Wednesday, February 25, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Obama sees opportunity in crisis. In his first address to a joint session of Congress, Obama framed the economic crisis as an opportunity to solve some of the nation's problems, including overhauling the banking and health care systems. Though he acknowledged the heavy costs the country is paying during the current recession, Obama tried to change the tone of his message, reassuring listeners that "we will rebuild, we will recover, and the United States of America will emerge stronger than before." All the rebuilding and recovery carries a price tag, however, and Obama signalled more taxpayer money will be needed to pull the country out of the credit crisis. (Read Obama's remarks)
  • Banks bounce on Bernanke comments. Bernanke helped give bank stocks a boost yesterday after making the strongest comments yet against nationalizing U.S. banks. Speaking to the Senate Banking Committee, Bernanke said he doesn't "see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when that just isn't necessary." Looking forward, Bernanke held out hope for an economic recovery by 2010 but said recovery depends on whether policymakers can break the 'destructive power' of the interconnected crises in banking and the broader economy.
  • Merrill's larger-than-expected loss. Merrill Lynch reported a Q4 loss of $15.84B, around $533M more than estimated by Bank of America (BAC). Merrill also revealed material weaknesses in its controls over financial reporting as of the end of its fiscal year in December 2008. The larger-than-expected loss is unwelcome news for Bank of America as it tries to integrate Merrill and prepares for a government 'stress test' set to begin this week.
  • AIG asset sales unworkable. Sources say Edward Liddy, CEO of AIG (AIG), has concluded that selling assets to repay government loans is not a viable plan. AIG has lost more than 85% of its market value in the last five months, the price it can fetch for many of its units has fallen dramatically and fewer companies are in a strong enough position to bid on AIG's assets. In addition to an earlier idea of converting the government's preferred shares into common stock holdings, one alternative under discussion is for AIG to hand over some of its non-U.S. life insurance businesses to the government in return for forgiveness of part of the loans.
  • Ballmer reaches out to Yahoo. Microsoft (MSFT) CEO Steve Ballmer defended the company's investments in research and development, despite a gloomy financial outlook. Expected to total $9B during the current fiscal year, Microsoft's R&D spending is a sore point among some investors who would like to see a quicker payoff, especially from money-losing units like Microsoft's internet search business. Ballmer also reiterated that he's interested in speaking to new Yahoo (YHOO) CEO Carol Bartz about how the two can become stronger competition for Google (GOOG) by reaching an internet search deal. Shares fell 2.7% after hours when Ballmer failed to announce any acceleration in cost cutting.
  • SF Chronicle joins the endangered list. In a further sign of the deterioration of the news industry, Hearst Corp. has said it will close or sell the San Francisco Chronicle unless it can rapidly cut costs. Hearst will dramatically reduce the Chronicle's work force of 1,500 but if its cost-saving target isn't reached 'within weeks,' it will try to sell the paper. Since few investors are willing to make such purchases in the current economic crisis, Hearst said it will close the paper if it can't find a buyer. The Chronicle is the 12th largest paper in the U.S. and the largest daily in Northern California.
  • Biogen sets sights on new MS drug. Biogen Idec (BIIB) is reportedly in talks to buy Acorda Therapeutics (ACOR) in order to gain access to an experimental pill for people with multiple sclerosis. Acorda announced that the drug, Fampridine, helped MS patients walk and Biogen, the world's largest maker of MS medicines, is in talks to buy the marketing rights to Fampridine as well. MS is currently managed by injecting medicines, so Biogen faces competition from firms like Merck (MRK) and Novartis (NVS) to produce the first MS pill.
  • U.K. economy shrinks... The U.K. economy contracted the most since 1980 in Q4 as corporate and consumer spending plunged. GDP fell 1.5% from Q3, with consumer spending -0.7% and fixed investment -2.3%.
  • ...while falling pound causes trouble. EU officials are concerned the pound's slide to a record low against the euro could destabilize the British economy. According to a document prepared last month by officials of the European Commission and EU finance ministries, the pound's 'very rapid' drop 'raises questions about the financial stability of the British economy,' and is a 'source of concern for the euro area.' The report also contradicts a claim by U.K. Prime Minister Gordon Brown that a weaker currency helps the economy more than it hurts it.
  • Retail sales rise. Retail chain store sales rose 0.6% from a week ago, ICSC said, and declined 0.8% Y/Y. "Sales improved again this past week and extended its non-negative trend to four weeks - a welcome sign for retailers." According to Redbook, national chain store sales rose 0.9% in the first three weeks of February, better than the expected 0.5% bump. Sales -1.5% Y/Y.
  • Home prices at new lows. Home prices closed out 2008 at record lows, S&P/Case-Shiller reported, with its 20-city composite index dropping 18.5% vs. a year ago in December. "There are very few, if any, pockets of turnaround that one can see in the data," index chairman David Blitzer said.
  • Mtg. apps decrease. Mortgage applications fell 15.1% from a week ago, MBA reports, while 30-year fixed mortgage rates increased to 5.07% from 4.99%.
  • Consumer confidence falls. Conference Board's Consumer Confidence Index fell to a new all-time low of 25.0 from January's 37.4. Expectations dropped to 27.5 from 42.5. "Not only do consumers feel overall economic conditions have grown more dire, but... they anticipate no improvement in conditions over the next six months."

Earnings: Wednesday Before Open

  • Ambac (ABK): Q4 EPS of -$6.97 misses by $6.79. "Our financial results continue to be affected by the disappointing housing market and other economic conditions... We continue to place significant emphasis on de-risking our portfolio." (PR)
  • Discovery Co (DISCA): Q4 EPS of $0.25 misses by $0.05. Revenue of $904M (+0.1%) vs. $935M. (PR)
  • Frontier Communications (FTR): Q4 EPS of $0.11 misses by $0.04. Revenue of $547M (-5.2%) vs. $555M. (PR)
  • KBR Inc. (KBR): Q4 EPS of $0.54 beats by $0.14. Revenue of $3.4B (+41.7%) vs. $3.0B. (PR)
  • Quicksilver Resources (KWK): Q4 EPS of $0.23 beats by $0.02. Revenue of $209M (+40.1%) vs. $222M. (PR)
  • R.R. Donnelley & Sons Company (RRD): Q4 EPS of $0.63 beats by $0.07. Revenue of $2.8B (-9.5%) vs. $2.7B. (PR)
  • SPX (SPW): Q4 EPS of $2.06 beats by $0.19. Revenue of $1.5B (+17.1%) in-line. (PR)
  • Zale (ZLC): FQ2 EPS of $0.16 misses by $0.32. Revenue of $679M (-18%) vs. $693M. (PR)

Earnings: Tuesday After Close

  • Chicago Bridge & Iron (CBI): Q4 EPS of $0.72 beats by $0.06. Revenue of $1.51B (++14.4%) vs. $1.55B. Sees 2009 EPS of $1.30-2.00 vs. $2.15 and revenue of $4.4-4.8B vs. $5.91B. Shares +9% AH. (PR)
  • Crown Castle International (CCI): Q4 EPS of -$0.24 misses by $0.20. Revenue of $392M (+4.5%) vs. $385M. Shares -6.3% AH. (PR)
  • Dreamworks Animation SKG (DWA): Q4 EPS of $0.58 misses by $0.02. Revenue of $200M (-31.2%) vs. $232M. Shares -5.8% AH. (PR, earnings call transcript)
  • Exco Resources (XCO): Q4 EPS of $0.13 misses by $0.05. Revenue of $272M (+0.8%) vs. $304M. Shares -12.5% AH. (PR)
  • First Solar (FSLR): Q4 EPS of $1.61 beats by $0.31. Revenue of $434M (+116%) vs. $410M. Shares -13.4% AH. (PR, earnings call transcript)
  • Health Care REIT (HCN): Q4 EPS of $0.83 in-line. Revenue of $147M (+17.4%) in-line. Sees 2009 EPS of $3.20-3.30 vs. $3.42. Shares -2.5% AH. (PR)
  • Helix Energy Solutions (HLX): Q4 EPS of $0.02 misses by $0.34. Revenue of $541M (+8.1%) vs. $565M. Shares -10.5% AH. (PR)
  • Nabors Industries (NBR): Q4 EPS of $0.83 beats by $0.01. Revenue of $1.48B (+11.9%) in-line. "Q4 was not as bad as it could have been and the future is probably going to be better than the price of our stock seems to indicate." Shares +1.2% AH. (PR)
  • Range Resources (RRC): Q4 EPS of $0.33 beats by $0.11. Revenue of $345M (+54.4%) vs. $263M. Targeting 10% production growth in 2009. Shares flat AH. (PR)
  • Wynn Resorts (WYNN): Q4 EPS of $0.07 misses by $0.37. Revenue of $614M (-13.6%) vs. $703M. "Starting in October, we experienced a dramatic deceleration in business from the casino and non-gaming departments." Shares -15.1% AH. (PR, earnings call transcript)

Today's Markets

  • Asia markets got a lift from Tuesday's strong U.S. session. Nikkei +2.65% to 7,461. Hang Seng +1.61% to 13,005. Shanghai +0.27% to 2,207. BSE +0.91% to 8,903.
  • Europe stocks opened higher and spent the morning trading in a tight range. At midday: London +1.2%. Paris +1.1%. Frankfurt +1.2%.
  • U.S. stock futures drifted lower overnight. Dow -0.6% to 7261. S&P -0.7% to 763.50. Nasdaq -0.5%. Crude +1% to $40.35. Gold -1% to $961. Treasurys are essentially flat.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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