Tech Leads Thursday Afternoon Rally
The Dow Jones Industrial Average gained 38.4 points (+0.29%), the Standard & Poor's 500 index increased 7.1 points (+0.49%), and the Nasdaq jumped 39.85 points (+1.53%) Thursday. Volume on the NYSE was 1.37 billion shares, and advancers beat decliners by a ratio of about 9:7. The Philadelphia Fed announced its manufacturing index dropped to -5.7, well below estimates. The U.S. 10-year Treasury note eased 3/32 in price, pushing yields up to 4.04%. Tech (+1.45%) jumped Thursday, while financials (-0.04%) were flat. Crude slipped $0.18 to $91.06. Personal Income and Outlays (8:30 AM) and Consumer Sentiment (10:00 AM) will be released Friday.
Final Q3 GDP Estimate Unrevised at 4.9%
The final estimate for third-quarter GDP came in at an unrevised annual rate of 4.9%, the strongest figure in the last four years. Economists were predicting the figure would tick up slightly to 5%. The GDP component that includes housing, residential fixed investment, dropped by 20.5%, a larger drop than the 19.7% figure previously estimated. Consumer spending, the largest component of GDP, increased to 2.8%, accounting for 2.01 percentage points in the GDP. The PCE price gauge, excluding food and energy, climbed to 2.0%, above the previously reported 1.8%. The gauge is the Fed's preferred measure of underlying inflation, and it has an unofficial target zone of 1.0%-2.0%. Real GDP has increased 2.8% in the past year. Though the economy enjoyed a very healthy increase last quarter, forecasters are now projecting fourth-quarter GDP to decrease to 1.0% or less. The first estimate for fourth-quarter GDP comes out January 30th.
Temasek May Invest $5B in Merrill Lynch - WSJ
Merrill Lynch (MER) may receive a capital infusion of as much as $5 billion from Temasek Holdings, Singapore's $100+ billion sovereign wealth fund, according to a report by The Wall Street Journal. With a market capitalization of $46.65B as of Thursday's close, the investment could amount to a more than 10% stake, exceeding the $5B, 9.9% non-controlling investment China Investment Corp. made Wednesday in rival Morgan Stanley (NYSE:MS) (full story). The firms had no comment. Sources say the two parties are in "advanced talks," but notes a deal "may still not materialize" and there is the possibility Merrill is in discussions with other government investment funds. Merrill Lynch faces more mortgage writedowns, with some analysts predicting the total could reach nearly $16B for the second-half of this year, which would be more than estimated writedowns at UBS (NYSE:UBS) $14.2B, Citigroup (NYSE:C) $10B - $13B and Morgan $10.4B. A Credit Suisse analyst says Merrill may be forced to sell assets such as its 20% stake in Bloomberg LP. Merrill also owns a 49% stake in BlackRock Inc., but is blocked from selling until Sept. 2009; Merrill said it plans to maintain its stake. Adding to Merrill's woes is the possibility hedge agreements with recently downgraded (to junk-bond status) bond insurer ACA Financial Guaranty become worthless. Shares of Merrill Lynch lost 0.4% to $54.50 on Thursday. Merrill is a top-five holding of the ETFs IAI and KCE.
Additional Reading: Handy Guide to SWF Investments in Financial Firms • Merrill Lynch Q3 2007 Earnings Call Transcript
Large Writedown Drags Down Bear's Earnings
Wall Street investment bank Bear Stearns (NYSE:BSC) reported Thursday a Q4 loss of $6.90/share, widely missing analyst estimates of -$1.79/share, after a larger-than-expected $1.9B writedown on mortgage-related assets reduced EPS by $8.21. Post-writedown revenue of -$379M was out of line with estimates of +$625 million. In early November Bear said it anticipated writedowns of approximately $1.2 billion on mortgage inventory net of hedges; as was the case with rival Morgan Stanley (MS) Wednesday (Morgan Stanley Gets $5B Cash Infusion After Huge Q4 Loss), the company underestimated, by $0.7B. "The continued re-pricing of credit risk and the severe dislocation in the structured products market led to illiquidity in the fixed income markets, lower levels of client activity across the fixed income sector and a snificant revaluation of mortgage inventory," it said. Bear said members of the executive committee will not receive any bonuses for 2007. "We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses," CEO James Cayne said (full earnings call transcript later today). By unit, clearing services revenue grew 2% to $271 million; wealth management revenue gained 10% to $247 million; and capital markets revenue took a $956M loss, reversing a $1.9B gain a year ago. Bond shops (number-two U.S. mortgage bond underwriter) like Bear could benefit from a potential U.S. recession, Sanford Bernstein's Brad Hintz noted. During a recession, traditional investment banking activities like acquisitions falter, while interest rate cuts often boost the price of bonds.
On Wednesday, U.K. bank Barclays (NYSE:BCS) filed a suit suing Bear Stearns, saying it misled them regarding the performance of the Bear's highly-leveraged hedge funds. The two funds, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, collapsed in July, decimating $1.6 billion in investor capital. Barclays was a big lender to the enhanced fund. On Tuesday, CNBC reported Bear Stearns' board is looking at replacing Cayne amid accusations of weak leadership (Bear Stearns CEO Cayne May Step Aside). Shares gained 0.9% Thursday.
Additional Reading: Banks, Brokers and Bull • Covered Bear and Lehman Shorts
MBIA Plummets on CDO Exposure; Analyst Sees Buying Op.
Shares of bond insurer MBIA (NYSE:MBI) dived more than 26% Thursday morning after the company said on its website late Wednesday it has exposure to $30.6 billion in collaterialized debt obligations [CDOs] it insures, including $8.1B of complex, risky securities backed by home loans, also known as CDO-squared (CDOs of CDOs). In a subsequent research note, Morgan Stanley analysts called the $8.1B exposure "massive." "We are shocked that management withheld this information for as long as it did. MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors," they said. "This new disclosure completely changes our view of MBIA being a 'more conservative underwriter' relative to Ambac (ABK)." On Wednesday, S&P affirmed MBIA's AAA rating, but put it on a negative watch. S&P Ratings said Thursday the exposure announced was already reflected in its analysis. MBIA said on its Web site that it "supplemented the listing of its exposure to CDOs that include RMBS (residential mortgage-backed securities) as of Sept. 30, 2007 to make it consistent with the CDOs that were included in Standard & Poor's analysis." Citigroup analyst Heather Hunt says the selloff is overdone: "MBIA disclosures of additional $8.1B of CDOs with underlying CDOs a disappointment, but the exposures are already accounted for in the rating agency reviews... S&P estimates MBIA's CDO losses could be $1.49B on $30B of CDOs... We estimate over $7.5B after-tax losses are priced into the stock." She concludes, "This is an extremely volatile situation, but we believe that as more information comes out, the exposure will not be as bad as it seems."
Additional Reading: The Bond Insurance Barge Scam • MBIA Could Be a Zero Faster Than Expected
Fitch Downgrades Bank of America on CDO Risk
Fitch Ratings downgraded Bank of America (NYSE:BAC) to Negative from Stable Thursday, as ratings firms scramble to reassess risk after being slammed by investors and economists for not foreseeing massive asset overvaluation that has resulted in huge writedowns by banks worldwide. "Fitch's rating action reflects the fact that BAC's earnings have a significant level of sensitivity to trends in the deteriorating residential mortgage market," it said. "Management recently announced that it will increase provisions substantially to offset deterioration in home equity loans, and negative mark-to-market valuations in its mortgage-related holdings of collateralized debt obligations (CDOs) will be larger than previously anticipated."
Additional Reading: BofA: More Writedowns, 'Disappointing' Q4 Earnings • Citigroup Analyst Downgrades Several Banks
SunTrust to Buy $1.4B in SIVs, Write Down $250M
In an 8-K form filed with the SEC Thursday, SunTrust Banks, Inc. (NYSE:STI) revealed it intends to purchase approximately $1.4 billion of securities issued by Structured Investment Vehicles [SIVs] from its STI Classic Prime Quality Money Market Fund and STI Classic Institutional Cash Management Money Market Fund. The purchases will lead to a writedown of $225 to $250 million before taxes in its current quarter (F4Q07). Through its latest actions, SunTrust will keep its money-market funds, traditionally considered among the safest investments, from ‘breaking the buck’ and falling below the $1-a-share promised to investors. ‘Breaking the buck’ can potentially cause investors to panic and withdraw their money en-masse from a given fund. Despite its expected writedown, management “expects to be profitable in the fourth quarter of 2007 and maintain its current dividend.” The company’s dividend yields 4.79% at current trading prices. According to SIV industry expert Peter Crane, publisher of Money Fund Intelligence, “SunTrust is being extremely conservative. They will recover almost all of it next year.” SunTrust shares fell 3.8%.
Additional Reading: Money Market Funds Scramble To Avoid "Breaking the Buck" - WSJ ? SunTrust Banks Q3 2007 Earnings Call Transcript
RIMM Jumps on Solid Beat and Raise
Research in Motion Ltd. (RIMM) reported F3Q08 results that topped Wall Street’s expectations and issued strong guidance Thursday after the closing bell, sending its shares higher by 12.1% in after-hours action. The large AH spike came on top of a 4.8% gain in composite trading Thursday in anticipation of earnings. Net income was $370.5 million, good for EPS of $0.65, versus net income of $175.2 million (EPS of $0.31) a year ago. Revenue rose 100% Y/Y to $1.67 billion on the addition of 1.65 million BlackBerry subscriber accounts and 3.9 million devices shipped. Analysts were expecting EPS of $0.62, on average, on revenue of $1.65 billion. Total BlackBerry subscriptions stood at approximately 12 million at the end of Q3 (period ended 12/1/07). Approximately 80% of RIMM’s revenue came from device sales. Despite concerns of a weak retail environment this holiday season, Co-CEO Jim Balsillie said his company was “pleased with the excellent consumer sales results achieved so far in the holiday buying season,” (Research In Motion F3Q08 (Qtr End 12/01/07) Earnings Call Transcript. Standard & Poor’s analyst Todd Rosenbluth wrote Thursday morning before earnings that the company’s February quarter [Q4] guidance is really the key to how the market would react, “given its exposure to U.S. consumer spending and financial services firms’ telecom equipment spending, both of which could be restricted in early 2008.” RIMM projected Q4 revenue in the range of $1.80-$1.87 billion (midpoint = $1.835), on 1.82 million expected net subscriber account additions. EPS are expected to be in the range of $0.66-$0.70 (midpoint = $0.68). Consensus analyst estimates were for Q4 EPS of $0.65 on revenue of $1.74 billion.
Additional Reading: Research in Motion Up Ahead of Earnings • Look for Strong Q3 Earnings from Research In Motion
Micron Stumbles on Chip Pricing
Micron Technology (NASDAQ:MU) reported a net loss well below analyst forecasts, as the chipmaker was forced to decrease already lowered prices on chips to deal with supply and demand issues in its industry. In the company's first fiscal quarter of 2008, it lost $262 million ($-0.34/share) compared to a loss of $158 million ($-0.21/share) last year. Revenue increased 7% to $1.5 billion. According to Bloomberg survey, analysts predicted a loss of $0.15/share on sales of $1.49 billion. Despite megabit sales volume increasing for DRAM and NAND flash memory products about 25% and 60% respectively, the company was still forced to decrease the average selling price of its DRAM chip approximately 20% and its NAND flash memory products 30%. The sector as a whole is dealing with a glut of supply after overestimating demand in 2007. Analyst Daniel Berenbaum of Caris & Co. said in a research note before the release: "The memory segment faces significant near-term profitability hurdles as destructive market share battles rage in both NAND and DRAM… There are clear long-term demand drivers here, and the memory market does not appear to be structurally broken, but in the absence of any near term positive catalysts, we recommend that investors avoid Micron Technology stock." Shares of Micron, which were up 1.0% in the day session, fell 1.5% to $7.80 in after hours trading.
VimpelCom to Acquire Golden Telecom for $4.2B - WSJ
Vimpel-Communications (VIP), Russia's second-largest wireless carrier, has agree to acquire Golden Telecom (OTCPK:GLDN), a Russian broadband and fixed-line operator, for around $4.24B, or $105/share, according to The Wall Street Journal. The deal represents a 5% premium over Golden's Thursday Nasdaq close. The two companies disclosed they were in talks earlier this month. The Journal says Golden's two largest shareholders, Norway's Telenor ASA and Russia's Alfa Group, appear to have overcome their differences in support of the deal. Golden will provide exposure to Russia's growing broadband market. Despite its slowing fixed-line business, Golden is the leading provider of telecom services to Russian businesses. Bloomberg reports the acquisition would create the first integrated mobile/fixed-line provider in Russia. ADRs of VimpelCom gained 4.4% to $39.38 on Thursday. Golden lost 0.15% to $100.06 during normal trading, but spiked 10% to $110.00 in thin volume late trading. VimpelCom is a 4.8% holding of Market Vectors Russia ETF (NYSEARCA:RSX)
Additional Reading: VimpelCom Higher On Q3 Beat Driven by Russian Growth • Vimpel Communications Q3 2007 Earnings Call Transcript
Oracle Sees No Friendly Deal With BEA
Shares of BEA Systems (BEAS) are down 1.4% in pre-market trading after Oracle (NYSE:ORCL) CFO Safra Catz said on Oracle's FQ2 earnings call Wednesday night he sees little chance the company's now-expired $17/share bid for BEA will result in a deal."Over the last few weeks, we’ve been in contact with their bankers and lawyers and as a result of those discussions we’ve concluded that no friendly deal can be done with the current BEA board at a price and term acceptable to Oracle," Catz said. Questioned by Credit Suisse analyst Jason Maynard, "Help me out there -- with the $17 proposal, I don’t quite understand why there can’t be a friendly transaction with the current board. What’s the backdrop on that situation?" Catz responded, "You know, Jason, you’d really have to ask them. We’ve been out there with our offer and it does not seem like that is possible with this current board." BEA's overall option implied volatility of 54 is above its 26-week average of 41 according to Track Data, suggesting larger price risk. Oracle's $17/share bid expired at the end of October, to the disappointment of activist BEA shareholder Carl Icahn. BEA said it felt the offer undervalued the company, but said it would sell itself for $21/share, a price Oracle called "impossibly high" (BEA to Icahn: We'll Sell, But Not for $17/Share). On Monday, Law.com reported plaintiffs suing BEA in an options backdating suit claimed that when BEA's board rejected Oracle's $6.7 billion bid, its directors failed to properly weigh the offer because options backdating had clouded BEA's true value, without explaining in what way backdating options would prevent the board from assessing the company's true value.
High-Def DVD Standards War Intensifies
The high-definition DVD war shifted into high gear this holiday season, with both sides slashing prices. The cuts have Sony's (NYSE:SNE) Blue-ray players selling for under $300, while Toshiba's (OTCPK:TOSBF) HD-DVD player is available for $200. The cost of key manufacturing parts of the companies' players will fall below $150 in early 2008, analysts at Understanding & Solutions, an entertainment consultancy, forecast. A price war could produce a winner from the formats, as the battle intensifies and profits are sacrificed to stay competitive. The edge right now seems to be on Blu-ray's side; since Thanksgiving in the U.S., Blu-ray discs account for 72.0% of the high-definition discs sold, while HD-DVD has 27.4% of the marketshare in that time. Right now, Walt Disney (NYSE:DIS), 20th Century Fox and Metro Goldwyn Mayer support Blu-ray DVDs, while Universal (NYSE:GE) has sided with HD-DVD. Warner Bros. supports both players and might decide a winner if it chose one exclusively. Studios hope the new format will provide a spark in the market for DVDs, which are their biggest sources of profit, but whose sales have started to slide. They are cautious however, as the market could be overtaken by downloads or video-on-demand. "There is a very reasonable chance this market may not take off at all," said JP Gownder, principal analyst at Forrester Research, referring to high-definition DVDs. For now, the two HD formats must battle it out, because it will be tough for either to survive long term while the other exists.
FTC Clears Google's DoubleClick Purchase
U.S. antitrust regulators approved Google's (NASDAQ:GOOG) $3.1 billion purchase of DoubleClick Thursday. The Federal Trade Commission said that it has closed its investigation into Google's proposed buyout of DoubleClick and will not seek to block the deal. It remains to be seen if European regulators will approve the transaction without major limitations. The deal cannot be completed without their approval; a deadline of April 2 has been set to finish its review. In a 4-1 vote, the FTC said its analysis "showed that the companies are not direct competitors in any relevant antitrust market." They accepted that Google and DoubleClick are complementary businesses and do not compete with each other. Google's current business primarily involves the selling of text-based ads, while DoubleClick's core business is delivering and reporting on display ads. CNBC commentator Jim Goldman said this could be the biggest win in Google's history as this is the deal which gets them into display advertising, which is a huge growth area. Microsoft Corp. (NASDAQ:MSFT), AT&T Inc. (NYSE:T) and other critics have argued the transaction would give Google a dominant share of the rapidly growing online ad market.
Additional Reading: European Commission to Investigate Doubleclick Acquistion, Did Viacom Choose Microsoft to Punish Google?
Rite Aid Down 31%, Stung by ‘Cautious Consumer’
Shares of Rite Aid (NYSE:RAD) plunged more than 30% after the drugstore chain reported a larger third-quarter loss than analysts' estimated and lowered its full-year outlook. For the quarter, the company's net loss was $84.8 million ($-0.12/share) compared to a net income of $1.1 million ($-0.01/share) last year. Revenue climbed 51% to $6.52 billion, mostly from the acquisition of Brooks Eckerd. Forecasters were anticipating a net loss of $0.07/share on $6.64 billion in revenue. The company pointed to weak flu medicine sales and less demand for digital-film processing and snacks. "They mentioned a weakening consumer for a company that people thought was somewhat recession resistant," said Carla Casella, an analyst at JPMorgan Chase. "It's a little scary when they start talking about a weakening consumer. People are going to lose patience." Rite Aid also lowered its expected fiscal year sales to $24.3-$24.6 billion from $24.5-$25.1 billion. It sees yearly earnings falling to a loss of $0.27-$0.31/share from the loss of $0.15-$0.27/share it previously anticipated. "As we look forward to the remainder of our fiscal year, like the rest of the industry, we continue to be challenged by a weaker cough, cold and flu season than last year" and "a more cautious consumer," said CEO Mary Sammons. Rite Aid closed down 31.7% to $2.80.
Carnival Beats Estimates on Lower Net Income
Carnival (NYSE:CCL), the world's largest cruise ship operator, reported that net income fell in Q4 but beat estimates. Profit for Q4 fell to $358 million, or EPS of $0.44, from $416 million, or $0.51 last year. Revenue rose 11% to $3.12 billion, from $2.81 billion last year. Analysts predicted net income of $0.43 per share on revenue of $3.08 billion. Carnival had estimated EPS of $0.42 to $0.44. The company said on Thursday that its quarterly earnings fell as higher fuel costs offset stronger pricing. For the fiscal year, net income rose 6% to $2.41 billion, or $2.95/share, from $2.28 billion, or $2.77/share last year. Revenue rose 10% to $13.03 billion from $11.84 billion. Carnival, which plans to grow capacity by 9% next year, predicts a profit of $3.10 to $3.30/share (midpoint of $3.20) for 2008, including $0.50 share in costs related to higher fuel. The company expects Q1 profit of $0.29 to $0.30/share, down from $0.35/share a year ago. Analysts estimate a profit of $3.22 /share for the year and $0.35/share for Q1, because they believe the increased fuel costs have already been taken into account. Previous estimates were for $0.36/share in Q1 and $3.24/share for the year. Looking ahead, Carnival said that advanced bookings for the first half of 2008 were "well ahead" of the same time a year ago in terms of both pricing and occupancy. While still early in the booking process, bookings for the second half of the year are following a similar trend, the company said.
ConAgra Drops Despite EPS Beat
ConAgra Foods (NYSE:CAG) ost 2.9% Thursday, having gained as much as 6% in pre-market activity, despite the company's fiscal Q2 $0.50 vs. $0.42 EPS beat and upward revised full-year EPS guidance of $1.55/share, from $1.48 previously, compared to analyst estimates of $1.51/share. Net income rose 15% to $244.8M, on sales growth of 14% to $3.51B. Analysts were expecting revenue of $3.25B. ConAgra said earlier this month it would beat its own quarterly EPS estimate of $0.40, citing gains from commodities trading and commercial food sales. ConAgra will curtail discounts and promotions at supermarkets to help offset higher ingredient costs. A pot pie recall hurt Q2 EPS by $0.03. In a statement, CEO Gary Rodkin said ConAgra will continue to "face a very challenging input cost environment for the near term," but expects upside full fiscal year EPS growth due to the strong year-to-date EPS performance (ConAgra Foods F2Q08 Earnings Call Transcript). Competitors of ConAgra include Heinz (HNZ) and Kraft (KFT). Despite Thursday's drop, Citigroup analyst David Driscoll was positive on the earnings: "We believe that the ConAgra turnaround story continues to play out and expect significant positive news flow over the remainder of F2008 on the back of additional new product launches and improved product pricing. We continue to see significant upside in CAG shares at current levels and reiterate the stock as our top pick in branded food," he said in a post-earnings note.
Additional Reading: Earnings Preview: Four Companies That Could Surprise
TRANSPORT AND AEROSPACE
FedEx Guides Down on Weak U.S. Growth, Fuel Costs
U.S. bellwether stock FedEx (NYSE:FDX) reported FQ2 EPS of $1.54 ($479M) Thursday, beating consensus estimates of $1.50. Quarterly revenue of $9.45 billion was higher than consensus estimates of $9.32 billion. However, profits were down 6% from a year ago when the company earned $511 million, or $1.64 a share. Looking ahead, FedEx expects FQ3 EPS of $1.15-$1.30, vs. consensus estimates of $1.37, and full-year EPS of $6.40-$6.70, vs. consensus of $6.47.The firm lowered its capital spending forecast by $0.4B to $3.1B. FedEx said high fuel prices and weak U.S. economic growth impacted profitability. "As we noted last month, higher fuel prices and continued weak growth in the U.S. economy have hindered profitability," CFO Alan B. Graf said. "While we have indexed fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices. We are implementing cost-containment actions to manage near-term expenditures and have reduced our capital spending forecast. We will continue, however, to invest in strategic projects related to our long-term growth plans." In a conference call with analysts, CFO Alan Graf said that weak domestic earnings will be "mitigated by international growth," (full earnings call transcript later today). Executives highlighted strong China growth on the call. "The real story here is the state of U.S. domestic freight and when things are going to turn around," said AMBS principal Allan Meyers. "The outlook FedEx gave for the current quarter and the fact they have cut their capital expenditures demonstrate that they are not looking for any near-term improvement... This will last at least for the next quarter and probably beyond," he said. Shares fell 1%.
Additional Reading: FedEx Slows, Starbucks Cools, Stagflation is Coming
Lockheed Martin Inks $849 Million Navy Deal
Military contractor Lockheed Martin Corp. (NYSE:LMT) said Thursday it received an $849 million deal for production and deployed system support for the Trident II D5 Fleet Ballistic Missile program for 2008. Lockheed said the contract includes D5 production support, reentry system hardware and operations and maintenance to support the readiness and reliability of missile systems aboard submarines and at onshore facilities. The deal also extends the continuation of the Navy's missile program. Deliveries under the original contract called for the production of 425 missiles from 1989 through 2007. The new pact will extend development work and will include delivery of another 108 missiles starting in 2011. First deployed in 1990 and scheduled for operational deployment until 2042, the Trident II D5 is mounted aboard Trident II-configured Ohio-class submarines. Lockheed Martin Space Systems Company, Sunnyvale, Calif., is the prime strategic missile contractor and missile system program manager for the U.S. Navy's Strategic Systems Programs.
ENERGY AND MATERIALS
LDK Solar Dives on Margin Worries Despite Earnings Beat
LDK Solar (NYSE:LDK) reported late Wednesday Q3 EPS of $0.37, in line with analyst estimates. Revenues for the quarter were $157 million, vs. consensus estimates of $143.2 million. The company gave Q4 guidance of $0.40 to $0.43 a share, compared with consensus estimates of $0.41, and revenue of $180-$185 million, vs. consensus of $167.5 million.. CEO Xiaofeng Peng was upbeat on the numbers. "During the third quarter we experienced continued robust demand for our wafers and made great strides in expanding our customer base," he said. He said LDK is on track to meet wafer production capacity goals of 400MW by the end of 2007. Shares plunged in early Thursday trading, however, after some research analysts commented negatively on the company's Q3 and guidance. CIBC and Lazard noted the firm's margins declined in Q3. Piper Jaffray added gross margin will continue to fall, due to the high price of scrap silicon. It downgraded shares to the 'dreaded' Sell from Neutral, citing valuation and a lack of clarity in issues surrounding the company's polysilicon supply cost and ramp. However, Needham raised its price target to $95 from $65 and reiterated its Strong Buy rating. Needham says LDK has addressed polysilicon price increases by obtaining 75% of the polysilicon they will need in 2008 at a fixed price. It says shares as undervalued. Shares fell 27.6% to $47.86, and were off another 4% in extended trading.
Additional Reading: Holiday Cheer from LDK Solar • LDK Solar: Give Us the Facts
Royal Philips to Buy Respironics for €3.6B in Cash
Dutch-based Royal Philips Electronics (NYSE:PHG) announced Friday morning it had agreed to acquire Respironics Inc. (RESP) in an all-cash deal worth €3.6 billion ($5.17 billion). Royal Philips is best known for its home appliances and electronics products, including LCD televisions and LED lights, but also has a healthcare division. Respironics develops and produces medical devices for sleep and respiratory disorders. Under the merger agreement, Philips will acquire all Respironics shares for $66 a piece, a 24% premium to Thursday’s closing price of $53.11. Respironics had sales of $1.2 billion in its latest 12-month period. Respironics’ board unanimously approved the acquisition, under which the company will become the headquarters for Philips’ Home Healthcare Solutions group within Philips Healthcare. According to Philips CEO Gerard Kleisterlee, “Respironics is an excellent strategic fit and will significantly drive our growth in healthcare both in the hospital and in the home.” Kleisterlee also called the acquisition “another significant step in our continuing capital re-allocation process… we are well on track to deliver an efficient balance sheet before the end of 2009.” On Tuesday Philips announced a $7.2 billion share repurchase authorization (full story).
Additional Reading: Philips Higher on News of $7.2B Buyback • Philips Electronics Hopes To Save Big With Reorganization • Respironics, Inc.: Breathing Easy
Asia Ends Week With Strong Gains
Asia markets posted strong gains Friday, led by the Hang Seng (+2.26%). Tokyo's Nikkei (+1.5%) and the Shanghai Composite (+1.15%) were also up sharply. Tech stocks led gains in Japan following gains in U.S. tech stocks, though some traders said Friday's gains were no more than a technical rebound led by index futures. The Nikkei is closed Monday for a national holiday. "I think tech shares were mostly moved by index-related trades since they weigh heavily on the Nikkei average," said Maruwa analyst Masayuki Otani. Gains grew in the afternoon session after the Wall Street Journal said Merrill Lynch may receive a capital infusion of up to $5 billion from Temasek Holdings of Singapore. China's interest rate hike Thursday was welcome news to Hong Kong investors, reducing an overhang in the market (China Hikes for Sixth Time This Year; BoJ Holds). "The Christmas rally is finally kicking in," said John Schofield. "The psychology of the market is finally changing and the latest interest rate increase (by China) is good news. It's been such a bad six to eight weeks... we'll see a reasonable uptick in the last week of the year." China Unicom (NYSE:CHU) was up a strong 4.8%; it's now up 63% over the past year. TDK (TDK) gained 4.6%; Hitachi (HIT) gained 3.6%; Honda (NYSE:HMC) was up 3%; China Life (LFC +2.9%), CNOOC (CEO +2.6%) and China Mobile (CHL +2.2%) were among Asian gainers that trade on U.S. Markets. Mitsubishi UFJ Financial Group Inc. (NYSE:MTU) lost 1.2%.
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