarks. U.S. Treasury Secretary Henry Paulson spoke of impatience in America and the need "to show that words are precursors to action." China's trade surplus and foreign reserves continue to swell, while the yuan's appreciation against the dollar has not been enough to assuage discontent among U.S. manufacturers, unions and members of Congress. Paulson commented, "Our policy disagreements are not about the direction of change, but about the pace of change." A senior White House official said there was a "direct exchange of views" on the valuation of the yuan, with details expected to be announced later Wednesday. Ahead of the Strategic Dialogue, China widened the yuan's daily trading band to 0.5% from 0.3% previously. Overnight the Shanghai Composite gained 1.5% to 4,173.71, setting another all-time high.
Sources: The Wall Street Journal, Reuters
Commentary: China's Triple Whammy: Will it Matter? • China Lets Some Air Out Of Its Stock Bubble • China's State Investment Co. to Take $3B, 9.9% Stake in Blackstone
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT), PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)
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