Tuesday, May 5, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

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  • More banks need capital. Speculation continues to grow ahead of Thursday's stress test results, with sources now saying as many as 10 out of 19 tested banks may need more capital. Regulators will likely cite commercial real-estate loans as a major reason why the banks need more capital, with projected losses of up to 12% on those loans over two years. Despite the rumors, financial shares rose by the most in more than a month yesterday, sending Wells Fargo (WFC) up 23.7%, Bank of America (BAC) up 19.3% and Citigroup (C) up 7.7%.
  • S&P marches upwards. The S&P 500 turned positive for 2009, as a late burst of buying in the financial sector, basic-materials, energy and consumer stocks pushed the index to 907.24. The S&P is up 34% since hitting bear-market lows in early March, and is now up 0.4% for the year to date.
  • UBS misses profit mark again. UBS (UBS) posted a Q1 net loss of 1.98B Swiss francs ($1.75B) amid more writedowns and continued client withdrawals, and said its bad loans may increase as the global economy worsens. Since taking office in February, CEO Oswald Gruebel has cut 7,500 jobs, replaced two executive board members and sold a Brazilian business unit, calling a return to profitability his 'most urgent' task. Shares -1.2% premarket (7:00 ET).

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  • Obama tax plan faces resistance. Obama unveiled plans to end tax breaks for U.S.-based multinational corporations but met with resistance from some Democrats in Congress worried about 'unintended consequences.' The proposal would ban three offshore tax-saving strategies commonly used by companies like Citigroup (C), General Electric (GE) and Procter & Gamble (PG), and re-opened a debate about whether U.S. firms can stay globally competitive if forced to pay hefty taxes on foreign profits.
  • Bankruptcy fallout for Chrysler lenders, dealers. Chrysler's dealership network is on the verge of collapse as uncertainty about Chrysler's future drives already-scarce consumers away. Meanwhile, secured lenders who oppose Chrysler's bankruptcy plan have asked for their identities to be kept secret after some received death threats. Chrysler itself received court permission to use $4.5B in government loans for bankruptcy financing, and expects to be profitable again by 2012.
  • Antitrust probe on Apple, Google. The Federal Trade Commission is investigating whether Apple (AAPL) and Google (GOOG) violated antitrust laws with the overlap of directors on their boards. Arthur Levinson and Google CEO Eric Schmidt sit on the boards of both companies, leaving room for antitrust regulators to intervene if their presence reduces competition.
  • Alcatel-Lucent widens loss. Alcatel-Lucent (ALU) saw its Q1 loss more than double to €402M ($537.5M) from €181M the year before, as demand for telecommunications equipment slumped. This marked the company's tenth consecutive quarterly deficit. CEO Ben Verwaayen said the company has no plans to leave the business of making wireless-communications equipment but acknowledged this "will be a year of transition" and "taking appropriate actions." Shares -2.7% premarket (7:00 ET).
  • Raising the bar on failed bank reviews. With so many U.S. banks failing (32 to date in 2009), government watchdogs want to change the law so that a review is required only if a bank's failure costs the FDIC $300M or more. Currently, a review must be done if a bank failure costs the FDIC $25M or more, which has created a heavy workload of 'material loss reviews' of failed banks.
  • Kindle tackles textbooks. Amazon (AMZN) is reportedly planning to unveil a new version of Kindle tomorrow aimed at publishers of periodicals and academic textbooks. The new e-reader will, among other features, likely have a larger screen and a more fully functional web browser. Amazon has already worked out a deal with several publishers to make their textbooks available in e-format.
  • ArcelorMittal shelves steel bid. ArcelorMittal (MT) has suspended a potential $8B investment in Indonesian steelmaking facilities, after over a year of stalled negotiations. The deal was meant to capture key supplies of iron ore and reduce ArcelorMittal's reliance on big suppliers like Rio Tinto (RTP) and BHP Billiton (BHP).
  • TALF gets a boost. The Federal Reserve's TALF program is making some progress, with a $5B JPMorgan Chase (JPM) bond offering backed by credit-card loans that is eligible for the program. The JPMorgan deal is the largest to date of the TALF-eligible offerings, and is one of six deals due to be sold today.
  • Loss but no aid expected for AIG. AIG (AIG) is expected to post a Q1 loss when it reports on Thursday, but reportedly won't need a new capital injection from the government. If this is true, it will be the first quarterly results announcement since AIG's September bailout that is not coupled with government aid.
  • Aussies hold rate steady. Australia's central bank left its benchmark interest rate unchanged at 3%, as largely expected. The bank is waiting to see whether the lowest borrowing rates in nearly 50 years, coupled with government spending, will be enough to pull the economy out of its recession.
  • Construction spending improves (.pdf). Construction spending rose 0.3% in March vs. an expected 1.6% fall and last month's 1% fall (revised). For the quarter, spending fell 10.9%.
  • Home sales beat expectations. Pending Home Sales rose 3.2% in March, vs. consensus of 0% and previous sales of +2% (revised). NAR chief economist Lawrence Yun said the increase could be the "leading edge" of first-time buyers taking advantage of cheap prices and the $8,000 tax credit.

Earnings: Tuesday Before Open

  • Archer-Daniels-Midland (ADM): FQ3 EPS of $0.37 misses by $0.12. Revenue of $14.8B (-20.7%) vs. $16.9B. (PR)
  • Cincinnati Bell (CBB): Q1 EPS of $0.12 beats by $0.01. Revenue of $625.5M (-3.5%) vs. $345M. (PR)
  • Cimarex Energy (XEC): Q1 EPS of $0.09 misses by $0.08. Revenue of $209M (-56.2%) vs. $232M. (PR)
  • Cognizant Technology Solutions (CTSH): Q1 EPS of $0.38 beats by $0.01. Revenue of $746M (+16%) vs. $734M. (PR)
  • Constellation Energy Group (CEG): Q1 EPS of $0.74 beats by $0.04. Revenue of $3.1B (-16.2%) vs. $4.4B. (PR)
  • CVS (CVS): Q1 EPS of $0.55 beats by $0.01. Revenue of $23.4B (+9.7%) vs. $23.6B. (PR)
  • Duke Energy (DUK): Q1 EPS of $0.28 misses by $0.04. Revenue of $3.3B (-0.7%) vs. $3.4B. (PR)
  • Emerson Electric (EMR): FQ2 EPS of $0.49 misses by $0.04. Revenue of $5.1B (-15.5%) in-line. (PR)
  • Legg Mason (LM): FQ4 EPS of -$2.29 beats by $0.04. Revenue of $617M (-42.3%) vs. $611M. (PR)
  • Macerich Company (MAC): Q1 EPS of $1.16 beats by $0.10. Revenue of $211M (-3.1%) vs. $201M. (PR)
  • PetroQuest Energy (PQ): Q1 EPS of -$1.36 misses by $1.40. Revenue of $59M (-22.4%) in-line. (PR)
  • Spectra Energy (SE): Q1 EPS of $0.33 in-line. Revenue of $1.4B (-13.5%) in-line. (PR)
  • St. Joe (JOE): Q1 EPS of -$0.12 misses by $0.10. Revenue of $21.6M (-81.5%) vs. $33.3M. (PR)
  • Teva Pharmaceutical Industries (TEVA): Q1 EPS of $0.71 beats by $0.03. Revenue of $3.1M (+22.4%) vs. $3.4M. (PR)
  • W&T Offshore (WTI): Q1 EPS of -$0.54 misses by $0.01. Revenue of $117M (-67.1%) vs. $122M. (PR)

Earnings: Monday After Close

  • American Financial Group (AFG): Q1 EPS of $1.11 beats by $0.15. Sees full-year EPS of $3.75-4.05 vs. $3.72. Shares +9.7% AH. (PR)
  • Chesapeake Energy (CHK): Q1 EPS of $0.46 misses by $0.02. Revenue of $2B (+23.8%) vs. $2.2B. Shares -6% AH. (PR)
  • D.R. Horton (DHI): FQ2 EPS of -$0.34 misses by $0.04. Revenue of $775M (-52.3%) vs. $817M. Shares -1.2% AH. (PR)
  • EOG Resources (EOG): Q1 EPS of $0.53 misses by $0.06. Revenue of $1.16B (+2.1%) vs. $0.98B. Shares +0.9% AH. (PR)
  • Extra Space Storage (EXR): Q1 FFO of $0.23 misses by $0.26. Revenue of $69.3M (+5.5%) vs. $67.1M. Sees full-year FFO of $0.99-1.03 vs. $1.21. Shares -3.7% AH. (PR)
  • FMC Corp. (FMC): Q1 EPS of $1.22 in-line. Revenue of $690M (-8%) vs. $790M. Shares -6.2% AH. (PR)
  • Forest Oil (FST): Q1 EPS of $0.29 beats by $0.13. Revenue of $195M (-48.3%) vs. $257M. Shares flat AH. (PR)
  • Health Care REIT (HCN): Q1 FFO of $0.81 beats by $0.02. Revenue of $144M (+14%) in-line. (PR)
  • Hill-Rom (HRC): FQ2 EPS of $0.27 beats by $0.12. Revenue of $337M (-10.1%) vs. $334M. Full-year guidance in-line. (PR)
  • Hologic (HOLX): FQ2 EPS of $0.29 beats by $0.02. Revenue of $402M (-6.7%) vs. $405M. Sees FQ3 EPS in-line, and revenue of $390-400M vs. $409M consensus. Shares -10.3% AH. (PR)
  • McKesson (MCK): FQ4 EPS of $1.23 beats by $0.08. Revenue of $26.22B vs. $27.3B. Shares -3.4% AH. (PR)
  • MGM Mirage (MGM): Q1 EPS of -$0.06 beats by $0.01. Revenue of $1.5B (-20.4%) vs. $1.58B. Says cancellations have tapered off and business seems to be stabilizing. Shares +4.8% AH. (PR)
  • Principal Financial Group (PFG): Q1 EPS of $0.63 misses by $0.03. Revenue of $2.18B vs. $2.51B. Assets under management down 22% from a year ago to $237B. Shares +0.4% AH. (PR)
  • St. Mary Land (SM): Q1 EPS of -$0.01 misses by $0.15. Revenue of $199M (-45%) vs. $196M. Shares flat AH. (PR)
  • Vulcan Materials (VMC): Q1 EPS of -$0.29 misses by $0.22. Revenue of $600M (-26.6%) vs. $690M. -2.4% AH. (PR)

Today's Markets

Overseas markets moved higher Tuesday. Futures are up moderately.

  • Asia: Hang Seng +0.3% to 16,430. Shanghai +0.29% to 2,567. BSE -0.03% to 12,131. Nikkei closed.
  • Europe at midday: London +2.8% after being closed Monday. Paris +0.3%. Frankfurt +0.04%.
  • Futures: Dow +0.1% to 8368. S&P flat at 903. Nasdaq +0.1%. Crude -0.2% to $54.38. Gold +0.1% to $904. Euro -0.15% vs. dollar. Yen -0.15%. Pound +0.5%. 30-year Tsy -0.2%.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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