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VIP Falls Behind Expectations – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 22:00:13 +0000

VimpelCom (VIP) reported third-quarter 2009 earnings of 42 cents per ADS (based on an average exchange rate of 31.26 RUR/US$) that narrowly missed the Zacks Consensus Estimate of 44 cents. However, the result beat the year-ago earnings per ADS of 27 cents.

The second-largest Russian telecom carrier reported quarterly net income of RUR13.5 billion (US$432 million), more than double the net income of RUR6.5 billion (US$208 million) reported in the year-ago quarter. This significant year-over-year growth is largely attributable to foreign exchange gains from a strong Russian ruble versus the US dollar.

Operating revenue increased 3.5% year over year to RUR71.3 billion (US$2.3 billion) as growth across Russia, Kazakhstan, Uzbekistan and Tajikistan was partly offset by declines in Ukraine and Armenia. Revenue from the wireless operation was RUR60.7 billion (US$1.9 billion) while the fixed-line business generated revenue of RUR15.1 billion (US$483 million).

Reported OIBDA of RUR36 billion (US$1.2 billion) reflects a year-over-year growth of 7%, yielding an OIBDA margin of 50.4%. The annualized growth reflects the company’s ability to reduce costs amid the volatile economic environment. VimpelCom is pursuing various strategies to maximize cash flow through several cost-control measures.

The company’s total active cellular subscriber base grew by roughly 7.6 million year over year and by 1.7 million sequentially to 65.4 million. Its broadband subscriber base increased 11% sequentially to approximately 1.9 million.

On a geographic basis, revenue from Russia increased 4.1% year over year to RUR61.2 billion (US$1.9 billion), representing roughly 86% of the company’s total sales. Mobile subscriber base in Russia grew 13.2% year over year to 51 million. VimpelCom added 174,000 broadband subscribers during the quarter, bringing the total customer base to 1.83 million. The results were supported by a resurgent Russian economy.

Consolidated revenue from the CIS markets grew 3.9% year over year to RUR11.1 billion (US$355 million). Revenue from Kazakhstan (the largest CIS market) registered RUR5.4 billion (US$173 million), up 11.9% year over year. However, sales declined year over year in other key markets such as Ukraine (down 22.3%) and Armenia (down 3.4%).

During the quarter, VimpelCom spent RUR3.8 billion (US$122 million) in capital expenditures (CAPEX). The company has revised its CAPEX guidance reflecting a stronger ruble versus the dollar. VimpelCom expects CAPEX to be in the range of 10%-12% of its 2009 annual sales. The company plans to lift capital spending by at least 50% in 2010 to support 3G network expansion. VimpelCom’s 3G services currently cover all regions of Russia.

VimpelCom repaid debt worth US$690 million during the third quarter. The company successfully reduced its net debt to US$5.5 billion at the end of the quarter from $6.3 billion registered in the previous quarter.

In October 2009, the company’s two major shareholders Telenor and Altimo announced plans to merge their holdings in VimpelCom and Ukranian mobile operator Kyivstar to create a jointly owned telecom operator.

VimpelCom remains the second-largest wireless operator in Russia with over a 25% market share. Nevertheless, the company has a higher projected growth rate than its Russian peer Mobile Telesystems (MBT) as it continues to demonstrate the ability to succeed in emerging markets on the strength of sustained subscriber growth.

Besides maintaining its strong market position in the rapidly maturing Moscow metropolitan area, VimpleCom has successfully expanded into incipient Asian markets such as Vietnam and Cambodia. The company completed the commercial launch of its cellular operation in Cambodia in May 2009 under the Beeline brand. This was followed by the launch of wireless operation in Vietnam in July 2009. Moreover, VimpleCom recently signed an agreement to enter the Laos mobile market.

VimpelCom plans to cover more than two-third of Cambodia’s population by the end of 2009 and reach over 40 provinces and 41 million people in Vietnam by the end of January 2010. The relatively lower mobile penetration in these new Asian markets offers attractive growth opportunities for the company.
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J. Crew Beats Zacks Estimates – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 21:38:21 +0000

J. Crew Group Inc. (JCG), a multi-channel retailer of women's, men's and children's apparel, shoes and accessories across the U.S., has reported better-than-expected fiscal 2009 third quarter results with a net income of $43.9 million or 67 cents per share, compared to a net income of $19.0 million or 30 cents per share in the year-earlier quarter. The earnings also exceeded the Zacks Consensus Estimate by 9 cents.

The strong third quarter performance was primarily driven by a healthy sales growth across its segments. J. Crew Group is one of the few U.S. apparel retailers that witnessed robust sales growth during the quarter despite an overall weak economy. Total revenues increased 14.0% to $414.1 million from $363.1 million in the year-ago quarter, while same-store sales increased 8% year-over-year.

J. Crew Group attributes its strong sales to unique and differentiated merchandise, coupled with its tailor-made customer service. The merchandise margins of the company hit a historical high during the quarter, buoyed by stringent inventory management policies and a relatively positive outlook ahead of the upcoming holiday season. At quarter-end, inventories were $223.9 million compared to $250.1 million in the previous year. Inventory per square foot decreased 17% year-over-year.

Gross margin increased to 48.4% of revenues during the quarter from 41.6% in the year-ago period. Operating income increased to $75.2 million (18.2% of revenues) from $32.5 million (9.0% of revenues) in the third quarter of fiscal 2008. At quarter-end, J. Crew Group had cash and cash equivalents of $246.8 million versus $114.5 million in the year-earlier quarter.

With an improved performance during the quarter, the shares of the company rose 7% in after-hours trading. J. Crew Group currently expects its fourth quarter earnings in the range of 37 cents to 42 cents per share.
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No Change in Deere’s Outlook – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 21:14:23 +0000

Earlier today, Deere & Company (DE) reported fiscal fourth quarter earnings of 23 cents per share (excluding goodwill impairment charges of 76 cents per share), which is well above the Zacks Consensus Estimate of 5 cents per share. However, quarterly earnings were down 72% year over year, primarily due to a double-digit decline in sales.

Quarterly revenue of $5.3 billion was down 28% from the prior-year period. Net sales from the company’s worldwide equipment operations dropped 30% year over year to $4.7 billion due to lower shipment and production volumes. Equipment net sales in the U.S. and Canada fell 26%, while the net sales outside the U.S. and Canada were down 35%.

Agriculture & Turf segment sales fell 26% due to lower shipment volumes, partially offset by improved price realization. The segment’s operating profit (excluding the goodwill impairment charge) was $389 million, compared to $460 million last year. Lower operating profit was driven by lower revenue, partially offset by a decline in raw material and SG&A expenses.

Sales in the Construction and Forestry segment were down 47%, reflecting a significant decline in shipment and production volumes. The segment posted operating profit of $2 million for the reported quarter, compared to $89 million last year. Lower shipment and production volumes were partially offset by improved price realization, lower raw-material costs and lower SG&A expenses.

For the full-year fiscal 2009, Deere posted net income of $2.84 per share, compared to previous-year EPS of $4.70 per share. Total sales for the year were down 19% at $23.1 billion, as farmers and other customers cut their spending under recessionary conditions.

Deere projects a 1% drop in for fiscal 2010, including a 10% drop in the first quarter. The company’s forecast assumes a favorable currency translation impact of approximately 1% for the year and about 3% for the first quarter. Net income for fiscal 2010 is forecasted at around $900 million.

Full-year (fiscal 2010) sales from the Agriculture & Turf business are forecasted to decline 4% with lower expected sales from the U.S., Canada, and European markets and higher sales from South America. Construction and Forestry segment sales are expected to increase by about 18% in fiscal 2010, driven by aggressive inventory reductions made in fiscal 2009 to align the company’s production with retail demand.

We maintain a Neutral recommendation on Deere.
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Sprint Acquires Virgin Mobile USA – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 20:51:54 +0000

Sprint Nextel (S) has officially wrapped up its acquisition of prepaid wireless reseller Virgin Mobile USA (VM). This follows the approval of the transaction by the shareholders of Virgin Mobile USA, which is a joint-venture between UK’s Virgin Group and Sprint.

Virgin Mobile USA offers prepaid mobile services to roughly 5.2 million subscribers in the US. Prior to the acquisition, Sprint held a 13.1% stake in the entity. The Virgin brand, which is primarily targeted at youth culture, is very popular in the US among customers who cannot afford expensive long-term service contracts. Popularity of low-cost prepaid brands has grown as customers are increasingly switching to cheaper alternatives pressured by the recession.

Sprint announced its acquisition of Virgin Mobile USA for $483 million in July 2009. The deal was approved by the Federal Trade Commission, the US antitrust regulator, in August 2009. Per the agreement, the shareholders of Virgin Mobile USA will receive 1.3668 shares of Sprint for each share of Virgin Mobile USA. Sprint also committed to retire all outstanding debt (roughly $228 million) of the entity.

Sprint remains significantly challenged by the dismal economic environment which has contributed to the precipitous decline in subscriber base and revenues. On the other hand, the company’s larger peers Verizon (VZ) and AT&T (T) continue to expand their respective customer bases at a brisk rate.

Sprint is losing customers to its bigger rivals due to intense pricing pressure and technical problems associated with integrating its CDMA and iDEN wireless networks. The company’s core postpaid business is gradualy shrinking, as reflected by net loss of approximately 3 million customers in the first nine months of 2009.

In contrast, Sprint continues to register healthy growth in its prepaid subscriber base. The company’s $50 monthly unlimited prepaid plan continues to gain significant traction, facilitating prepaid subscriber retention and ARPU (average revenue per user) growth. To mitigate churn, Sprint has expanded this service plan across all of its existing wireless network platforms. The company’s Boost Mobile prepaid subsidiary currently offers prepaid services to 5.7 million customers in the US .

Moving forward, the prepaid wireless market will continue to serve as a significant growth catalyst for Sprint, helping it to offset the losses in the postpaid business. Acquisition of Virgin Mobile has further strengthened the company’s foothold in the fast-growing prepaid market as it leverages two complementary brands (Boost and Virgin) to target different customer demographics with distinctive service offerings.

The addition of the popular Virgin brand, enables Sprint to better compete with other established players in the prepaid segment such as MetroPCS (PCS), Leap Wireless (LEAP) and Deutsche Telekom’s (DT) US subsidiary T-Mobile USA.
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Edison Gets Regulatory Approval – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 20:17:55 +0000

Edison International (EIX) bagged an approval from the California Public Utilities Commission (CPUC) to construction the Devers Palo Verde2 Transmission Line project in California. The project is being built by its subsidiary Southern California Edison (SCE). The $537 million, 150-mile long transmission line project, once completed, will be able transmit 1.2 GW of electricity from renewable sources to customers in Southern California.

The transmission line will connect SCE’s Devers Substation near Palm Springs to the company’s proposed Midpoint switchyard near Blythe, California. Additionally, SCE will build a 42-mile, 500-kilovolt transmission line between the Devers substation and its Valley substation in Riverside County as part of the project.

The transmission line project will provide the capability to meet generation developers’ request for interconnecting new renewable and conventional generation projects in the solar energy rich areas of Southeastern California. By providing these developers with the means to access markets in California, Arizona and other states in the Western region, the project will support these states’ efforts to meet their respective renewable portfolio targets.

The addition of transmission lines will enhance the distribution network of Edison International. In recent times, the company witnessed 14.7% lower revenue year-over-year to $3.7 billion from $4.3 billion.

Also, to reduce greenhouse gas emission and adhere to California’s renewable portfolio standard utilities operating in California are spending big money. California’s renewable portfolio standard requires utilities to generate 33% of power from renewable sources by fiscal 2020. PG&E Corporation (PCG) plans to invest around $13 billion in 2009 – 2011, while Sempra Energy (SRE) will invest $2.5 billion. Edison International’s subsidiary Southern California Edison is projecting capital expenditures for the period 2009 – 2013 in the range of $16.8 billion to $19.8 billion.

Edison International’s consistent performance through its solid base of stable utility operations, SCE rate hike, ongoing alternative energy projects, balance sheet strength, and a relatively cheap earnings-based valuation, partially offset by a stagnant economy, volatile gas prices, low-hedged power output and coal positions, as well as the recovery of capital expansion costs, support our modestly bullish outlook. Thus we reiterate our Neutral recommendation on the stock.
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Cephalon Settles Barr Challenge – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 20:01:31 +0000

Earlier this month, Cephalon Inc. (CEPH) announced that it has settled its patent infringement case with Barr Pharmaceuticals, which is now owned by Teva Pharmaceutical (TEVA). Barr was looking to market a generic version of Cephalon’s cancer pain management drug, Fentora.

As per the terms of the agreement, Barr has been granted a non-exclusive, royalty-free right to sell a generic version of Fentora in October 2018. However, if a generic version of Fentora enters the market prior to that date, Barr will be allowed to launch its generic version provided the other generic company does not enjoy marketing exclusivity. According to Cephalon, Fentora’s patent is not set to expire before 2019.

While we are pleased to hear about this settlement agreement with Barr, we note that another major generic player, Watson Pharmaceuticals (WPI), is also seeking to bring a generic version of Fentora to market.

A delay in the entry of generic competition would provide Cephalon with more time to develop Fentora for additional indications such as breakthrough pain and neuropathic pain, which would expand the market significantly.

Cephalon’s pain management franchise has been under significant pressure ever since generic competition for Actiq, the leading pain franchise product, entered the market in late 2006. While Amrix, also a Cephalon product, is performing well, we believe the pain franchise will remain under pressure going forward.

Competition for Fentora has increased with the entry of a new player, BioDelivery Sciences’ (BDSI) Onsolis. Meanwhile, Actiq could potentially face additional generic competition later this year/early next year. Finally, Amrix is also facing patent challenges.

We currently have a Neutral recommendation on Cephalon. We expect investor focus to remain on Cephalon’s emerging oncology pipeline, Amrix, and the conversion of patients to Nuvigil.
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Tough Times for Putin’s Popularity

Robert Amsterdam — Wed, 25 Nov 2009 20:01:04 +0000

Some poll numbers and commentary from Nikolai Petrov:Public trust in the work of Putin fell from a peak of 72 percent in mid-October to 65 percent on November 22, the lowest point since March, according to weekly poll figures posted...

Raven Beats, Retains Weak Outlook – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 19:46:58 +0000

Last week, Raven Industries Inc. (RAVN) reported fiscal third quarter results. The company posted earnings of 40 cents per share, beating the Zacks Consensus Estimate of 38 cents. However, quarterly earnings were 13% lower than last year due to the impact of economic downturn on the company’s top-line.

Quarterly sales declined 20% to $60.2 million from $75.5 million in the year-ago quarter due to lower sales at three of its four segments.

The Engineered Films Division reported a 30% decline in sales to $18.7 million, reflecting continued weakness in two of its major end markets (construction and energy). The company managed to partially offset the impact of lower sales by focusing on cost controls and productivity improvements in the division.

In the Applied Technology Division, sales fell 19% to $21.0 million due to lower volumes driven by uncertain economic conditions. Despite a cautious near-term outlook for farm equipment, Raven is pursuing opportunities to expand its market share in precision agriculture.

During the reported quarter, Raven acquired Ranchview Inc., a privately held Canadian start-up company. Ranchview develops products that use cellular networks instead of radio systems that are typically used to deliver RTK (Real Time Kinematic) corrections to GPS enabled equipment. The company said that this product line is a natural extension and fits well with Raven’s strategy of improving the movement and use of data in agriculture. This acquisition is expected to contribute to Raven’s earnings in fiscal 2010.

Further, Raven Industries Inc. and SST Software Inc. have announced that they would build on their strategic alliance, with Raven buying a minority ownership position in SST. Earlier, in the second quarter, Raven and SST announced a strategic alliance to provide customers with simple, more efficient ways to move and manage information in the precision agriculture market.

In the Electronic Systems Division, sales of $15.7 million for the quarter were down 13% compared to the prior-year period due to lower sales volumes, unfavorable product mix, and a supply chain breakdown. Airlines have delayed or pushed back orders to aircraft manufacturers due to weak passenger traffic and shipping volumes.

Quarterly sales in the Aerostar segment were up 9% at $5.4 million due to higher U.S. Army parachute sales. In October, Aerostar won a $12.2 million five-year, IDIQ (indefinite delivery indefinite quantity) contract for the production of US Army T-11 personnel parachutes. With the MC-6 Special Forces parachute contract coming to an end in January 2010, the T-11 contract came in at a good time for the company. The $12 million generated over the next year from T-11 will replace the MC-6 revenue and help Aerostar's operating income, margins and overall profitability.

With three out of four segments facing a bleak near-term outlook, we expect Raven’s sales to remain at distressed levels over the next few quarters.
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Durable Goods Orders Drop – Analyst Blog

Dirk Van Dijk — Wed, 25 Nov 2009 19:31:17 +0000

Durable Goods Orders Drop

In October, new durable goods orders fell by 0.6%, partially reversing a 2.0% rise in September, which in turn was a partial reversal of a 2.7% decline in August. Year to date, new durable goods orders are 23.0% below the level for the first ten months of last year.

If we exclude the extremely volatile Transportation sector, new durable goods orders fell 1.3% after rising 1.8% last month. Transportation equipment includes jetliners, and one new order for a 787 from Boeing (BA) can easily swamp lots of new durable goods orders for smaller ticket items. It was mostly the Boeing order book that partially saved the day for total new durable goods orders, as orders for non-defense aircraft surged by 50.8% in the month. Last month they were up a modest 1.1%, but in August they plunged 44.0%.

Clearly if you want to make heads or tails out of this data, it is a good idea to exclude the Transportation sector. The first graph (from http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm) shows total new orders for durable goods on a year-over-year basis. While we are still deep in negative territory, it looks like we have turned the corner (note that the graphs do not include this month’s data, however; October 2008 was an awful month for new orders, so when updated the graphs should show further improvement).

However, most of the decline stems from fewer new durable goods orders from the Pentagon, another area that can be very volatile from month to month. Excluding defense, new durable goods orders actually rose by 0.4% in October after rising 1.8% in September and falling 2.7% in August. Regardless of what you include or exclude, though, on a longer-term year-to-date basis, the numbers are still very ugly, and show that we have a lot of ground to make up.

Excluding Transportation, year-to-date orders are down 20.4%, and excluding defense, orders are down 24.4%. Defense is in fact the only area to see an increase in durable goods orders on a year-to-date basis, with total defense capital goods orders up 1.0% and defense aircraft orders up 8.8%. Non-defense aircraft orders, on the other hand, are down 59.4% on a year-to-date basis, even including the huge surge this month.

In a positive sign for the economy, new durable goods orders for non-defense capital goods -- a very good proxy for business investment spending on equipment and software -- rose by 1.2% in October following a 3.2% increase in September. On a year-to-date basis, though, they are down 27.6%. Still it shows that business investment might be starting to come back.

However, that number does include the non-defense aircraft, since planes are the main capital good of an airline. If aircraft are excluded to get to what is known as "core capital goods," orders fell by 2.9% in October, reversing a 2.6% increase in September, and down 21.0% on a year-to-date basis. The second graph, (also from http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm) shows the history of core capital goods spending. As with total orders, it looks like we have turned the corner, but have a lot of ground to make up.

One area that has seen solid increases in durable goods orders for each of the last three months is primary metals, which are sort of at the base of the food chain, and might be signaling better times ahead. In the short term it is good news for firms like Alcoa (AA), U.S. Steel (X) and Freeport McMoRan (FCX). This month they rose by 3.6%, following increases of 2.6% and 1.2% in September and August, respectively.

That area, though, has an especially large amount of ground to make up, as even with the increases in durable goods orders for each of the last three months, orders are still down 39.6% on a year-to-date basis. Three months in a row of solid gains makes it look like the rebound is a trend, and not a short-term aberration, though.

On the other hand, Computer orders, which had held up reasonably well on a year-to-date basis -- down "just" 15.1% year to date -- have started to turn south, dropping in two of the last three months. In October they dropped by 7.2%, following a 0.3% increase last month and a 3.1% decline in August. Thus, the high tech rebound might be less robust than many have been hoping for.

All in all, I would rate this durable goods orders report as a negative -- not a disaster, but not nearly as positive as the other economic reports that we got today.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
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Boston Scientific’s New Product – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 19:31:05 +0000

Boston Scientific Corp. (BSX) recently received 510(k) clearance from the U.S. Food and Drug Administration (FDA) and CE Mark approval to market its WallFlex Fully Covered Esophageal Stent in the U.S. and Europe. The new product is used for the treatment of malignant esophageal strictures (obstructions) caused by tumors in patients with resectable or non-resectable esophageal cancer.

With the new approval, Boston’s complete portfolio of WallFlex Stent family of self-expanding metal stents is now available in the U.S. , Europe and other international markets. The company had earlier received approval for marketing the WallFlex Partially Covered Esophageal Stent in U.S. and Europe in 2008.

The WallFlex Fully and Partially Covered Stents prevent tumor ingrowth by using a proprietary Permalume silicone covering. This also reduces the impaction of food. It is seen that patients suffering from esophageal cancer may have difficulties in swallowing, even while consuming liquids. The WallFlex Esophageal Stent prevents this by re-establishing patency (openness) of the esophagus. This in turn makes life easier for patients.

We think that the unique features of the WallFlex Fully Covered Stents are likely to make them widely acceptable amongst surgeons. This will boost demand for these stents which will increase the company’s top-line.

Boston Scientific is a manufacturer of medical devices and products used in a broad range of interventional medical specialties. The company faces significant competition across its product portfolio. The primary competitors include Johnson & Johnson (JNJ), Medtronic Inc. (MDT), Abbott Laboratories (ABT) and St. Jude Medical Inc. (STJ).
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Sanofi Expands REGN Agreement – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 19:14:00 +0000

Sanofi-Aventis (SNY) recently extended and expanded its antibody collaboration with biopharmaceutical company, Regeneron Pharmaceuticals, Inc. (REGN). The companies had initially entered into a collaboration agreement in 2007, which was scheduled to expire in 2012.

Under the extended agreement, Sanofi will increase its annual funding commitment by $60 million to $160 million from 2010. Moreover, the agreement will now extend through 2017 with Sanofi having the option to extend the program for an additional three years.

The companies are looking to move four-five antibodies into clinical development every year. In addition to using its VelocImmune technology, Regeneron will also utilize its next generation technologies related to antibody generation for the development of antibodies under the collaboration.

Under the existing collaboration, four VelocImmune human antibodies are in clinical development, and the companies have filed for permission to move a fifth antibody into clinical development.

The extension of the agreement is in-line with Sanofi’s goal of focusing on new approaches to strengthen its R&D portfolio. Sanofi has been looking at several options to grow revenues given the high exposure of many of its leading franchises to generic risk. The generic risk to Lovenox is the most concerning and, if it were to materialize, would cause significant problems for Sanofi. Meanwhile, Plavix continues to face generic erosion in some parts of Europe.

Sanofi is looking to grow revenues through partnering deals and acquisitions in order to help plug revenue holes left by patent expirations. The recently concluded third quarter saw the company entering into licensing and collaboration agreements with Merrimack and Wellstat Therapeutics. Sanofi also signed an agreement to acquire French pharmaceutical company, Fovea.

Sanofi has also been focusing on the highest growth and most promising development programs. We expect Sanofi to continue look to contain operating costs in order to grow earnings in the face of weakening sales of some of its biggest products.
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PPL Plant Granted License Approval – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 18:44:52 +0000

Recently, PPL Corp.’s (PPL) Susquehanna nuclear power plant received a 20-year extension of the operating licenses for both reactors at the plant. The Nuclear Regulatory Commission (NRC) approved extension of the license for Unit 1 to 2042 and for Unit 2 to 2044.

NRC’s decision to extend the licenses is based on thorough safety and environmental reviews of PPL's application submitted in September 2006. NRC’s review process included a series of public meetings, onsite inspections, written requests for extra information from the staff, and an additional review by the Advisory Committee on Reactor Safeguards, which is an independent body of nuclear technical experts that advises the NRC commissioners.

After three years of intensive review, the NRC concluded that no safety or environmental concerns would prevent license renewal and that PPL had effectively demonstrated the ability to manage the effects of aging on plant equipment and systems.

Renewal of the licenses also means PPL Susquehanna will continue to generate well-paying jobs and a high level of community involvement and support.

PPL Corp. is working towards increasing electricity generation at the Susquehanna plant through its four-year project, which began in 2008 and will extend till 2011. The project focuses on improved and cost-effective generation of electricity from existing sources that emit no greenhouse gases. The bi-unit plant produces enough electricity to power about 2 million homes.

The Susquehanna plant, located in Luzerne County about seven miles north of Berwick, is owned jointly by PPL Susquehanna LLC and Allegheny Electric Cooperative Inc. and is operated by PPL Susquehanna.
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Hormel Foods’ Heartening Results – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 16:54:39 +0000

Yesterday, Hormel Foods Corp. (HRL) reported heartening performance for the fourth quarter and fiscal year 2009.

During the fourth quarter of 2009, the company reported EPS of 77 cents, up 54% from 50 cents per share in the same quarter of 2008. It was also above the Zacks Consensus Estimate of 52 cents per share. However, revenues decreased 10% year over year and reached $1.68 billion. Volume was also down 3% from the fourth quarter of 2008.

Part of this substantial decrease is attributable to the planned reduction of turkeys at Jennie-O Turkey Store segment, decreased sales revenue due to lower commodity prices in pork and turkey complexes, greater promotional spending, continuing weak food service sales environment, the loss of Carapelli Olive Oil sales and some additional intentional product rationalization.

Grocery Products operating profit was up 12% year over year; while volume and revenue was down 7% and 12% respectively. Refrigerated Foods operating profit was up 23%; volume was up 1%, however sales was down 9%. Jennie-O Turkey Store operating profit was up 6%, while volume was down 6% and sales was down 10%. Specialty Foods operating profit was up 9%, volume was down 8% and sales were down 12%.

During full year of fiscal 2009, EPS of $2.53 was up 22% from $2.08 per share in 2008. Revenue of $6.53 billion was down 3% from 2008. Overall volume was down 3%. Grocery Products operating profit was up 9% from 2008, while volume was down 3% and sales were down 2%. Refrigerated Foods operating profit was up 7%. However, volume was down 1% and revenue was down 2%. Jennie-O Turkey Store operating profit was up 11%, while both volume and sales were was down 3%. Specialty Foods operating profit was down 2%, volume was down 12% and sales were down 11%.

Having returned to more normal earnings growth levels this year, management is confident in its ability to continue to enhance the bottom line. The company intends to tackle the challenge of a continued weak economy and reduced consumer spending, and expect to restore top-line growth on an annualized basis in 2010. Thus, the company expects EPS to be in the range of $2.63 to $2.73 in the fiscal 2010 up from a previous view of $2.60 to $2.70. The company also said it now expects to make $1 billion in operating cash flow for the year, versus a prior expectation of $850 million to $900 million.
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Raytheon Bags Navy Contract – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 16:37:57 +0000

Raytheon Company (RTN) bagged a $241 million U.S. Navy contract to deliver open architecture software capability for the Zumwalt-class destroyer (DDG 1000). Under the contract, software development will support the integration of human-computer- interface components for the ship's engineering machinery controls and damage control systems.

Specifically, Raytheon will deliver computer graphical user interfaces and a technical data manager capability to control Zumwalt's ship propulsion, integrated power, auxiliary and damage control systems. The effort will also include support to land-based and shipboard testing of these subsystems.

Work on this contract modification will be performed at Raytheon’s Integrated Defence Systems Headquarters, Tewksbury, Massachusetts, and at the Seapower Capability Center, Portsmouth, Rhode Island.

The contract will boost the backlog of the Raytheon Integrated Defense Systems segment. In the recently reported quarter, segmental backlog was stagnant at $9.8 billion compared to $9.9 billion as of year-end fiscal 2008.

Raytheon is the one of the largest aerospace and defense companies in the U.S. It boasts of a well-diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems and technical services.

We continue to view Raytheon as one of the best positioned among the large-cap defense primes due to its non-platform-centric focus, strong order bookings and order backlog, strong cash flow generation, and focus on shareholder value. We maintain our market Outperform recommendation on the shares. Defense contractors with significant exposure to high-cost platform programs include Lockheed Martin (LMT), Northrop Grumman Corporation (NOC), and General Dynamics Corporation (GD).
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First Solar Sells Solar Project – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 16:20:11 +0000

First Solar Inc. (FSLR) announced that it would sell the 21 MW solar energy project that it has developed and constructed in Blythe, California, to NRG Energy Inc. (NRG). First Solar will provide operations and maintenance services at Blythe under a long-term contract with NRG Energy. This is second sale by First Solar, recently in October 2009 the company sold a 20 MW solar power project in Ontario to the Canadian oil pipeline company – Enbridge Inc. (ENB).

Located in Riverside County about 200 miles east of Los Angeles, the Blythe project is California's first and largest utility-scale photovoltaic (PV) solar generation facility, and among the largest in North America. Construction on the project began in September 2009 and is expected to be fully completed by year-end fiscal 2009. Once fully completed, the Blythe project when will generate over 45,000 megawatt-hours of electricity annually. The solar generation reduces over 12,000 tons of carbon dioxide emission per year, the equivalent of taking 2,200 cars off the road. The construction of this project has created 175 green jobs.

Electricity from the plant will be sold to Edison International’s (EIX) subsidiary Southern California Edison under a 20-year power purchase agreement. California based utilities such as Edison International is spending big money to reduce greenhouse gas emission and adhere to California’s renewable portfolio standard. First Solar is also developing 1,300 MW of PV solar projects in California and the Southwest.

Based in Phoenix, Arizona, First Solar designs, manufactures and sells solar electric power modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. It sells its products to project developers, system integrators and operators of renewable energy projects primarily in Europe with a distinct focus on Germany. First Solar also focuses on designing and deploying commercial solar projects for utilities in the United States.

First Solar enjoys a distinct cost advantage over its peers due its reliance on low cost thin-film cells. However, the advantage is ebbing fast due to falling polysilicon prices. First Solar’s growth potential and that of the solar industry in the aggregate requires a prudent long-term focus on technological enhancements, capacity build-out and cost minimization. Balancing all the three aspects would be an uphill task. Competition in the field is becoming tougher day by day for U.S. solar players such as First Solar, who have missed out on Government doles unlike its Chinese counterparts including Suntech Power Holdings Company Ltd (STP) and ReneSola Ltd (SOL). We maintain our market Neutral recommendation on the shares.
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Human Genome Begins Trial – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 16:05:11 +0000

Recently, Human Genome Sciences, Inc. (HGSI) and Aegera Therapeutics announced the initiation of dosing in a phase I clinical trial to evaluate the safety and tolerability of its lead inhibitor-of-apoptosis protein (IAP), HGS1029, as monotherapy in patients with advanced lymphoid tumors.

An additional phase I clinical trial of the compound is being conducted to evaluate its safety and tolerability in patients with advanced solid tumors. Earlier in December 2007, Human Genome acquired exclusive worldwide rights (excluding Japan) to develop and commercialize HGS1029 and other IAPs from Aegera Therapeutics.

The primary objectives of the phase I open-label, dose-escalation study include the evaluation of safety and tolerability of HGS1029 as monotherapy in patients with advanced lymphoid tumors and selection of a recommended dose for further studies. In addition, secondary objectives include studying possible anti-tumor activity and determining the compound’s pharmacokinetic profile. The drug is to be administered as a 15-minute intravenous infusion once weekly for 3 consecutive weeks followed by a week off.

Although this is good news for the company, the candidate being in the initial stage has a long way to go before commercialization. Hence the company’s prime focus is towards the commercialization of its two lead drugs, Benlysta (belimumab), being developed with GlaxoSmithKline (GSK) for lupus and Zalbin (albinterferon alfa-2b) for hepatitis C. Both the candidates have successfully completed phase III development. While Human Genome plans to submit marketing applications for Benlysta in the US, Europe and other regions in the first half of 2010, the submission of global marketing applications for Zalbin has been planned to be done by the year end.

Earlier this month, Human Genome received a huge boost when Benlysta met its primary endpoint in BLISS-76, a pivotal phase III study, through 52 weeks. This is the second phase III trial in seropositive patients with systemic lupus erythematosus (SLE). Positive results from the first trial, BLISS-52, were announced earlier this year. However, the BLISS-76 study is in progress and will continue for 24 more weeks. Additional data will be available following completion of the full 76-week study period.

Even though we are optimistic about the prospects of Benlysta, which could be a blockbuster on approval, the product is not likely to receive approval before 2011. We maintain a Neutral rating on the stock.
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Medtronic Beats Zacks Estimate – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 15:48:19 +0000

Medtronic, Inc. (MDT) reported second-quarter of fiscal 2010 earnings per share of 77 cents, compared to the Zacks Consensus Estimate of 74 cents and the year-ago earnings per share of 67 cents.

Sales
Total revenues in the reported quarter increased 8% year over year to $3.838 billion. Growth was witnessed across all the seven business segments. Cardiac Rhythm Disease Management (CRDM) revenues increased 3% year over year to $1.278 billion, driven by strong demand for the company’s implantable cardioverter defibrillators (ICDs). Spinal revenues increased 4% year over year to $862 million. Growth was fueled by higher demand for Kyphon and Biologics products.

CardioVascular revenues increased 17% year over year to $696 million. An increase in revenues can be attributed to strong sales growth across the company’s Coronary, Endovascular and Structural Heart Disease divisions.

Higher demand for Medtronic’s Endeavor Drug-eluting Stent in Japan also fueled growth in this segment. Neuromodulation revenues increased 12% year over year to $384 million, primarily due to higher sales of Activa PC, RC Deep Brain Stimulation systems and InterStim Therapy.

Diabetes, Surgical Technologies and Physio-Control revenues also increased 10%, 5%, and 25% year over year to $300 million, $224 million, and $94 million, respectively.

On a geographic basis, U.S. sales contributed 60% of total revenues and increased approximately 5% year over year. International sales increased 12% year over year.

Margins
Gross margin in the reported quarter increased 70 basis points (bps) year over year to roughly 76.0%. Research and development expenses as a percentage of sales increased 50 bps year over year to 9.6%. Selling, general and administrative expenses as a percentage of sales declined 90 bps year over year to 34.5%.

Balance Sheet & Cash Flow
Medtronic ended the quarter with cash, cash equivalents and short-term investments of roughly $1.542 billion, a decline of approximately 8% in the first half of the fiscal year. The company had an outstanding long-term debt of $6.368 billion at the end of the second quarter. Cash flow from operations was $781 million for the quarter.

Outlook
Medtronic raised its earnings per share guidance for fiscal 2010. For the year, earnings per share are expected in the range of $3.17 to $3.22, compared to the prior guidance of $3.10 to $3.20. The company also reiterated its constant currency revenue growth forecast in the range of 5% to 8%.

Medtronic is one of the world’s leading medical technology companies, specializing in implantable and interventional therapy devices and products. The company’s main competitors are St. Jude Medical (STJ) and Boston Scientific Corporation (BSX).
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11-25-09 Daily Small Cap Market News and Stock Highlights from SmallCapVoice.com

Stuart T. Smith — Wed, 25 Nov 2009 15:43:20 +0000

Stocks are lightly higher after stronger-than-expected data on the labor market The number of workers filing claims for jobless benefits fell by a surprisingly large amount in the last week to the lowest level in more than a year, the government said. In addition, U.S. personal spending rose 0.7 percent in October, while durable goods orders unexpectedly [...]

Omnicell’s New Product – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 15:30:15 +0000

Omnicell, Inc. (OMCL) recently launched a new product, Omnicell 14.0 with Anywhere RN, a software solution used in conjunction with Omnicell's automated medication dispensing cabinets to ensure safe, efficient and accessible medication management throughout the hospital. South Jersey Healthcare Regional Medical Center has already implemented the new product for its hospital.

Anywhere RN enables nurses to review medication orders from any hospital computer or workstation and select profiled medications for issue from an Omnicell automated dispensing cabinet. Nurses may also utilize the new product to record medication waste and queue return transactions. Anywhere RN is the industry’s first software solution to offer such facilities.

Anywhere RN substantially increases the nurses' ability to access patient medications in a safer and more efficient manner. This is evident at South Jersey Healthcare Regional Medical Center where time spent at the automated medication dispensing cabinet was lowered by 33%. The new product also optimizes patient safety by reducing the number of interruptions that occur during the medication administration process.

We think that the new product will increase Omnicell’s top-line. Omnicell is a leading provider of systems and software solutions, primarily focusing on end-to-end automation solutions for the medication-use process.

Omnicell’s products are primarily purchased by hospitals and nursing homes which are presently grappling with the current economic scenario of weak credit markets, rising expenses, higher unemployment, and erosion of wealth.
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Initial Jobless Claims Plunge – Analyst Blog

Dirk Van Dijk — Wed, 25 Nov 2009 15:01:16 +0000

Initial Jobless Claims Plunge

This week initial jobless claims for unemployment insurance plunged by 35,000 to 466,000. Actually, considering that last week’s number of initial jobless claims was revised down to 501,000 from 505,000, one could argue that the decline in initial jobless claims was more like 39,000. This brought the four-week moving average of initial jobless claims (a better number to watch due to the weekly volatility of the numbers) down to 496,500, a decline of 16,500.

We are now 162,250 below the peak for initial jobless claims set back in April for the four-week average. This is also the first time in over a year that the four-week average has fallen below the 500,000 mark.

Despite the improvement in initial jobless claims, as the graph below (from http://www.calculatedriskblog.com/) shows, we are still above the peak set in the last recession, and just about at the same level set at the peak of the 1991 recession. The good news though, relative to the last two recessions, is that the initial jobless claims numbers are showing no sign of forming a high plateau. That could have some very good implications for the job market.

However, the core of the problem in the labor market this time around is not that layoffs are that abnormally high, but that hiring is abnormally low. (See It's the Lack of Job Creation, Stupid!) and that once a job is lost, there is a much larger percentage than historically that it will have been lost for good, rather than a temporary layoff. (see Permanent vs. Temporary Lay-Offs).

The good news did not stop with the initial jobless claims data. Regular state level continuing initial jobless claims for unemployment insurance fell by 190,000 to 5.423 million. Those claims run out after 26 weeks. After that, people are moved to federally funded extended initial jobless claims (part of the Stimulus Package), so the continuing claims number does not tell the whole story.

Combining the two largest of the Federal programs, there are an additional 4.179 million people who are getting unemployment benefits. That figure, though, also declined this week, falling by 18,250.

Since the extended benefit program was recently extended, it seems that this is actual good news -- news that some people are actually finding new jobs, rather than simply running out of time for even the extended benefit program. That is very good news indeed. People with new jobs are going to have a much more upbeat view of the world. They are much more likely to go out and shop at Wal-Mart (WMT) or Target (TGT) this holiday season. From the point of view of the nation’s retailers, this news could not have come at a better time.

Still, this is no time to get complacent on the jobs front. We still have an unemployment rate of 10.2%, and as of October, we were still losing about 200,000 jobs a month. Further, once people have lost their jobs they are staying unemployed for longer than ever before, or at least since records of unemployment duration have been kept. (see More on Unemployment Duration). I’m sure it was worse in the Depression, but the data cannot tell us exactly how much worse.

Things are moving in the right direction, according to the initial jobless claims data. This is the best news we have seen on the employment front in a very long time, and gives us something to be thankful for tomorrow.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience, he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.
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Magna Bags GM Contract – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 15:00:00 +0000

Magna International (MGA) has reported that it has won a contract to make the new generation of frames for General Motors’ (MTLQQ) full-size light-duty pickups and sport utility vehicles despite their disputed relationship over the Opel deal. According to Magna, the new third generation of frames would replace GMT 900, which is the frame for Chevrolet’s Suburban, Tahoe and Silvarado models.

Magna will manufacture the frames at its Cosma unit in St. Thomas, Ontario, and the Saltillo plant in Mexico. The St. Thomas plant has been manufacturing frames for General Motors (hereafter, GM) since 1999 and the Saltillo plant currently builds the GMT 900. The Canadian auto parts maker has not disclosed the value of the deal. Magna’s relationship with GM has suffered over the former’s acquisition of the Opel/Vauxhall business in Europe from the latter.

GM had granted a preliminary approval to sell a 55% stake in Opel to Magna, backed by Russia’s Sberbank. However, the Detroit-based automaker scrapped the deal recently in order to retain the unit. GM had been in a dilemma while choosing Magna as the preferred bidder for Opel. The German Government preferred Magna as it had promised not to close any of the four Opel plants in the state.

The Magna deal was supported by a €1.5 billion ($2.15 billion) German Government-backed bridge loan. However, GM was afraid of losing Opel's technology to the Russian car industry. Thus, if Magna had won the deal, GM may have lost Russia’s increasingly important market for its models, such as Chevrolet. Secondly, it also feared losing the Opel engineers, who are integral to GM's overall strategy.

Magna and Sberbank were planning to manufacture Opel cars in Russia with the biggest automaker in the nation – Gaz Group – jointly owned by the tycoon Oleg Deripaska and Avtovaz (partly owned by France’s Renault).
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Merck’s Relief in Texas – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 14:30:00 +0000

Although Merck (MRK) is aiming to close the Vioxx chapter, it is far from over. The company’s long list of cases is still pending. Recently, Merck received a favorable ruling in a district court of Texas. The judge dismissed all claims in a lawsuit related to Vioxx filed on behalf of the State of Texas that sought a refund for money spent on the drug and granted Merck's motion for summary judgment.

A summary judgment is a determination made by a court in a civil litigation, without a full trial. In addition to the Texas case, there are several other similar lawsuits filed by state attorney generals throughout the country. A similar trial filed against Merck by the Louisiana Attorney General is scheduled to begin in the federal court in New Orleans on April 2010.

Earlier this year, in another lawsuit, Merck had agreed to pay $80 million to settle 190 outstanding claims regarding Vioxx, a blockbuster drug that catered to a huge arthritis and pain-relief market for nearly five years in the US. Merck had to withdraw the drug from the market in 2004. The withdrawal followed a finding which revealed increased risk of heart attack for long-term users of the medicine.

In November 2007, the company agreed to pay $4.85 billion to settle several personal-injury lawsuits from former Vioxx users who held the drug responsible for causing heart attacks or strokes. Although the Texas decision is a relief for Merck, many investigations are still pending regarding Vioxx. Any unfavorable outcome of such lawsuits may affect the company’s financials.

Moreover, various researches have shown that heart risk associated with Vioxx could have been detected before the drug’s withdrawal from the market, had the data been openly available. We believe disclosure of such findings may make things more difficult for the company. However, we are Neutral on the stock.
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Manulife Buys Stake, Raises Equity – Analyst Blog

Zacks Market Commentaries — Wed, 25 Nov 2009 14:15:00 +0000

Manulife Financial Corporation (MFC) has agreed to purchase a 49% stake in ABN AMRO TEDA Fund Management Co. for US$156 million in cash. The joint venture will be named Manulife TEDA Fund Management Co. Ltd. It will offer traditional retail and institutional asset management services in the Chinese market. Established in 2002, ABN AMRO TEDA Fund Management currently has assets of US$3.8 billion under management.

The 51% stake is owned by Northern International Trust, part of Tianjin TEDA Investment Holding Co., a company owned by Tianjin city in China. Manulife expects to complete the stake purchase in the first quarter of 2010. The company also expects this transaction to add to its earnings in the first year.

Manulife is also bolstering its capital position with a $2.5 billion common equity raise. The company recently announced that it has agreed to issue common shares to a syndicate of underwriters for an aggregate price of C$2.5 billion (US$2.37 billion) at C$19 each in a "bought deal" public offering in Canada. Manulife also intends to retire roughly $1 billion of outstanding debt under its credit facility with Canadian chartered banks using other cash resources of the company.

We believe that the stake purchase and equity offering are a strategic fit. The buying of the 49% stake will help the company to expand its business significantly in China. This equity raise would enable the company to significantly strengthen its capital position and to have access to the highest level of capital since it went public. Additionally, the company would have the flexibility to make meaningful acquisitions and explore growth opportunities.
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Fed Gives Clear Message – Analyst Blog

Dirk Van Dijk — Wed, 25 Nov 2009 13:44:59 +0000

The minutes of the Federal Reserve meeting of November 3rd and 4th were released yesterday. The clear message of the minutes is that short-term rates are going to stay very low for a long time to come. Below is the summary of the participants' view of the economy, and my translation/commentary/analysis of it interspersed.

"In the meeting participants’ discussion of the economic situation and outlook, they agreed that the incoming data and information received from business contacts suggested that economic activity was picking up as anticipated, with output continuing to expand in the fourth quarter."

I agree that we will see positive economic growth in the fourth quarter -- perhaps not very robust growth, but it will be comfortably on the right side of zero.

"A number of factors were expected to support near-term growth: Business inventories were being brought into better alignment with sales, and the pace of inventory runoff was slowing; activity in the housing sector appeared to be turning up, and house prices seemed to be leveling out or beginning to rise by some measures; consumer spending appeared to be rising even apart from the effects of fiscal incentives to purchase autos; the outlook for growth abroad had improved since earlier in the year, auguring well for U.S. exports; and U.S. and global financial market conditions, while roughly unchanged over the intermeeting period, were substantially better than earlier in the year."

Changes in inventories were a substantial drag on growth in the fourth quarter of last year through the second quarter, but that started to turn around in the third quarter. In fact, except for the drawdown in inventories, economic growth would have been a positive 0.7% in the second quarter, rather than the negative 0.7% we saw. In the third quarter, rebuilding of inventories added 0.87 points of the 2.80 total growth. In other words, if inventories had remained unchanged, growth would have been less than 2.0%.

As for consumer spending, the rebound has been muted outside of autos, although it is up rather than down. Over the long term I’m not sure that's such a good thing, but for the time being we need the consumer to wake up.

The U.S. is not going to be leading the world out of this downturn, China is. However, economic growth is not a zero-sum game, and if places like China are growing, that is good for the U.S. economy. Even though the dollar has not changed relative to the Yuan, the falling dollar will still help our exports, since we are often competing against the Europeans and the Japanese when we sell into places like China. A week dollar makes Boeing (BA) more competitive versus Airbus, and General Electric (GE) well positioned relative to Siemens (SI).

"Above-trend output growth in the third quarter was a welcome development. Moreover, the upturn in real GDP appeared to reflect stronger final demand and not just a slower pace of inventory decumulation.

"While these developments were positive, participants noted that it was not clear how much of the recent firming in final demand reflected the effects of temporary fiscal programs to support the auto and housing sectors, and some participants expressed concerns about the ability of the economy to generate a self-sustaining recovery without government support."

Well, we learned yesterday that the output growth in the third quarter was closer to trend than above trend, but the Fed did not have that data at the time of the meeting. I share the concern about the ability of the economy to generate a self-sustaining recovery. We still need the training wheels. Without the stimulus, the economy would probably still be headed south.

"Nonetheless, participants expected the recovery to continue in subsequent quarters, although at a pace that would be rather slow relative to historical experience, particularly the robust recoveries that followed previous steep downturns. Such a modest pace of expansion would imply only slow improvement in the labor market next year, with unemployment remaining high. Indeed, participants noted that business contacts continued to report plans to be cautious in hiring and capital spending even as demand for their products increased."

The Fed members are masters of understatement. Normally when you have a sharp and deep recession, you have a big snap back. It is not unusual to see at least one quarter where growth exceeds 6% coming out of a recession. I see very little chance of that happening this time around. If we can sustain growth rates like we saw in the second quarter of 2.8% for all of 2010, I would count that as a major victory.

Coming out of previous recessions, the consumer was a much smaller part of the economy, and had room to expand. I don’t see that as the case this time, with the consumer at a record 71% of the economy. The savings rate was also much higher coming out of previous recessions,and had room to fall -- not true this time around. Business investment actually continued to fall in the third quarter, even as the rest of the economy was growing, mostly due to a 15.1% plunge in spending on non-residential structures. That alone shaved 0.55 points from economic growth.

Spending on Equipment and Software did pick up a little bit (up 2.3% in 3Q, adding 0.15 points to growth), and the software side of that could be helped by the new Windows operating system from Microsoft (MSFT).

"Nonetheless, economic growth was expected to strengthen during the next two years as housing construction continued to rise and financial conditions improved further, leading to more-substantial increases in resource utilization in product and labor markets."

Yes, housing will probably see some rebound, since it is near a record low share of the economy (set in the second quarter). However, we have too many housing units in the country, so it does not make a lot of sense to be building more of them. We need to see more household formation.

That means we need more jobs -- jobs that will get recent college graduates out of their parents' basements and into houses or apartments of their own. Jobs that will allow people who are now living on their friends' couches to get their own places. That presents a bit of a chicken-and-the-egg problem, since historically housing is one of the key areas lifting us out of recessions.

"Most participants now viewed the risks to their growth forecasts as being roughly balanced rather than tilted to the downside, but uncertainty surrounding these forecasts was still viewed as quite elevated. Downside risks to growth included the continued weakness in the labor market and its implications for income growth and consumer confidence, as well as the potential for credit availability to remain relatively tight for consumers and some businesses."

I still see the risks as being tilted to the downside, mostly for the factors that the Fed cites here.

"In this regard, some participants noted the difficulty that smaller, bank-dependent firms were having in securing financing. The CRE sector was also considered a downside risk to the forecast and a possible source of increased pressure on banks.

"On the other hand, consumer spending on items other than autos had been stronger than expected, which might be signaling more underlying momentum in the recovery and some chance that the step-up in spending would be sustained going forward. In addition, growth abroad had exceeded expectations for some time, potentially providing more support to U.S. exports and domestic growth than anticipated."

I suspect that with banks pulling in credit card lines, that the strength in consumer spending outside of autos (and autos was artificially helped by Cash for Clunkers) will prove to be ephemeral. I would also note that after the Fed meeting we got a downward revision to September retail sales and the October retail sales were decidedly mediocre.

I fully agree that the growth abroad is a major positive force for the U.S. economy. The weaker dollar will also be beneficial in that regard. However, the economy that seems to be leading the world out of this slump, China, seems most interested in importing basic materials. While there are many U.S. based firms that produce those materials, such as Freeport McMoRan (FCX), their actual operations are located mostly abroad, so the effect on the U.S. economy will be muted.

If, on the other hand, Chinese demand for steel leads to an increase in demand for iron ore from Vale (VALE) in Brazil, that might end up stimulating Brazilian demand for U.S. goods. So then, Chinese growth would have an effect on U.S. growth, even if some of it is indirect.

There is much more in the minutes, if you want to read them in their entirety, you can read them here.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience, he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.
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Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: MEMC Electronic Materials, Inc., Energy Transfer Partners, Ford, Whirlpool and Wal-Mart – Press Releases

Zacks Market Commentaries — Wed, 25 Nov 2009 13:31:53 +0000

For Immediate Release

Chicago, IL – November 25, 2009 – Zacks Equity Research highlights MEMC Electronic Materials, Inc. (WFR) as the Bull of the Day and Energy Transfer Partners (ETP) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ford (F), Whirlpool (WHR) and Wal-Mart (WMT).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

MEMC Electronic Materials, Inc. (WFR) produces the raw material wafers used by semiconductor manufacturers in the production of integrated circuits (ICs).

The decision to supply wafers to the solar industry paid huge rewards in 2007 and 2008, as demand for polysilicon raced ahead of supply. The Solar business and the 300mm business are both high-margin products. The spot price of polysilicon has been slashed from a peak of $400 per/kg to the $60-$70 per/kg range.

The stock is significantly undervalued. We are reiterating our Buy rating on the shares of WFR.

Bear of the Day:

Our Underperform recommendation on Energy Transfer Partners (ETP) units takes into account the bearish outlook for pipeline operators. While the partnership's liquidity position is sound, we continue to believe that the near- to medium-term outlook for its natural gas gathering and processing business remains weak.

Weighed down by these factors, Energy Transfer posted a third-quarter 2009 loss. The partnership's low growth and seasonal propane business also remain a major liability, in our view.

Given these headwinds, we expect Energy Transfer units to be under pressure in the medium- to long-term. The partnership's discounted valuation relative to the pipeline MLP group reflects its heightened risk profile.

Zacks Analyst Blog Highlights: Salesforce.com, CA Inc., BMC Software, Microsoft and Oracle – Press Releases

Zacks Market Commentaries — Wed, 25 Nov 2009 13:16:38 +0000

For Immediate Release

Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Salesforce.com (CRM), CA Inc. (CA), BMC Software (BMC), Microsoft (MSFT) and Oracle (ORCL).

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Here are highlights from Tuesday’s Analyst Blog:

Salesforce Partners with CA & BMC

Salesforce.com (CRM) entered into a number of strategic alliances that are expected to enhance the cloud computing service and solutions offered by it.

The first among these strategic alliances is with enterprise IT management company CA Inc. (CA). This partnership is expected to deliver agile development management in the cloud on the Force.com platform.

The CA Agile Planner on the Force.com site is targeted at small businesses and enterprises alike. The service is intended to accelerate development timelines while gaining control and visibility over all of the development initiatives. This innovative product will result in reduced time to market.

The second in the list is the agreement with BMC Software (BMC). This strategic alliance is expected to deliver BMC’s industry-leading IT management solutions on the Force.com platform. The joint offering is expected to address the overwhelming customer demand for critical service desk function and processes that are delivered through the cloud computing platform.

This new product is intended to help customers simplify and automate their IT process and at the same time fetch a quick return on their investment. These new collaborations are expected to help the company strengthen its position in the cloud computing market and attract additional customers by providing enhanced solutions.

Salesforce reported better than expected third quarter results, exceeding the Zacks Consensus EPS estimate. The company reported revenue of $330.5 million, an increase of 20.0% from the year-ago quarter and and over the guided range of $323-324 million. These encouraging numbers are illustrative of the fact that the company is constantly creating value for itself and its shareholders. We expect Saleforce to continue with the same trend going forward.

Although the company is growing exponentially in the cloud computing segment, Salesforce is expected to face stiff competition from big companies such as Microsoft (MSFT) and Oracle (ORCL).

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Zacks Analyst Blog Highlights: Citigroup Inc., Intuit Inc., ENI S.p.A, BP plc and Royal Dutch Shell – Press Releases

Zacks Market Commentaries — Wed, 25 Nov 2009 13:10:28 +0000

For Immediate Release

Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Citigroup Inc. (C), Intuit Inc. (INTU), ENI S.p.A (E), BP plc (BP) and Royal Dutch Shell (RDS.A).

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Here are highlights from Tuesday’s Analyst Blog:

Citi Expects Strong Economic Growth

According to the annual report of Citi’s Investment Research and Analysis group, though growth will be strong and even across major economies in the beginning of the year, it will be uneven later. Citi expects Asia, excluding Japan, to experience sustained economic growth. Though the U.S. is expected to see fairly strong economic growth, the recovery will be more gradual in Europe and Japan.

Citi also upgraded its 2010 gross domestic product forecasts for the U.S., Japan, the U.K., Australia, New Zealand, Hong Kong, Korea, Argentina, Hungary, Poland, the Czech Republic and Turkey.

The report also suggested that Central Banks are unlikely to hike key interest rates through the next year. However, credit availability is expected to remain restricted at least for a year or two as banks seek to raise additional capital under regulatory pressure. Also, inflation on a global basis appears to be controlled. Additionally, countries will need to achieve fiscal sustainability to post strong economic growth.

Disappointing Forecast at Intuit

Intuit Inc. (INTU) recently reported results for the first quarter. Revenues increased 2% to $493 million, driven by growth in core businesses.

Revenues from Financial Institutions segment increased 7% while Employee Management Solutions Payroll service increased 9%.

Loss per share came in at 10 cents, much better than the Zacks Consensus Estimate of a loss of 22 cents per share, mainly due to cost control activities undertaken by the management. The company had postponed some of its marketing costs for the quarter.

During the quarter, the company repurchased $300 million worth of stock in the quarter, and the board has now approved a new repurchase program of $600 million. Intuit ended the quarter with more than $1 billion in cash and investments.

Going forward, management expects revenues between $3.3 billion and $3.43 billion in fiscal 2010, up 4% – 8%. Earnings per share are projected between 29 cents and 32 cents. Revenues for the second quarter are projected between $800 million and $835 million, up 1% – 6%. Earnings per share are expected to come between 15 cents and 18 cents.

The forecast was much lower than the street estimates, leading to a 2% fall in share price after the results were announced. On the conference call, management stated that the company is yet to find a significant improvement in business sentiment among small business customers who use the company’s flagship products such as QuickBooks software and Turbo Tax programs.

ENI Buys Uganda Blocks

The company was pursuing an approach of sustainable development through its expertise and technologies in the African continent. And this transaction is part of this development strategy.

Located in the Lake Albert basin, blocks 1 and 3A have resources of more than 1 billion barrels of oil equivalent. Of this, nearly 70% has already been discovered with approximately 28 wells drilled in the area. The agreement is subject to approval by the competent authorities.

Eni has been producing in the African continent for a long time. The company is currently acting as an operator in many oil-producing countries such as Angola, Ghana, Nigeria, the Republic of Congo, Gabon and Mozambique. Total production per day from these regions currently amounts to about 450,000 barrels of oil equivalent.

Eni’s upstream portfolio spreads over a number of fields in several countries. Its lower reliance on a handful of large fields, both in its existing portfolio and its future growth pipeline, is in contrast to the growth profile of BP plc (BP) and Royal Dutch Shell (RDS.A), both of which are heavily dependent on the delivery of a few key projects.

In addition, Eni’s lack of exposure in the refining and marketing space is also a significant positive in the current compressed margin environment, in our view. We, however, believe that all these positives are already reflected in its valuation. As such, we recommend a Neutral rating for the stock.

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Zacks Investment Research

Zacks Analyst Blog Highlights: Affiliated Computer Services Inc., Xerox Corp., Expedia Inc., Orbitz Worldwide and Priceline.com – Press Releases

Zacks Market Commentaries — Wed, 25 Nov 2009 13:00:53 +0000

For Immediate Release

Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Affiliated Computer Services Inc. (ACS), Xerox Corp. (XRX), Expedia Inc. (EXPE), Orbitz Worldwide (OWW) and Priceline.com (PCLN).

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Here are highlights from Tuesday’s Analyst Blog:

Settlement in Xerox-ACS Merger

The lawsuit was filed in October in Dallas County, Texas as Xerox was struggling to convince its shareholders to approve the deal.

The plaintiffs agreed to drop the lawsuit only if ACS’s Board of Directors received a better proposal than Xerox’s current bid and Xerox did not force ACS’s Chairman Darwin Deason to exercise his voting power in favor of the Xerox acquisition. The previous agreement called for Mr. Deason to cast half his votes in favor of the Xerox bid. He controls 44% of the votes at ACS.

Xerox has also decided not to force ACS to hold a shareholder meeting to vote on the Xerox transaction, and if requested by the Xerox’s shareholders ACS will terminate the Merger Agreement. Xerox also said that a pension fund has dropped a lawsuit over the purchase of ACS. However, a separate shareholder class action lawsuit is still pending in Delaware.

In September, Xerox agreed to acquire Affiliated in a cash and stock transaction valued at $6.4 billion ($63.11 per ACS share in cash and Xerox stock). Affiliated shareholders will receive $18.60 in cash and 4.935 shares of Xerox for each ACS share. Xerox will also assume $2 billion of ACS’s debt and issue $300 million of convertible preferred stock to ACS shareholders.

Downgrading Expedia to Neutral

We are downgrading shares of Expedia Inc. (EXPE) from Outperform to Neutral.

The company reported strong results in the last quarter, but continued to benefit from promotional inventories provided by its hotel partners. When results are stripped off the benefits of promotional activities, a softer demand environment could become evident.

We also do not expect the company to report better than seasonal sales growth in the current quarter.

The company has sacrificed booking fees this year, which is telling on the average daily rates (ADRs). Therefore, ADRs could be the metric to watch rather than room nights at this point of time.

We are also concerned about the incidence of transient occupancy taxes. Although municipalities and governments have decided that they will recover occupancy taxes from hotels if they lose out to online travel companies, we note that Expedia has already lost in Georgia and the company is slated to pay out $55 million to the City of San Francisco.

A fresh suit has now been filed by Florida, and for the first time the company has been charged under the Florida Deceptive and Unfair Trade Practices Act. Five Florida counties have decided to charge Expedia, as well as other online travel companies such as Orbitz Worldwide (OWW), Priceline.com (PCLN) and Travelocity for recovery of transient occupancy taxes. The company made a hefty provision in the June quarter, but we fear that this could be insufficient if the cases continue. Fines of this magnitude have the potential to develop into a constant drain on cash.

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Zacks Investment Research

Zacks Analyst Blog Highlights: Bank of America, MGIC, Fannie Mae, Freddie Mac and Hewlett-Packard – Press Releases

Zacks Market Commentaries — Wed, 25 Nov 2009 12:53:57 +0000

For Immediate Release

Chicago, IL – November 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (BAC), MGIC (MTG), Fannie Mae (FNM), Freddie Mac (FRE) and Hewlett-Packard (HPQ).

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Here are highlights from Tuesday’s Analyst Blog:

Home Prices Continue to Rise

It is encouraging to see home prices rise. If this continues, some of the people in underwater houses (meaning with a mortgage more than the value of the house) might just see the flood recede and regain some positive equity in the house. This would greatly reduce the number of foreclosures in the future. It would make it an economically rational thing for people to pay their mortgages again. As it stands today in big areas of the country, it isn’t.

As a result, mortgage delinquencies have been skyrocketing, and eventually those delinquencies will lead to foreclosures. That could reignite a vicious circle, where the foreclosed houses flood the market, once again depressing prices, which causes more people to think there are better places to put their money than paying their mortgages.

Rising home prices have the potential to turn that into a virtuous cycle. To the extent that happens, it has very positive implications for the entire mortgage complex, from the big banks like Bank of America (BAC) to the mortgage insurance firms like MGIC (MTG) to the wards of the state, Fannie Mae (FNM) and Freddie Mac (FRE).

However, I fear that the increase in home prices is only temporary. That it is the product of extraordinary government efforts to prop up home prices, and that those efforts can not be sustained forever. These include the tax credit (recently expanded to include move up buyers), which is scheduled to end at the end of April, and the Fed’s program of buying up $1.25 Trillion in mortgage-backed paper to manipulate mortgage rates lower. They should finish up their purchases by the end of March.

HP Revenue Down, EPS In-Line

Hewlett-Packard (HPQ) reported fourth quarter EPS of $1.14, exceeding the Zacks Consensus Estimate by a penny.

Revenue for the quarter came in at $30.8 billion, a decrease of 8.0% from the $33.6 billion reported in the year-ago period and down 5.0% on constant currency basis.

Revenue fell across all businesses, including servers and data storage systems, software, PCs and printers. The Americas reported a 3.0% decline in revenue to $13.6 billion. Revenue declined 17.0% in Europe, the Middle East and Africa (EMEA) to $11.7 billion and 1.0% in the Asia Pacific to $5.4 billion. Revenue from China increased more than 20% from the year-ago quarter.

International markets accounted for 64% of total revenue in the fourth quarter, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 4.0% on a year-over-year basis and accounting for 10.0% of total HP revenue.

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Zacks Investment Research

Jinpan International Limited – Value – Zacks Rank Buy

Tracey Ryniec — Wed, 25 Nov 2009 05:00:00 +0000

Jinpan International Limited (JST) is taking advantage of worldwide interest in wind energy as international sales rose 40% in the third quarter. The company is trading with a forward P/E of 11.67.

Company Description

Jinpan International manufactures cast resin transformers for voltage distribution equipment in China and other countries. The company's medium voltage transformers are used in large infrastructure projects such as factories and real estate developments and in municipal projects like airports and subway systems.

Jinpan is one of only two UL certified cast resin transformer manufacturers in the world.

Jinpan Beats in the Third Quarter

On Nov 17, Jinpan reported third quarter results that blew by the Zacks Consensus Estimate by 125.49%. Only 1 analyst covered the company in the third quarter. Earnings per share were $1.15 compared to the Zacks Consensus of 51 cents. This was an improvement of 81.6% compared with the year ago period.

Sales, however, fell 1.8% to $43.9 million from $44.7 million in the third quarter of 2008 primarily due to a reduction of material costs that was passed onto customers in the form of lower unit prices.

The company has been growing its international business. In the third quarter, sales outside of China jumped 40% to $8.1 million. International sales accounted for 18.5% of net sales up from 13% of net sales in the year ago period.

Sales of cast resin transformers that benefit wind power applications boosted international sales in the quarter. International customers also bought traditional products for use in urban settings such as trains, subways and hospitals, in factories and in commercial settings such as data centers.

Wind energy applications are hot. Wind energy products accounted for 18% of net sales in the quarter while cast resin transformers made up the rest.

2009 Outlook

In the fourth quarter, Jinpan expects order volume to continue to grow but there will be pricing pressure due to lower raw material prices.

It forecasts 2009 sales to be in the range of $154 million to $159 million or basically flat to 3% higher compared to 2008 sales of $154 million. Earnings per share for 2009 are expected to be between $3.40 and $3.54.

Zacks Consensus Estimates Climb

Given the company's guidance, the 1 covering analyst for 2009 raised the estimate to $3.41 from $2.81 per share in the last week. Earnings per share are expected to grow by 40.33% in 2009.

There are 2 analysts covering 2010. 1 of them raised 2010 full year estimates in the last week. The Zacks Consensus rose by 5.3% to $3.56 from $3.38 in that time period.

Value Fundamentals

Jinpan International is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.5. The company has an excellent 1-year return on equity (ROE) of 24.75%. Shareholders are also rewarded with a dividend, which is currently yielding 0.60%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

Settlement in Xerox-ACS Merger – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 23:00:15 +0000

Affiliated Computer Services Inc. (ACS) announced that the complaint filed by ACS shareholders regarding its merger with Xerox Corp. (XRX) has been resolved. The plaintiffs have temporarily withdrawn their motion for an injunction to block the deal.

The lawsuit was filed in October in Dallas County, Texas as Xerox was struggling to convince its shareholders to approve the deal.

The plaintiffs agreed to drop the lawsuit only if ACS’s Board of Directors received a better proposal than Xerox’s current bid and Xerox did not force ACS’s Chairman Darwin Deason to exercise his voting power in favor of the Xerox acquisition. The previous agreement called for Mr. Deason to cast half his votes in favor of the Xerox bid. He controls 44% of the votes at ACS.

Xerox has also decided not to force ACS to hold a shareholder meeting to vote on the Xerox transaction, and if requested by the Xerox’s shareholders ACS will terminate the Merger Agreement. Xerox also said that a pension fund has dropped a lawsuit over the purchase of ACS. However, a separate shareholder class action lawsuit is still pending in Delaware.

In September, Xerox agreed to acquire Affiliated in a cash and stock transaction valued at $6.4 billion ($63.11 per ACS share in cash and Xerox stock). Affiliated shareholders will receive $18.60 in cash and 4.935 shares of Xerox for each ACS share. Xerox will also assume $2 billion of ACS’s debt and issue $300 million of convertible preferred stock to ACS shareholders.

As a subsidiary of Xerox, Affiliated will operate independently. The combined company will have greater BPO capability and help expand Affiliated’s presence in international markets. Currently, the BPO market is about $130 - $150 billion, with an average growth rate of around 5% to 10% a year. With the Xerox/Affiliated merger, the total market opportunity will be more than $500 billion.

The combined company plans to cut ongoing costs by up to $400 million a year from 2012 onwards. It is currently expected to generate $22 billion in revenues, of which $17 billion is expected to be of a recurring nature and $10 billion is expected to come from services. The transaction is expected to be accretive in fiscal 2010.

In our opinion the deal is now open to third-party bidders provided they pay a higher price for ACS. Trading currently below the acquisition price, we believe the deal to be beneficial for Affiliated, however Xerox may face integration related issues.

Due to the expected merger, ACS did not provide financial guidance for the second quarter or fiscal year 2010.

Shares of Xerox rose 1.3% to $7.93, while ACS increased 1.1% to $55.90.

We have a Neutral rating on both ACS and Xerox.
Read the full analyst report on "ACS"
Read the full analyst report on "XRX"
Zacks Investment Research

Citi Expects Strong Economic Growth – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 22:37:17 +0000

Citigroup Inc. (C) forecasts strong economic growth in many countries in 2010. But although the company expects several countries to experience economic growth, it predicts that the growth will be somewhat uneven.

According to the annual report of Citi’s Investment Research and Analysis group, though growth will be strong and even across major economies in the beginning of the year, it will be uneven later. Citi expects Asia, excluding Japan, to experience sustained economic growth. Though the U.S. is expected to see fairly strong economic growth, the recovery will be more gradual in Europe and Japan.

Citi also upgraded its 2010 gross domestic product forecasts for the U.S., Japan, the U.K., Australia, New Zealand, Hong Kong, Korea, Argentina, Hungary, Poland, the Czech Republic and Turkey.

The report also suggested that Central Banks are unlikely to hike key interest rates through the next year. However, credit availability is expected to remain restricted at least for a year or two as banks seek to raise additional capital under regulatory pressure. Also, inflation on a global basis appears to be controlled. Additionally, countries will need to achieve fiscal sustainability to post strong economic growth.

The rankings of global economies are expected to change significantly in the next 5 to 15 years as Asia is predicted to experience rapid industrialization and increased domestic demand while resource-rich regions such as Africa, the Middle East, Latin America, Russia and Brazil see growth.

Citi is a leading global financial services company and has approximately 200 million customer accounts, doing business in more than 140 countries. Hence, the company’s earnings will be benefited with the accuracy of the forecast.
Read the full analyst report on "C"
Zacks Investment Research

Downgrading Expedia to Neutral – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 22:18:12 +0000

We are downgrading shares of Expedia Inc. (EXPE) from Outperform to Neutral.

The company reported strong results in the last quarter, but continued to benefit from promotional inventories provided by its hotel partners. When results are stripped off the benefits of promotional activities, a softer demand environment could become evident.

We also do not expect the company to report better than seasonal sales growth in the current quarter.

The company has sacrificed booking fees this year, which is telling on the average daily rates (ADRs). Therefore, ADRs could be the metric to watch rather than room nights at this point of time.

We are also concerned about the incidence of transient occupancy taxes. Although municipalities and governments have decided that they will recover occupancy taxes from hotels if they lose out to online travel companies, we note that Expedia has already lost in Georgia and the company is slated to pay out $55 million to the City of San Francisco.

A fresh suit has now been filed by Florida, and for the first time the company has been charged under the Florida Deceptive and Unfair Trade Practices Act. Five Florida counties have decided to charge Expedia, as well as other online travel companies such as Orbitz Worldwide (OWW), Priceline.com (PCLN) and Travelocity for recovery of transient occupancy taxes. The company made a hefty provision in the June quarter, but we fear that this could be insufficient if the cases continue. Fines of this magnitude have the potential to develop into a constant drain on cash.

The company also burned through cash in the last quarter due to a sudden drop off in deferred merchant bookings, and the interest coverage ratio was barely above 1.

Although the above negatives paint a bleak picture, there are many positives to the stock as well. Expedia has a strong market position, extensive offerings and an attractive balance sheet. Additionally, international initiatives, cost control measures and a favorable online advertising market are expected to play a key role in the growth of both revenue and earnings.

We expect the stock to continue trading in the current range over the next three to six months.
Read the full analyst report on "EXPE"
Read the full analyst report on "OWW"
Read the full analyst report on "PCLN"
Zacks Investment Research

Foot Locker Misses Expectations – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 21:59:49 +0000

Foot Locker Inc. (FL) swung to a GAAP net loss of $6 million during its fiscal 2009 third quarter, from a GAAP net income of $24 million in the year-ago period. The quarterly result included a $22 million impairment charge associated with the company’s long-lived assets in the U.S. Excluding the charge, earnings per share came in at 10 cents, missing the Zacks Consensus Estimate by 23%, or 3 cents.

The company posted a 7.3% decline in net sales to $1.2 billion during the quarter, compared to $1.3 billion in the year-ago period. The decline was primarily caused by an 8.2% reduction in same-store sales, a key performance metric for retailers, coupled with the closure of 113 stores in the last one-year period.

Foot Locker’s quarterly gross profit dipped by 7.3% year over year to $329 million, while gross margin remained essentially flat at 27.1%. The flat margin was primarily the result of a 90 basis point (bps) increase in merchandise margin, fully offset by a 90 bps decrease caused by the deleveraging impact of buying and occupancy costs on lower sales.

Selling, general and administrative (SG&A) expenses reduced by 4.5% year over year to $274 million mainly due to favorable foreign currency translations, while depreciation decreased by 9.4% to $29 million due to asset write-downs undertaken last year. Nevertheless, operating income, defined as sales less cost of goods sold, SG&A and depreciation, plunged 27.8% year over year to $26 million, while operating margin dipped by 60 bps to 2.1% as expense reductions were not sufficient to offset sluggish sales.

Foot Locker ended the quarter with cash, cash equivalents and short-term investments of $438 million and $138 million in long-term debt, compared to $400 million of cash and $128 million in long-term debt in the prior-year quarter. Merchandise inventories at the end of the quarter were $1.2 billion, a reduction of 2.7% from $1.3 billion last year.

Looking ahead, the company plans to incur approximately $100 million towards capital expenditure in fiscal 2009. Foot Locker also stated that it plans to open 40 new stores, remodel or relocate 150 and close 200 underperforming stores during the entire fiscal year.

Taking cognizance of Foot Locker’s disappointing quarterly performance, Standard & Poor's Ratings Services lowered the company’s corporate credit rating by a notch to B+ with a stable outlook from BB- earlier. The agency stated that the stable outlook indicates that performance and credit metrics of Foot Locker are expected to deteriorate further over the near term.

Meanwhile, the Zacks Consensus Estimate on the company’s earnings for the fiscal year ending January 2010 is currently pegged at 57 cents per share, which moved down by 2 cents in just the past week as 3 of 13 covering analysts lowered projections. The most accurate estimate is even more bearish at 56 cents per share.
Read the full analyst report on "FL"
Zacks Investment Research

Patni Exceeds Estimates – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 21:37:52 +0000

Patni Computer Systems Ltd (PTI) reported earnings per ADS of 38 cents, exceeding the Zacks Consensus Estimate of 34 cents for the third quarter of 2009.

Revenues during the quarter were higher by 3.3% sequentially to $167.2 million from $161.9 million in the preceding quarter. Revenue growth was driven by volume growth of 3.0% (including higher number of days) and 0.3% due to currency impacts. Number of active clients was 283 at quarter end as compared to 294 in the second quarter of 2009.

Gross margin was at 37.1% or $62.0 million against 34.7% or $56.2 million in the previous quarter. Gross profit adjusted for extraordinary items is at $60.9 million at 36.4% during the quarter. Improvement in gross margin is primarily on account of higher utilization and impact of cost rationalization measures.

Sales and marketing expenses during the quarter were $14.2 million at 8.5% as compared to $12.0 million at 7.4% in the previous quarter.

For the quarter, other income (including interest and dividend income net of interest expenses, profit/loss on sale of investments and other miscellaneous income) stood at 3.5% or $5.9 million.

Net income for the quarter at 21.3% was $35.7 million against $28.7 million at 17.7% in the previous quarter. Net income adjusted for extraordinary items was $24.3 million at 14.5% for the quarter.

During the quarter, against net income of $35.7 million, cash from operating activities was $34.4 million. Receivables at the end of the reported quarter were $105.6 million as compared to $100.7 million at the end of the previous quarter. Number of days outstanding (including unbilled) for the current quarter was 75 days, similar to the previous quarter.

Fourth quarter revenues are expected to be $168 million to $169 million. Net income (excluding hedging gain/loss) is expected to be in the range of $24 million to $25 million.

Mr. Vijay Mehra has been appointed as Executive Vice President and Head of Business Verticals. Mr. Naresh K. Lakhanpal has been appointed as President, Patni Americas Inc. Mr. V Mathivanan has been appointed President, APAC and will lead this business from Singapore, where Patni has recently established its new regional headquarters.

Patni Computer Systems Limited is a global provider of IT Services and business solutions, servicing Global 2000 clients. Patni services its clients through its industry-focused practices including banking, financial services (BFS) and insurance (I); manufacturing, retail and distribution (MRD); life sciences; communications, media and utilities (CMU), and its technology-focused practices. Major competitors are Infosys Technologies Ltd (INFY) and Wipro Ltd (WIT).
Read the full analyst report on "PTI"
Read the full analyst report on "INFY"
Read the full analyst report on "WIT"
Zacks Investment Research

Nordstrom’s North Carolina Debut – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 21:25:18 +0000

Nordstrom Inc. (JWN), a leading fashion specialty retailer, has recently announced plans to open a 33,000 square feet Nordstrom Rack in North Carolina, making its debut in the city.

Nordstrom Rack is the off-price division of Nordstrom Inc. The first Nordstrom Rack was opened in the basement of the Downtown Seattle store in 1975 as a clearance department. With a huge initial response, it has since grown into a separate division of the company. Currently, there are 69 Nordstrom Rack stores across 21 states in the U.S.

The new store, the first of its kind in North Carolina, is expected to open in the fall of 2010 at a prime location in the city. The store would offer merchandise at fire-sale prices with discounts of 50% − 60% to regular prices.

Currently, Nordstrom has about 184 stores spread across 28 states in the US, offering a selection of brand name and private label merchandise. The company sells its products through various channels including Nordstrom full-line stores, Nordstrom Rack off-price stores, Last Chance clearance stores, and Jeffrey boutiques, besides the catalog and the Internet.

Despite a reduction in disposable income and lower consumer discretionary spending due to the continued economic downturn, Nordstrom has continually opened new stores to attract more customer traffic. The company is upbeat about the upcoming holiday season and expects to bolster its sales through increased customer footfall.
Read the full analyst report on "JWN"
Zacks Investment Research

Disappointing Forecast at Intuit – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 20:33:06 +0000

Intuit Inc. (INTU) recently reported results for the first quarter. Revenues increased 2% to $493 million, driven by growth in core businesses.

Revenues from Financial Institutions segment increased 7% while Employee Management Solutions Payroll service increased 9%.

Loss per share came in at 10 cents, much better than the Zacks Consensus Estimate of a loss of 22 cents per share, mainly due to cost control activities undertaken by the management. The company had postponed some of its marketing costs for the quarter.

During the quarter, the company repurchased $300 million worth of stock in the quarter, and the board has now approved a new repurchase program of $600 million. Intuit ended the quarter with more than $1 billion in cash and investments.

Going forward, management expects revenues between $3.3 billion and $3.43 billion in fiscal 2010, up 4% – 8%. Earnings per share are projected between 29 cents and 32 cents. Revenues for the second quarter are projected between $800 million and $835 million, up 1% – 6%. Earnings per share are expected to come between 15 cents and 18 cents.

The forecast was much lower than the street estimates, leading to a 2% fall in share price after the results were announced. On the conference call, management stated that the company is yet to find a significant improvement in business sentiment among small business customers who use the company’s flagship products such as QuickBooks software and Turbo Tax programs.

In September, Inuit acquired California-based provider of online personal financial services Mint.com for $170 million. The transaction is expected to close during the fourth quarter of calendar year 2009. Mint.com was a direct competitor for Intuit’s Quicken Online. Alongside its Quicken Online offerings, the company intends to keep Mint.com as the primary online personal finance management service offered directly to consumers.

Following the exit of Microsoft (MSFT) from the personal finance space, Intuit has significant opportunity to build on its market share.

We believe that this acquisition will strengthen the company’s position as a leading provider of fast growing consumer Software as a Service (SaaS).

However, given the disappointing forecast by the management, we would like to stay on the sidelines as of now. With signs of revival, the business momentum should pick up, though.

California-based Intuit is a leading provider of business and financial management solutions. Its flagship products and services include QuickBooks, Quicken and TurboTax.
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ENI Buys Uganda Blocks – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 20:09:53 +0000

ENI S.p.A (E) entered into a definitive agreement with Heritage Oil to buy the latter’s 50% interest in blocks 1 and 3A in Uganda . Total consideration for the contract is $1.35 billion. The contract also provides an additional consideration of $150 million, either in cash or in kind, on fulfillment of certain conditions in the future.

The company was pursuing an approach of sustainable development through its expertise and technologies in the African continent. And this transaction is part of this development strategy.

Located in the Lake Albert basin, blocks 1 and 3A have resources of more than 1 billion barrels of oil equivalent. Of this, nearly 70% has already been discovered with approximately 28 wells drilled in the area. The agreement is subject to approval by the competent authorities.

Eni has been producing in the African continent for a long time. The company is currently acting as an operator in many oil-producing countries such as Angola, Ghana, Nigeria, the Republic of Congo, Gabon and Mozambique. Total production per day from these regions currently amounts to about 450,000 barrels of oil equivalent.

Eni’s upstream portfolio spreads over a number of fields in several countries. Its lower reliance on a handful of large fields, both in its existing portfolio and its future growth pipeline, is in contrast to the growth profile of BP plc (BP) and Royal Dutch Shell (RDS.A), both of which are heavily dependent on the delivery of a few key projects.

In addition, Eni’s lack of exposure in the refining and marketing space is also a significant positive in the current compressed margin environment, in our view. We, however, believe that all these positives are already reflected in its valuation. As such, we recommend a Neutral rating for the stock.
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Salesforce Partners with CA & BMC – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 19:49:32 +0000

Salesforce.com (CRM) entered into a number of strategic alliances that are expected to enhance the cloud computing service and solutions offered by it.

The first among these strategic alliances is with enterprise IT management company CA Inc. (CA). This partnership is expected to deliver agile development management in the cloud on the Force.com platform.

The CA Agile Planner on the Force.com site is targeted at small businesses and enterprises alike. The service is intended to accelerate development timelines while gaining control and visibility over all of the development initiatives. This innovative product will result in reduced time to market.

The second in the list is the agreement with BMC Software (BMC). This strategic alliance is expected to deliver BMC’s industry-leading IT management solutions on the Force.com platform. The joint offering is expected to address the overwhelming customer demand for critical service desk function and processes that are delivered through the cloud computing platform.

This new product is intended to help customers simplify and automate their IT process and at the same time fetch a quick return on their investment. These new collaborations are expected to help the company strengthen its position in the cloud computing market and attract additional customers by providing enhanced solutions.

Salesforce reported better than expected third quarter results, exceeding the Zacks Consensus EPS estimate. The company reported revenue of $330.5 million, an increase of 20.0% from the year-ago quarter and and over the guided range of $323-324 million. These encouraging numbers are illustrative of the fact that the company is constantly creating value for itself and its shareholders. We expect Saleforce to continue with the same trend going forward.

Although the company is growing exponentially in the cloud computing segment, Salesforce is expected to face stiff competition from big companies such as Microsoft (MSFT), Oracle (ORCL), International Business Machine (IBM), Hewlett-Packard (HPQ) and Google (GOOG) as each vies for a position in the market.
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Consumer Confidence Increasing – Analyst Blog

Dirk Van Dijk — Tue, 24 Nov 2009 19:27:18 +0000

The Conference Board’s index of Consumer Confidence increased to 49.5% from a significantly upwardly revised level of 48.7 in October. Originally, the October level was at 47.5%. Consensus expectations were for the consumer confidence level to actually fall to 47.5%. The index saw a big improvement from dismal levels during the spring, but since May consumer confidence has roughly hovered within a few points of 50.

All of the improvement came from the expectations component of the consumer confidence index, which rose to 68.5 from 67.0 last month. However, that was because fewer consumers thought things would get worse and would stay unchanged (at a very bad level), rather than due to an increase in those who thought things would actually get better over the next six months. The percentage expecting an improvement in business conditions over the next six months actually declined to 20.0% from 20.8%. However, the decline in those expecting further deterioration in the economy fell to 15.1% from 18.2% last month.

The 5,000 households' (that the Conference Board surveyed) assessment of the present situation fell ever-so-slightly to 21.0 from 21.1. That is a very bad reading, not too far from the record low set in February 1983 of 17.5%. Overall, 45.7% of consumers saw the current business conditions as bad, down from 46.7% in October, while 8.1% saw business conditions as good, up from 7.8% last month. Their view of the labor market continued to deteriorate, with 49.8 seeing jobs as hard to get, up from 49.4% last month. The percentage (of deluded people) who saw jobs as plentiful dropped to 3.2% from 3.5% in October.

While the better-than-expected consumer confidence reading for this month -- and the upward consumer confidence revision to last month -- are encouraging, the details of the report are not all that robust. In theory, higher consumer confidence should lead consumers to open up their wallets, something that is very important as the holidays approach. If consumers have confidence about the economy, they are more likely to buy big ticket items like cars from Ford (F) or major appliances from Whirlpool (WHR). Perhaps they might buy more impulse items at the checkout counter at Wal-Mart (WMT).

Historically though, the consumer confidence numbers, like the University of Michigan sentiment numbers, do not have a great track record of predicting how consumers will behave. So count this consumer confidence report as a minor positive. Changes in consumer spending generally have much more to do with changes in personal income than with this sort of survey data, and that data is due out tomorrow.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience, he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.
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Home Prices Continue to Rise – Analyst Blog

Dirk Van Dijk — Tue, 24 Nov 2009 18:44:14 +0000

This morning the S&P Case-Schiller index was released. The Composite 20 index (C-20), which covers 20 of the largest metropolitan areas in the country rose by 0.27% on a seasonally adjusted basis (home prices are seasonal, so the adjusted data is what you should be looking at -- most of the press makes a mistake by focusing on the unadjusted data, thus these figures might vary from what you read elsewhere). That was the fourth straight increase. The Composite 10 (C-10) index, which is a subset of the Composite 20, but which has a longer history, posted a 0.36% increase for the month.

On a year over year basis, the C-20 is down by 9.39% while the C-10 is down 8.53%. While it was an increase, it was a smaller one than was expected. The consensus of economists was looking for a C-20 year-over-year decline of just 9.10%. The data is for September, not October like most of the data that has come out recently.

The country was roughly split between areas where home prices increased during the month and areas where housing values continue to decline. Eleven metropolitan areas posted increases and nine suffered declines. Some of the areas with the biggest increases in home prices were a bit of a surprise.

In California, San Francisco saw the largest monthly increase of any city, enjoying a 1.71% rise. It was one of the areas that was considered "bubble central," but has started to stage a comeback. Over the last year, prices in the City by the Bay are down 7.85%. Similarly, San Diego posted a 1.05% increase for the month, and it is now down just 5.72% year over year. Long-depressed Detroit saw prices increase by 1.25% for the month, although on a year-over-year basis, home prices are still down by 19.26%. The other areas that saw monthly increases of over 1.0% were the Twin Cities, up 1.31%, and Chicago, up 1.11%.

On the negative side, the worst-hit city was Cleveland, which was down 1.20% for the month, although it is actually among the healthiest cities on a year-over-year basis with home prices down just 3.880%. Then again, the housing bubble was not centered on the beaches of Lake Erie, it was centered on the beaches of Southern California and Florida.

Las Vegas, which is the city that has been hit the hardest by falling home prices overall, continued to see prices fall, down another 1.19% for the month, and off 28.63% from a year ago. From the peak, home prices are down 55.4%. The only other city that comes close, to that cumulative decline is Phoenix, down 52.0%.

Also keep in mind that the home price declines had lasted for far more than just a year. The graph below (from http://www.calculatedriskblog.com/) shows the cumulative decline from the peak pricing, which was hit in April of 2006 for both of the composite indexes, but is shown in the graph from each individual city peak. It breaks down the cumulative decline by time period, with the blue bar showing how much home prices fell through the end of 2007, yellow showing where things stood at the end of 2008, and blue indicating how far the city is now off its peak. Thus if the orange bar is shorter than the yellow bar, it means that city has actually seen home prices rise so far this year.

It is encouraging to see home prices rise. If this continues, some of the people in underwater houses (meaning with a mortgage more than the value of the house) might just see the flood recede and regain some positive equity in the house. This would greatly reduce the number of foreclosures in the future. It would make it an economically rational thing for people to pay their mortgages again. As it stands today in big areas of the country, it isn’t.

As a result, mortgage delinquencies have been skyrocketing, and eventually those delinquencies will lead to foreclosures. That could reignite a vicious circle, where the foreclosed houses flood the market, once again depressing prices, which causes more people to think there are better places to put their money than paying their mortgages.

Rising home prices have the potential to turn that into a virtuous cycle. To the extent that happens, it has very positive implications for the entire mortgage complex, from the big banks like Bank of America (BAC) to the mortgage insurance firms like MGIC (MTG) to the wards of the state, Fannie (FNM) and Freddie (FRE).

However, I fear that the increase in home prices is only temporary. That it is the product of extraordinary government efforts to prop up home prices, and that those efforts can not be sustained forever. These include the tax credit (recently expanded to include move up buyers), which is scheduled to end at the end of April, and the Fed’s program of buying up $1.25 Trillion in mortgage-backed paper to manipulate mortgage rates lower. They should finish up their purchases by the end of March.

The FHA has also played a huge role in propping up the market, making far more loans than it ever has before, and only requiring down-payments of 3.5%. People can even use the tax credit for their down-payment. The FHA’s reserves are already dangerously low, and the delinquencies on the loans they insure are skyrocketing, particularly for mortgages it issued in 2007 and 2008. This year’s loans have not really had time to go bad yet. The FHA may end up going the way of Fannie and Freddie and require a massive federal bailout.

All in all, the increase in home prices is good news, but it is coming with a big price from the Federal Treasury and may end up being ephemeral. The risk of a renewed downturn in the second quarter of 2010 is very big. If that were to occur, it would mean more pain for the mortgage complex.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.
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St. Mary Grows With Shale Plays – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 18:06:02 +0000

St. Mary Land & Exploration Co. (SM) reported third-quarter earnings of 23 cents per share, beating the Zacks Consensus Estimate of 19 cents but down from the year-earlier earnings of $1.20. Non-cash charges and impairments result in a reported net loss of 7 cents per diluted share.

The results were driven by the company’s production performance and reduced costs. Revenues for the quarter were $185.8 million, down nearly 43% from the year-earlier level.

St. Mary reported quarterly production of 26.4 billion cubic feet equivalent (Bcfe), down 5% year over year. However, volumes were within the company’s guidance range of 25.5 to 27.0 Bcfe. Production would have been down 2% year over year without accounting for the last year’s asset sale. Production was also sequentially down as a result of lower levels of capital investment.

Of the total production, gas was 65% and the rest was oil. Natural gas for the quarter was 17.2 billion cubic feet (Bcf), down 5% year over year. Oil production during the quarter was 1.5 million barrels (MMbbl), down 3% from the year-earlier quarter.

Average equivalent price per Mcfe (including the effect of hedging) was $6.86, down 38% from the year-ago realization. Average realized prices (inclusive of hedging activities) were $4.95 per Mcf of natural gas and $62.65 per barrel of oil, a decrease of 48% and 25%, respectively, from the same period a year ago.

On the costs front, unit lease operating expense (LOE) was down 17% year over year to $1.30 per Mcfe. Transportation expenses and G&A expenses were also down 17% and 9% from the year-earlier level to 20 cents and 79 cents per Mcfe, respectively.

Discretionary cash flow was $99.9 million during the quarter, down approximately 49% year over year. Net cash from operating activities was $111.3 million, down nearly 56% from the year-earlier level. The main reason behind these falls was the significant decrease in oil and natural gas prices.

At the end of the quarter, the company had cash balance of $20.5 million and long-term debt of $499.8 million, representing debt-to-capitalization ratio of 33.4%.

St. Mary expects to invest $450 million for the 2009 capex program, including $117 million for the Eagle Ford, Haynesville and Marcellus shale developments. For the fourth quarter, the company anticipates production to be in the range of 24.75 – 26.25 Bcfe.

The company has been working over the past several years to build a significant position in emerging shale plays in order to transition it to more of a resource play focused company, with a deep inventory of repeatable drilling prospects with a high rate of return.

Given the company’s increasing activity in the oilier parts of its assets portfolio, specifically the Permian and Rocky Mountain regions, we believe that St. Mary will be able to maintain or even increase its oil-weighted activity through 2010. In turn, this will create the value for shareholders.
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Repsol Remains Neutral – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 17:45:40 +0000

REPSOL YPF S.A. (REP) reported third-quarter earnings of 30 euro-cents per share (45 cents per ADR), compared to the Zacks Consensus Estimate of 43 cents and year-earlier earnings of 58 euro-cents (82 cents per ADR).

While earnings was down year over year due to the steep decline in oil and natural gas prices, a sequential increase in net income (€859 million vs. €647 million or $1.23 billion vs. $975 million) shows the signs of recovery in the macro backdrop.

Adjusted income from operations during the quarter totaled €859 million ($1.23 billion), down approximately 45% year over year, primarily reflecting the impact of lower oil prices and weak refining margins.

Adjusted upstream operating income during the quarter was €302 million ($432 million), down approximately 51% from the year-earlier level due to poor realizations, partially offset by lower exploration costs and a favorable euro–dollar exchange rate.

Repsol’s liquids price realizations averaged $62.9 per barrel versus $104.9 per barrel in the year-ago period. The average natural gas price realization during the quarter was $2.1 per Mcf, down more than 54% year over year.

Total production averaged 327 MBOE/d (43% liquids), down 1.2% from the year-ago level. After excluding the impact of contractual and regulatory changes and the OPEC quota reduction, volumes were 2.5% higher than in the third quarter of 2008. Investments in the Upstream business segment were €290 million ($414 million), down approximately 23% from the year-ago level. Exploration expenses were down 22.2% year-over-year to €70 million ($100 million).

Adjusted operating income from the Downstream segment was €206 million ($294 million), down 47.3% year over year, mainly due to the impact of lower refining margins. Repsol realized a refining margin of 30 cents per barrel, down nearly 96% year over year. The company invested €457 million ($653 million) in its Downstream segment during the quarter.

Adjusted operating income from YPF was €211 million ($302 million), down 53.2% from the year-ago quarter, reflecting lower liquid sales, partly offset by lower operating costs.

The company’s adjusted income from operations in Gas Natural SDG was up 63.8% year over year to €226 million ($323 million). Finally, Repsol’s LNG division earned €5 million ($7.1 million) during the quarter, down nearly 87% from the prior-year quarter.

Repsol’s net debt was about €10.58 billion ($15.12 billion) at the end of the quarter, reflecting a net debt-to-capitalization ratio of 29.6%.

We believe that the long list of challenges facing Repsol will continue to weigh on its valuation, limiting its upside from current levels. These include declining reserves, weak volumes, very low reserve lives and rising costs. Consequently, we maintain our Neutral rating for the stock.
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MIL Buys Remaining Stake in India – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 17:22:18 +0000

Millipore Corp. (MIL) yesterday announced the acquisition of the remaining 60% ownership of its joint-venture in India, Millipore India Pvt. Ltd. The new subsidiary will enable Millipore to invest in initiatives that will drive growth and expand its leadership in India’s thriving life science market.

According to the management, over the years India has experienced unprecedented levels of investment and expansion in its biotechnology, pharmaceutical, and life science research industries. The Indian government has invested $1.7 billion to grow the country’s life science and biotechnology industries and several Indian companies have emerged as global competitors in the biopharmaceutical industry. Thus, establishing direct operations in the country will help Millipore execute its strategy more efficiently. It will also facilitate the company leverage its unique capabilities to accelerate growth and support the growing customer base in this dynamic market.

The acquisition will have minimal impact on Millipore’s 2009 earnings per share but is expected to be accretive in future years due to the elimination of the non-controlling interest. The transaction will not affect Millipore’s reported revenues and operating costs since the joint venture has been consolidated into Millipore’s financial statements since 2006.

During the third quarter of 2009, Millipore’s Bioscience division proved to be resilient and generated above market growth even in the difficult market environment. Pharma spending remains sluggish and it’s difficult to sell out instrumentation right now. But the division’s performance improved modestly from the last quarter and is growing faster than most peers in 2009.

Although, 2009 will not only be a year of very attractive financial performance from Millipore, we believe that it’s a year marked by targeted investments that will help it to underpin the organic revenue growth in the future.
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Brightpoint Wins WiMAX Contract – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 17:01:22 +0000

Brightpoint Inc. (CELL) received a shot on its arm as the company received a major contract to provide an integrated supply chain management system for the next-generation (4G) WiMAX network. Yesterday, the company announced that it has entered into an agreement with Time Warner Cable Inc. (TWC) to provide transportation management, inventory management, device customization, fulfillment, and reverse logistics for the latter’s upcoming WiMAX venture.

Time Warner Cable, the second largest cable MSO in the U.S., will launch its 4G WiMAX mobile broadband services in three North Carolina markets from Dec 1. Under the brand name of “Road Runner Mobile", this super-fast mobile broadband network will support Internet speed of 6 Mbps. The “Road Runner Mobile" service will provide its subscribers the convenience of mobility so that the customers can enjoy the WiMAX services on their devices anywhere they go within their service circle.

Brightpoint will provide a streamlined supply chain solution to Time Warner Cable to support the launch of Road Runner Mobile including wireless data card, accessory and collateral fulfillment and returns, triage and repairs. Brightpoint has enhanced its portfolio of product offerings with a full range of sales & distribution, logistics, and activation services. The company has a solid global customer base. Management continues to seek new operational initiatives that foster improved customer handling of handsets, in particular PDA’s, data and 3G/4G wireless devices.

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Telekomunikasi Downgraded – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 16:43:27 +0000

We downgrade our recommendation for P.T. Telekomunikasi Indonesia Tbk. (TLK) to Neutral following the company’s current valuation and increasing competition in the Indonesian telecom market.

Deregulation of telecom segment by the Indonesian Government has enabled several competitors to provide similar services at lower costs to subscribers. That country’s wireless service providers slashed prices in 2008 in order to capture market share. As a result, ARPU (average revenue per user) reduced across the industry. Major competitors of Telekomunikasi are P.T. Indosat Tbk. (IIT), and P.T. Excelcomindo Pratama.

Indonesia's wireless users often switch service providers to take advantage of low promotional rates and available credit. About 10% of Telkomsel's reported prepaid subscriptions still remain inactive. Moreover, in November 2009, Excelcom and Axis Telecom have signed an agreement for Indonesia’s first roaming network. The deal will allow Axis customers to use Excelcom's network. Telekomunikasi may lose its market share if Axis further expands its operations in the country.

Telekomunikasi has decided to spread out its radio access network infrastructure throughout Indonesia. The company’s wireless division Telkomsel has decided to raise its capital expenditure to $1.4 billion in fiscal 2009, an increase of 25% over previous fiscal. This may put further pressure on the company’s leveraged balance sheet.

At the same time, current stock price is at the high end of its 52-week price range and moved up more than 53% in 2009. Despite facing competition, the company is exhibiting solid growth in cellular services and data & Internet revenue. Telekomunikasi commands 45% market share for both mobile and fixed-line telecom services in Indonesia. However, we believe these positive factors are already reflected in the current valuation leaving little room for above market gain.
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People’s United Eyes Acquisition – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 16:20:46 +0000

People's United Financial Inc. (PBCT) said on Monday that it is eyeing the acquisition of Financial Federal Corporation (FIF) for about $738 million in stock and cash.

People's United, the holding company for People's United Bank, expects the acquisition to be completed in the first quarter of 2010. This acquisition is expected to be significantly accretive to People's United’s operating earnings in 2010 without diluting its capital ratios and have an IRR greater than 20%.

Under the terms of the acquisition, Financial Federal shareholders will receive $11.27 in cash and one share of People's United common stock. Calculated with the closing price of People's United shares on Nov 20, the transaction is valued at $27.74 per Financial Federal share. The receipt of People's United stock by shareholders of Financial Federal is expected to be tax-free.

According to the People's United management, this acquisition offers opportunities for the company to grow its highly-profitable equipment financing business with experienced staff in new markets throughout the country. The combined portfolio will rank People's United 13th among U.S. bank-owned equipment finance businesses.

Morgan Stanley (MS) acted as exclusive financial advisor to People's United and Keefe Bruyette & Woods acted as exclusive financial advisor to Financial Federal Corporation.

Financial Federal’s fourth quarter fiscal 2009 (ended Jul 31) earnings of 35 cents per share came in two cents short of the Zacks Consensus Estimate. The earnings for the quarter were also down 29% from 49 cents in the prior-year quarter. Results were negatively impacted primarily by fewer originations, higher provision for credit losses and increased expenses. However, a significant improvement in net interest margin, decreased cost of debt, and strong liquidity were impressive during the quarter
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MetroPCS Upgraded to Neutral – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 16:00:11 +0000

We upgrade our recommendation for MetroPCS Communications (PCS) to Neutral following the company’s better-than-expected operating results in the last quarter. Reported earnings have outpaced the Zacks Consensus Estimate fueled by healthy revenue growth across the company’s Core and Northeast markets. MetroPCS is benefiting from its new unlimited international calling plan which is driving revenue per user.

MetroPCS remains a leading low-cost service provider in the unlimited prepaid market in the US and will continue to benefit from the ongoing wireline replacement trend. The company is increasingly focused on strengthening its position in the unlimited prepaid segment by broadening its portfolio of discounted service plans.

MetroPCS has initiated several steps to counter intense competition and drive subscriber accretion. The company is rolling out new product/services, upgrading network infrastructure and entering additional markets for growth.

The company is currently enjoying meaningful traction in the Northeast region, which is evidenced by healthy subscriber growth. Gains from the Northeastern markets continue to offset declines in Core markets (including Atlanta, Dallas, Las Vegas, Los Angeles and San Francisco). A significant part of MetroPCS’ network infrastructure deployment initiatives is centered on the lucrative Northeast region.

MetroPCS has joined the league of the top-tier US wireless carriers such as Verizon (VZ) and AT&T (T) as the company recently declared vendors for its 4G Long Term Evolution (LTE) wireless broadband service. MetroPCS has selected Ericsson (ERIC) as network infrastructure vendor and Samsung as the supplier of LTE enabled handsets.

The company plans to launch 4G LTE service and several dual-mode smartphones across its metropolitan markets in second-half 2010. The ultra high bandwidth multimedia data applications supported by the 4G LTE network will boost revenue per user through increased minutes of use.

However, despite these encouraging growth prospects, MetroPCS contends with subscriber retention problems as customer accretion continues to decelerate on a sequential basis due to intense competition in the prepaid wireless segment. The company is experiencing sustained customer attrition in its legacy Core markets.

Churn (customer switch) level remains high due to increased customer defection as the company’s larger peers in the prepaid market such as Sprint Nextel (S) and America Movil’s (AMX) Tracfone continue to lure subscribers with competitive service plans and better product offerings.

While expansion into the Northeastern markets is expected to drive future growth, we feel that associated capital expenditures will strain balance sheet moving forward.
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Zacks Investment Research

FirstEnergy to Develop Norton – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 15:40:27 +0000

FirstEnergy Generation Corp., a subsidiary of FirstEnergy Corporation (FE), has acquired the rights to develop the Norton Energy Storage Project - compressed air energy storage (CAES) facility in Norton, Ohio - from CAES Development Company, LLC. The transaction includes rights to a 600-acre underground cavern, formerly operated as a limestone mine, which is ideal for energy storage technology.

FirstEnergy believes that the compressed-air technology at this site will enable the company to store energy at night, when electricity demand is less, and use it during the day when demand escalates. It is normally observed that many renewable energy sources, like wind, are irregular and do not produce power when there is a high demand. Given the energy storage aspects of this project, the company sees Norton Storage as a key component to its overall renewable energy strategy.

FirstEnergy expects the project to create hundreds of construction jobs and additional green energy jobs. FirstEnergy is evaluating its options related to the project. The initial phase would involve installing two to four units capable of generating a minimum of 268 megawatts (MW) of electricity. With 9.6 million cubic meters of storage, the Norton Energy Storage Project has the potential of expanding to 2,700 MW of capacity.

Currently, there are two commercial-scale compressed air electric generating facilities: a 110 MW plant in McIntosh, Alabama; and a 290 MW facility in Bremen, Germany. While there are other compressed-air projects under development, none is expected to be comparable in size and scope to the Norton facility.

The Norton Energy Storage Project is part of FirstEnergy's overall environmental strategy, which includes continued investment in renewable and low-emitting energy resources. Compressed-air storage, when combined with renewable energy resources, provides for low-emitting power generation which is dispatched when customers need it. FirstEnergy currently has more than 800 MW of renewable capacity, including pumped-storage hydro and wind power. By the end of 2012, once the biomass project at the Burger Plant is complete, the company's renewable capacity is expected to be more than 1,000 MW.
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Cameron Completes NATCO Deal – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 15:00:00 +0000

Last week, oil drilling equipment maker Cameron International Corp. (CAM) closed the previously announced acquisition of Texas-based fellow oilfield service provider NATCO Group for approximately $780 million, following the approval by NATCO’s shareholders.

In relation to the acquisition, Cameron reached an agreement with the U.S. Department of Justice (DOJ) to divest its Edge refinery desalter business and will license, on a non-exclusive basis, NATCO's Dual Frequency electrostatic technology for refinery desalter products. This was based on the DOJ’s antitrust division’s view that the acquisition as originally proposed would significantly hamper U.S. refinery desalter manufacturing competition, resulting in higher prices and lower quality, service, and innovation.

Incidentally, Cameron and NATCO are the top two domestic refinery desalter suppliers. The acquiistion involved an all-stock transaction whereby, NATCO stakeholders exchanged each of their shares for 1.185 Cameron common stocks and will receive cash reflecting the value of any fractional shares. Additionally, Cameron has issued about 23.7 million shares associated with this acquisition.

The agreement was previously unanimously approved by the boards of both the companies. We believe that the NATCO acquisition will transform Houston-based Cameron into a leading supplier of separation and processing solutions worldwide as well as boost its subsea development capabilities. The new ‘Cameron’ will have enhanced worldwide presence, broad product offerings in both upstream and downstream markets, and additional manufacturing capabilities.

Cameron expects the transaction to add to its profitability in 2010, after adjusting for any integration costs. Cameron recently posted better-than-expected third-quarter 2009 results despite pricing pressure and reduced order flow. A healthy backlog of $5.1 billion, coupled with Cameron’s strong financial health, growing international operations, and the still favorable outlook for the deepwater offshore markets should help the company weather the current downturn better than most of its peers.

However, the industry-wide slump still continues to weigh on the company’s profits and the scenario is unlikely to change much during the next few quarters. Consequently, we see the stock performing in line with the broader market and rate it as Neutral.

Houston, Texas-based Cameron International Corporation, previously known as Cooper Cameron Corporation, is a leading manufacturer of pressure control equipment used in onshore, offshore, and subsea applications for oil and gas drilling, production, and transmission.
Read the full analyst report on "CAM"
Zacks Investment Research

Williams Completes 2nd Phase – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 14:40:00 +0000

The Williams Companies (WMB) announced that it has placed the second phase of the Sentinel expansion project on its interstate Transco natural gas pipeline system into service, as a result increasing firm transportation capacity into the northeastern U.S. by 102 thousand dekatherms per day (Mdt/d).

The first portion of the project (Phase I), which provided an additional 40 Mdt/d, was placed into service in December 2008. Phase II construction included the addition/replacement of approximately 14 miles of 42-inch pipe, along with 8 compressor station upgrades at various locations in Pennsylvania and New Jersey .

The Transco natural gas pipeline is a 10,500-mile pipeline system that carries natural gas to markets all over the northeastern and southeastern U.S. The current expansion is expected to boost the total system capacity to approximately 8.6 billion cubic feet per day and will allow Williams to continue meeting the region's growing energy needs by providing clean-burning natural gas in time for the winter heating season.

The Williams Companies, Inc. is an energy firm that primarily finds, produces, gathers, processes, and transports natural gas. The company divides its business into four segments: Exploration & Production (E&P), Midstream Gas & Liquids, Gas Pipeline, and Gas Marketing Services.
Read the full analyst report on "WMB"
Zacks Investment Research

Stock Market News for November 24, 2009 – Market News

Zacks Market Commentaries — Tue, 24 Nov 2009 14:32:41 +0000

U.S. stocks closed broadly higher Monday, ending a three-day losing run, as a strong housing report reassured investors’ faith in the economy. A weak dollar helped lift gold to another record high and sent shares of commodity-related companies higher. Calls for central banks around the world to continue stimulus measures also hurt the dollar even as speculation grew that the Federal Reserve will keep interest rates at a record low.

On Monday, the 30-stock Dow Jones industrial average surged 132.79 points, or 1.29%, to 10,450.95. The broad Standard & Poor's 500-stock index rose 14.86 points, or 1.36%, at 1,106.24 and the tech-heavy Nasdaq composite index jumped 29.97 points, or 1.40%, to 2,176.01. Trading volume was light, with NYSE volume less than 1 billion shares, as advancing shares outran decliners by a four-to-one margin. Wall Street’s fear gauge, the CBOE Vix, plummeted 4.6% to 21.16.

Treasuries lost ground as investors’ risk appetite grew. A number of analyst upgrades also helped shares yesterday and after the close Hewlett-Packard (NYSE:HPQ) came out with strong numbers and also announced plans to triple its repurchase plan.

Among the DJIA components, all but two gained, led by Verizon (NYSE:VZ), up 3.0%, AT&T (NYSE:T), up 2.9%, General Electric (NYSE:GE), up 2.9%, and Chevron (NYSE:CVX), up 2.6%. A Barron's article suggested AT&T (NYSE:T) shares undervalued due to concerns its exclusive iPhone contract with Apple (NASDAQ:AAPL) might not be extended next year; Verizon (NYSE:VZ) shares jumped shot up on hopes the exclusivity agreement might not be extended. And Chevron (NYSE:CVX) shares gained from the dollar’s retreat.

All ten S&P 500 industry groups advanced, led by consumer services and telecommunications, both up 2.7%, oil and gas, up 1.6%, and industrial and tech shares, both up 1.5%.

Gold prices jumped to fresh highs yesterday, before giving up some ground to settle at $1164.70, up $17.90. Meanwhile, the greenback dropped 0.7% to 75.13 against a basket of currencies. This afternoon's FOMC meeting minutes will be scrutinised by investors for any evidence of a timing change for its asset purchase programs. Such considerations are also key to the trajectory for gold pricing, viewed as an inflation hedge.

Earnings reports are due from Barnes and Noble (NYSE:BKS), Borders (NYSE:BGP), Dollar Tree (NASDAQ:DLTR), Heinz (NYSE:HNZ) and Hormel (NYSE:HRL).

Zacks Investment Research

ADI Tops, Sees Growth in 2010 – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 14:20:00 +0000

Analog Devices’ (ADI) fiscal fourth quarter results beat the Zacks Consensus estimate by 14 cents. Revenue beat by 9.3%.

Revenue

Revenue of $571.6 million was up 16.2% sequentially and down 13.5% year over year. The sequential strength was driven by broad-based recovery in all except the communications end-market. The decline from the year-ago period was much lower than in the preceding three quarters. Orders were up 17% sequentially, resulting in a stronger backlog.

Revenue by End Market

The industrial market generated 52% of total revenue (up 16.8% sequentially). Automotive and healthcare were the strongest subsegments, growing 37% and 17%, respectively. Battery monitoring, breaks sensing and MEMS products were the primary drivers of automotive revenue. Healthcare benefited from the market recovery.

Other industrial products, such as process control, factory automation and instrumentation were up 14%. Consumer was the the second largest segment in the last quarter with a 25% revenue share. Segment revenue was up 38.5% sequentially, driven by normal seasonal strength ahead of the holiday season. Revenue was still lower than in the year-ago period.

Communications dropped to the third position, with a 21% share of total revenue, down 2.5% sequentially. Although 3G deployment in developed countries remained strong, this was offset by delayed GSM deployment in emerging markets. The optical, networking and wired infrastructure markets remained strong.

There was inventory rebalancing at the largest OEM infrastructure customers. Computing accounted for the remaining 2% of revenue, the 8.3% sequential increase attributable to the ongoing recovery in the market.

Revenue by Product Line

Both analog and DSP products grew double-digits sequentially. Power management, referencing and other products witnessed the strongest growth within analog, converters increased double-digits, while amplifiers witnessed the lowest growth (up 6.9% sequentially). Converters and amplifiers generated 47% and 22% of total revenue, respectively. General purpose DSPs generated around 9% of revenue, a sequential increase of 28.2%.

Operating Performance

The pro forma gross margin for the quarter was 56.7%, up 217 basis points (bps) from the previous quarter’s 54.5%. Volume increases drove utilization rates, which helped cost absorption in the last quarter. Mix was negative in the quarter, as the increase in high-margin industrial revenue was less than the increase in lower margin consumer revenue. Operating expenses of $183.0 million were higher than the previous quarter’s $177.2 million.

However, the operating margin increased 618 bps sequentially to 24.7%. All items of cost declined as a percentage of sales, with R&D declining the most (down 249 bps), followed by COGS (down 217 bps) and then SG&A (down 151 bps). The pro forma net income was $118.2 million, or a 20.7% net income margin compared to $77.5 million, or 15.7% in the previous quarter and $160.7 million, or a 24.3% net income margin in the prior-year quarter.

Fully diluted pro forma earnings per share were $0.40 compared to $0.26 in the previous quarter and $0.55 in the Oct quarter of last year. The pro forma calculations exclude deferred compensation expenses in the last quarter. Including share-based compensation, the fully diluted GAAP income was $105.6 million or $0.36 per share compared to $65.5 million or $0.22 per share in the previous quarter and $144.3 million, or $0.49 per share in the year-ago quarter.

Balance Sheet

Inventories decreased 8.3% to $253 million, resulting in annualized inventory turns of 3.9x compared to 3.2x at the end of the third quarter. Days sales outstanding (DSOs) were up from 45 to 48 days. Cash generated from operations was around $163 million. The company spent $16 million on capex and $58 million on cash dividends in the last quarter.

Guidance

Management expects the industrial and communications markets to be flat sequentially in the first quarter of fiscal year 2010. Consumer is expected to decline sequentially, in line with normal seasonal trends. Therefore, revenue is expected to be flattish sequentially and up 20% from the year-ago period. The gross margin is expected to be 58-58.5%, operating expense flat sequentially, resulting in EPS from continuing operations (excluding restructuring charges) of $0.36 to $0.37. The tax rate for the year is expected to be 19-20%.
Read the full analyst report on "ADI"
Zacks Investment Research

Citi Trends’ Profit Rises – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 14:00:00 +0000

Citi Trends Inc. (CTRN), a value-priced retailer of urban fashion apparel and accessories, has reported strong fiscal 2009 third quarter results with a net income of $0.6 million or 4 cents per share compared to a net loss of $0.7 million or 5 cents in the year-earlier quarter.

The earnings were primarily driven by a 21.4% increase in total sales during the quarter to $127.4 million from $104.9 million in the year-ago quarter. Same-store sales also increased 6.3% year-over-year, benefiting from the back-to-school season and improved discretionary spending outlook of customers amid early signs of an economic recovery.

The improvement in sales was also driven by prudent inventory management, merchandise selection in accordance with the sales trends, and solid execution at the store level. Year-to-date gross margin was up 40 basis points to 38.6% from 38.2% in the previous year, including 50 basis points improvement resulting from lower shrinkage.

During the quarter, Citi Trends opened 22 new stores and expanded 5 existing stores, bringing its total store count to 392 at quarter-end. The company anticipates having 403 stores at year end 2009, with its square footage growth marginally exceeding the earlier target of 15%. For 2010, the company also plans to target 15% square footage growth with approximately 55 new store openings and 10 to 12 relocations or expansions.

Moving forward, Citi Trends anticipates 2009 earnings per share in a range of $1.30 to $1.35, with a comparable store sales increase of 1% to 3% in the fourth quarter.
Read the full analyst report on "CTRN"
Zacks Investment Research

H-P Revenue Down, EPS In-Line – Analyst Blog

Zacks Market Commentaries — Tue, 24 Nov 2009 13:39:13 +0000

Hewlett-Packard (HPQ) reported fourth quarter EPS of $1.14, exceeding the Zacks Consensus Estimate by a penny.

Revenue

Revenue for the quarter came in at $30.8 billion, a decrease of 8.0% from the $33.6 billion reported in the year-ago period and down 5.0% on constant currency basis.

Revenue fell across all businesses, including servers and data storage systems, software, PCs and printers. The Americas reported a 3.0% decline in revenue to $13.6 billion. Revenue declined 17.0% in Europe, the Middle East and Africa (EMEA) to $11.7 billion and 1.0% in the Asia Pacific to $5.4 billion. Revenue from China increased more than 20% from the year-ago quarter.

International markets accounted for 64% of total revenue in the fourth quarter, with revenue in the BRIC countries (Brazil, Russia, India and China) declining 4.0% on a year-over-year basis and accounting for 10.0% of total HP revenue.

Results and Analysis by Segment

The Technology Solutions Group (TSG) was $14.1 billion down 2.6% year over year. Within TSG, Enterprise Storage and Servers (ESS) revenue declined 17.0% year over year, driven by declines across all three business units -- Industry Standard Servers, Business Critical Systems and Storage. Services revenue increased 8.0% year over year, mainly due to the addition of EDS’ revenue. EDS’ integration was ahead of the company’s plans. HP Software revenue fell 16.0% year over year with declines in both the Business Technology Optimization (BTO) portfolio and other software.
Personal Systems Group (PSG) revenue was $9.8 billion, which fell 12.0% year over year despite an 8% year-over-year increase in unit shipments. The company maintained its leading market position in PCs in every region. However, notebook revenue declined 8.0%, while Desktop revenue declined 16.0%. Commercial client revenue was down 15% and Consumer client revenue down 8.0%.
Imaging and Printing Group (IPG) continued to struggle as revenue was $6.4 billion, down 15.0% year over year. Ink supplies, commercial hardware and consumer hardware also reported substantial declines. We believe this segment has come under pressure due to strong competition from cheaper brands. Printer unit shipments decreased 20.0% from which period, with consumer and commercial printer hardware units down 14.0% and 138.0%, respectively. Consumer and commercial hardware revenue declined 17.0% and 32.0%, respectively.
HP Financial Services (HPFS) revenue was $0.7 billion, up 5.0% year over year. Financing volumes increased 6.0%, while in net portfolio assets increased 21.0%.

Operating Results

Gross margins for the quarter were 23.7%, up 60 basis points year over year. This increase in gross margin can be attributed to efficiency gains in services and increased supplies mix in IPG. The company continues to reduce cost; lowering operating expenses by 16.0% from the year-ago quarter. The lower costs are driven by structural changes that drive sustainable improvements. GAAP operating margin for the quarter was 10.2%, up from 8.2% reported in the year-ago quarter.

GAAP diluted net earnings per share (EPS) in the fourth quarter were $0.99, compared with $0.84 in the prior-year period. Non-GAAP financial information excludes after-tax costs related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges of approximately $0.15 per share and $0.19 per share in the fourth fiscal quarter of 2009 and 2008, respectively. Non-GAAP EPS were $1.14, compared with $1.03 in the prior-year period.

HP generated $3.4 billion in cash flow from operations versus $3.9 billion in the previous quarter. Free cash flow was $2.6 billion. The company exited the quarter with long-term debt balance of $13.9 billion, after repaying $1.5 billion of debt.

HP also returned $2.3 billion to shareholders in the form of share repurchases and dividends. The company ended the quarter with $13.3 billion in cash and short-term investments versus $13.7 billion in the previous quarter.

Guidance

For the first quarter of fiscal 2010, HP estimates revenue of approximately $29.6 billion to $29.9 billion, GAAP diluted EPS of $0.90 to $0.92 and non-GAAP diluted EPS of $1.03 to $1.05. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.13 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

For the full-year 2009, the company expects revenue of approximately $118.0 billion to $119.0 billion, up from its previous estimate of $117.0 billion to $118.0 billion. The GAAP diluted EPS is expected to be in the range of $3.65 to $3.75, up from its previous estimate of $3.60 to $3.70, and non-GAAP diluted EPS is expected to be in the range of $4.25 to $4.35, up from its previous estimate of $4.20 to $4.30.

Non-GAAP diluted EPS estimates for fiscal year 2010 exclude after-tax costs of approximately $0.60 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges. These estimates exclude the potential impact of the acquisition of 3Com Corporation that the company announced in November 2009.
Read the full analyst report on "HPQ"
Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Petrobras, St. Jude Medical, Motorola Inc., Sprint Nextel Corp. and Alcatel-Lucent – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:39:50 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks Equity Research highlights Petrobras (PBR) as the Bull of the Day and St. Jude Medical (STJ) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Motorola Inc.(MOT), Sprint Nextel Corp.(S) and Alcatel-Lucent (ALU).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

Petrobras (PBR), the largest integrated energy firm in Brazil, stands to benefit from its country's economic growth and huge pre-salt oil reserves. The company recently reported a better-than-expected third-quarter, helped by strong downstream results that more than offset the sharp decline in commodity prices.

Near- to medium-term concerns include the uncertain commodity-price scenario, significant capital investment requirements, and Brazil's proposed new oil and gas regulatory framework. However, given its strong pipeline of development projects and impressive recent exploration successes, the company's long-term outlook looks compelling.

As such, we recommend an Outperform rating for Petrobras ADRs. Our six-month target price is $55 per share.

Bear of the Day:

We look for global demographic trends -- aging populations in developed nations and the rapid urbanization of developing countries -- to fuel long-term growth of St. Jude Medical (STJ). These trends give rise to growing demand for cardiovascular health care.

However, recent weaknesses in the CRM segment, particularly in the U.S., are headwinds for St. Jude in the near-term. This might force the company to lose market share to its competitors.

Earnings per share in the third quarter reached $0.59, beating the Zacks Consensus Estimate by one cent. However, we have chosen to downgrade the stock to an Underperform with a target price of $31.

Zacks Analyst Blog Highlights: Skyworks Solutions, Ericsson, Alcatel-Lucent, Nokia and Siemens – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:27:38 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Skyworks Solutions (SWKS), Ericsson (ERIC), Alcatel-Lucent (ALU), Nokia (NOK) and Siemens (SI).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Monday’s Analyst Blog:

Skyworks Beats Estimates

Operating margin came in at 14.4% compared to 12.0% in the previous quarter. Earnings per share came in at 24 cents, easily beating the Zacks Consensus Estimate of 18 cents.

During the quarter, the company retired $17.4 million in 2010 convertible bonds, which led to a dilution of the equity base by two million.

Going forward, although the management remains cautious about the broader economy, it expects revenues to grow by 15% - 20% year over year driven by mobile Internet, energy management and diversified analog applications. Management indicated improved order visibility and strength in backlog at the end of the quarter. This implies a revenue guidance of $238 million - $242 million. Operating margin is forecasted around 20%. Earnings per share are expected around 25 cents.

The company launched network infrastructure digital attenuators, voltage controller oscillators, synthesizers and mixers at Huawei, ZTE, Ericsson (ERIC), Alcatel-Lucent (ALU) and Nokia-Siemens (NOK)/(SI).

Skyworks is well positioned to benefit from recent trends in the handset market, which are favorable to increasing dollar content for RF components. In general, the increasing complexity of higher-end phones that offer multi-band communication across various air standards are expanding the market for Skyworks’ products due to the need for backward compatibility from 3G to 2G networks. There is a significant growth opportunity in the handsets market, propelled by the launch of 3G in China.

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Zacks Investment Research

Zacks Analyst Blog Highlights: Las Vegas Sands, Citigroup, Goldman Sachs, Barclays PLC and UBS AG – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:16:19 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Las Vegas Sands (LVS), Citigroup (C), Goldman Sachs (GS), Barclays PLC (BCS) and UBS AG (UBS).

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Here are highlights from Monday’s Analyst Blog:

Sands China Raises $2.5B in IPO

The proceeds from this offering, combined with $1.75 billion in bank financing, would aid Sands China to restart its Macau's Cotai Strip construction projects. Last year, the company was forced to halt its casino expansion projects in Macau due to financial constraints, at which time it laid off 11,000 workers.

The IPO is being handled by five investment banks. Citigroup (C) and Goldman Sachs (GS) are the joint global coordinators for the offer while Barclays PLC (BCS), BNP Paribas SA and UBS AG (UBS) are the underwriters.

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Zacks Investment Research

Zacks Analyst Blog Highlights: Halliburton Company, Schlumberger Limited, Smith International Inc., National-Oilwell Varco and Weatherford International Ltd. – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:10:56 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Halliburton Company (HAL), Schlumberger Limited (SLB), Smith International Inc. (SII), National-Oilwell Varco (NOV) and Weatherford International Ltd. (WFT).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Monday’s Analyst Blog:

U.S. Rig Count Hits 8-Month High

Producers had scaled back oil and gas drilling operations over the past several months in the midst of falling commodity prices and tighter access to credit. However, during recent weeks, there have been signs that the companies were beginning to bring rigs back on line (especially oil rigs) amid signs of economic stabilization that could drive up energy demand. This pushed the nationwide rig count above 1,100 working units for the week ended Nov. 13, the first time since March.

The overall picture, though, remains weak, particularly for natural gas, whose inventories have recently hit a new record high of 3.83 trillion cubic feet (Tcf) and is threatening to test the maximum capacity of 3.89 Tcf. The supply picture is expected to reverse in the coming months as producers bet on colder weather and the lagging effect of the sharp drop in domestic drilling activity takes hold.

Until then, we believe that natural gas woes (especially in North America) will continue to haunt energy service firms like Halliburton Company (HAL), Schlumberger Limited (SLB), Smith International Inc. (SII), National-Oilwell Varco (NOV) and Weatherford International Ltd. (WFT). These oilfield service names have seen their revenues and earnings plunge in the last few quarters on the back of lower volumes and a very competitive pricing environment. We have Neutral recommendations on all the above-mentioned companies.

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Zacks Investment Research

Zacks Analyst Blog Highlights: Fannie Mae, Freddie Mac, Sherwin Williams, La-Z-Boy and Campbell Soup Co. – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:00:30 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Fannie Mae (FNM), Freddie Mac (FRE), Sherwin Williams (SHW), La-Z-Boy (LZB) and Campbell Soup Co. (CPB).

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Here are highlights from Monday’s Analyst Blog:

Existing Home Sales Soar Again

Lower mortgages rates -- greatly suppressed by the Fed’s policy of buying up $1.25 Trillion of mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) but that buying spree is expected to end at the end of the first quarter -- have also helped the existing homes sales market. In October, 30-year fixed rate mortgages fell to an average of 4.95%, down 2.17% from 5.06% in September and down 20.16% from the year-ago level of 6.20%.

A third and very important reason for the rebound in existing home sales is that prices have come down. Overall, median existing home prices are now $173,100, a 7.1% decline from a year ago. Existing single-family home prices have held up a little bit better, down 6.8% from a year ago, while prices for Condos are down 10.4% from last year.

Regionally, existing home sales were up by double digits for the month in every region but the West. The Midwest led the way with sales up 14.4% to an annual rate of 1.43 million. From last year, sales in the region are up 28.8%.

In the very important South region, sales rose by 12.7% and are up 25.7% from a year ago. Sales in the South were at an annual rate of 2.30 million, or 37.7% of the total. While that is well below the over 50% rate that the region accounts for when it comes to new home sales, it still makes it the largest region of the country by a wide margin.

The Northeast is the smallest region, with sales at an annual rate of 1.06 million, but that rate was up 11.6% from September and is up 27.7% from a year ago. The rebound was much more muted out West, where sales were up just 1.6% for the month and just 12.0% year over year. The West has also suffered by far the largest decline in median prices, down 14.7% from a year ago -- more than double the next largest decline (the South -- 14.7%).

In the Northeast, which is the most expensive market (median price of $235,400) prices are down just 2.6% year over year. In the Midwest, the most inexpensive market (median price $146,600) prices are actually up 1.1% from a year ago.

While the news on existing home sales is good, and the existing home market is FAR larger than the new home market, it is also far less significant to the economy than is the new home market. New homes directly stimulate residential investment, which is an important (and volatile) component of GDP. Lots of labor and materials go into building a new home.

Existing home sales have only an indirect effect on the economy. They stimulate sales of things like paint from Sherwin Williams (SHW) and furniture from La-Z-Boy (LZB) as people redecorate, but such spending is much smaller than building a whole new house. In other words, this is good news, just don’t get too carried away about its significance.

Campbell’s Beats, Raises Guidance

Quarterly net sales declined 2.1% year over year due to a negative impact of 4% from volume and mix and 1% from increased promotional spending, partially offset by positive contributions of 2% from price and allowances and 1% from currency translation. Gross margin for the quarter expanded 170 basis points (bps) to 41.9% versus 40.2% in the year-ago quarter, reflecting productivity improvements and pricing benefits.

Sales of the US Soup, Sauces and Beverages segment decreased 5% year over year. US soup sales fell 3%, driven by sales declines in condensed, RTS and broth. Prego pasta sauce and Pace Mexican sales dropped due to competitive pressures, while beverage sales declined due to weak sales of V-8 vegetable juice.

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Zacks Investment Research

Another Price Cut for Palm – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 22:45:06 +0000

Palm Inc.’s (PALM) new smartphone, Pixi -- a lighter and cheaper version of the Pre -- can now be bought for just $24.99.

Both Wal-Mart (WMT) stores and Amazon.com Inc. (AMZN) have slashed the price of the new Pixi phone by 75% from the original $100 after the Pixi went on sale last week at Sprint Nextel Corp. (S). Amazon has also cut the price of Palm’s Pre to $79 from $99.

The price cut may attract consumers in the coming holiday season, however we remain unsure about the future of Palm. Moreover such steep price cuts confirm our view that both the Pre and the Pixi are just not selling in a market crowded by devices such as Apple’s (AAPL) iPhone, Motorola’s (MOT) Droid and Research In Motion’s (RIMM) BlackBerry.

Palm’s Pixi and Pre are still available via Sprint for $99.99 and $149.99, respectively. Both the phones come with a two-year contract with instant rebate and a mail-in rebate.

Palm’s Pixi has features like 8 gigabytes of built-in memory, an exposed QWERTY keyboard and personalization features, but do not support Wi-Fi capabilities. Pixi has a 2-megapixel camera and a slower processor with a smaller screen.

Thus the performance of Pixi is still not clear given its slower processor and lack of Wi-Fi. Pixi runs on Palm's WebOS but relies on Sprint's 3G network for connectivity.

We believe Palm’s competitive position has been permanently damaged by its antiquated offerings and the company is still selling only a small fraction of Pre phones to smartphone users.

We maintain our Underperform rating on PALM shares.
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Ford Focuses on Brazil – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 22:31:01 +0000

Ford Motor (F) has revealed its plan to invest R$4 billion ($2.26 billion) in order to benefit from government tax incentives and lower interest rates in Brazil that are fueling record sales. Presently, Ford is the fourth-largest automaker in the country.

Ford has decided to spend R$2.8 billion at the Camacari plant -- a state-of-the-art plant in the northeastern state of Bahiato -- with the aim of increasing output by 20% to 300,000 vehicles a year. The plant produces the sport utility vehicle EcoSport and the Fiesta subcompact. The investment is expected to generate 1,000 jobs in the region. The remaining R$1.2 billion will be invested at Ford's factories in Sao Paulo including its Sao Bernardo plant and a testing facility in Tatui.

So far, car sales in Brazil have been significantly helped by government tax incentives that lowered car prices and lured consumers to showrooms. But the tax breaks are scheduled to expire by the end of the year. However, the investment will allow Ford to achieve state and federal tax breaks from the Brazilian Government until 2015.

Being the fourth-largest automaker in Brazil, the investment will no doubt help Ford strengthen its position to tap the huge market potential in the country, edging it past peers such as Italy's Fiat, Germany's Volkswagen and some Asian and French manufacturers. According to the Brazilian automobile dealers' association, automobile sales in the country are expected to grow by 9% in 2010.
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Ratings Action on Assurant – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 22:16:15 +0000

Rating agency A.M. Best Co. has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the property and casualty (P&C) and life and health insurance subsidiaries of Assurant Inc. (AIZ). Additionally, A.M. Best has affirmed the issuer credit ratings of "bbb" and debt ratings of Assurant.

Along with affirming the ratings of the parent, A.M. Best has also upgraded the FSR of four of its operating subsidiaries to "A" from "A-" and ICRs to "a" from "a-" with a stable outlook for all. The four subsidiaries are American Reliable Insurance Company, Voyager Indemnity Insurance Company, Reliable Lloyds Insurance Company and Caribbean American Property Insurance Company.

A.M. Best acknowledges Assurant’s diverse product and distribution platform, established presence in various niche markets, adequate risk-adjusted capitalization, solid operating earnings, adequate interest coverage ratio of over 10.0X and sufficient financial flexibility.

Negatives include an ongoing U.S. SEC investigation that has adversely affected the company’s credit profile. In July 2009, Standard and Poor’s lowered the counterparty credit ratings and financial strength ratings on two of Assurant’s domestic operating insurance subsidiaries to "A-" from "A."

Also, the company’s continued dependence on third-party reinsurance and significant growth in specialty property (both organically and through acquisitions) in conjunction with an increase in net retention associated with its property catastrophe (CAT) treaty in recent years, expose its results to a greater degree of variability over the near term.
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Sands China Raises $2.5B in IPO – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 21:57:51 +0000

Las Vegas Sands (LVS) Macau unit, Sand China raised $2.5 billion through its Hong Kong initial public offering (IPO). The company has priced the IPO for 1.87 billion shares at HK$10.38 per share, the low end of the expected HK$10.38-HK$13.88 range.

The proceeds from this offering, combined with $1.75 billion in bank financing, would aid Sands China to restart its Macau's Cotai Strip construction projects. Last year, the company was forced to halt its casino expansion projects in Macau due to financial constraints, at which time it laid off 11,000 workers.

The IPO is being handled by five investment banks. Citigroup (C) and Goldman Sachs (GS) are the joint global coordinators for the offer while Barclays PLC (BCS), BNP Paribas SA and UBS AG (UBS) are the underwriters.

Earlier, in October, rival company Wynn Resorts (WYNN) had held its IPO for its Macau assets. Wynn Macau has experienced a strong debut in the Hong Kong stock exchange. Wynn sold 1.25 billion shares or a 25% stake in its Macau business. However, the shares of Wynn Macau are now trading at a discount to the offering price.

Macau is the only Chinese city where gambling is legal. It has become an attractive destination for casino companies such as Las Vegas Sands, Wynn Resorts and MGM Mirage (MGM), which are investing billions for expansion on this island. Macau has survived the economic downturn relatively well.

Macau has generated HK$105.6 billion ($13.5 billion) of gross gaming revenue in 2008, more than double the revenue generated by the Las Vegas strip. Also, visa restrictions had recently been slackened by Beijing to allow mainland tourists to visit Macau once a month rather than twice a year.

The capital bolstering initiatives augur well for Las Vegas Sands, which has a robust development pipeline, with projects in Macau, Las Vegas, Singapore and Pennsylvania.
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Skyworks Beats Estimates – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 21:35:50 +0000

Skyworks Solutions (SWKS) earlier reported revenues of $228.1 million in the fourth quarter of fiscal 2009, up 19% sequentially and surpassed management’s guidance range of $220 million - $225 million.

Operating margin came in at 14.4% compared to 12.0% in the previous quarter. Earnings per share came in at 24 cents, easily beating the Zacks Consensus Estimate of 18 cents.

During the quarter, the company retired $17.4 million in 2010 convertible bonds, which led to a dilution of the equity base by two million.

Going forward, although the management remains cautious about the broader economy, it expects revenues to grow by 15% - 20% year over year driven by mobile Internet, energy management and diversified analog applications. Management indicated improved order visibility and strength in backlog at the end of the quarter. This implies a revenue guidance of $238 million - $242 million. Operating margin is forecasted around 20%. Earnings per share are expected around 25 cents.

The company launched network infrastructure digital attenuators, voltage controller oscillators, synthesizers and mixers at Huawei, ZTE, Ericsson (ERIC), Alcatel-Lucent (ALU) and Nokia-Siemens (NOK)/(SI).

Skyworks is well positioned to benefit from recent trends in the handset market, which are favorable to increasing dollar content for RF components. In general, the increasing complexity of higher-end phones that offer multi-band communication across various air standards are expanding the market for Skyworks’ products due to the need for backward compatibility from 3G to 2G networks. There is a significant growth opportunity in the handsets market, propelled by the launch of 3G in China.

Another favorable trend is the continued shift towards multi-mode modules, which save board space in a handset, generating higher margins. The company has tie-ups with major OEMs that underscore the company’s success in gaining market share. The company is also making good progress in the linear business with WLAN wins at Intel (INTC) and Broadcom (BRCM).

Headquartered in Woburn, Massachusetts, Skyworks Solutions designs, manufactures, and markets a broad range of high performance analog and mixed signal semiconductors that enable wireless connectivity.
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Abbott Deals for Drug Candidate – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 21:20:20 +0000

Abbott Labs (ABT) recently signed a definitive agreement with PanGenetics BV for a pain candidate, PG110. Under the terms of the agreement, Abbott will acquire global rights to PG110 which is a novel biologic that targets Nerve Growth Factor (NGF) for the treatment of chronic pain.

PanGenetics will receive an upfront payment of $170 million and $20 million in milestone payments. This agreement should allow Abbott to expand its pain product portfolio and leverage its expertise in biologics. The commercial opportunity in the pain market is significant. There is major demand for the development of a treatment that would provide relief from pain without the potential of addiction and abuse.

It is estimated that there are about 72 million diagnosed chronic pain patients in the U.S. and EU, and up to 30% of chronic pain patients get inadequate relief. Current treatments include non-steroidal anti-inflammatory drugs (NSAIDs), certain Cox-II inhibitors, opioids and other drugs that may have various tolerability and safety issues, including the potential for abuse and addiction.

PG110 is currently in a phase I study in patients with osteoarthritis. The successful completion of this study would allow Abbott to explore the candidate’s potential in other pain indications like chronic lower back pain, cancer pain and diabetic neuropathic pain.

The deal is scheduled to close by year end. Abbott maintained its previously announced guidance for 2009.

We currently have a Neutral rating on Abbott. While economic weakness has slowed sales of a number of products in 2009, Abbott is weathering the storm relatively well. Abbott’s strong business segments, contributions from recent acquisitions and impressive late-stage pipeline should help fortify long-term earnings growth.
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China Mobile to Market Dell Phone – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 21:00:08 +0000

China Mobile (CHL) will be the first mobile operator to sell the much-talked-about Dell (DELL) smartphone. The Mini 3i, as its is called, is a slim, touch screen smartphone to be supported by China Mobile's new OPhone and Mobile Market platforms.

The 3.5-inch widescreen is intended to create a big-screen experience, adding to the clarity of images and videos. The Mini 3i is compatible with lot of applications like e-mail platforms and office productivity software. This new smartphone was produced through a year-long collaboration with China Mobile and also Dell is making substantial investment in smartphones.

Dell’s entry into the smartphone segment looks like a logical progression, as the company is already manufacturing and rolling out reasonably priced netbooks in the market. However, Dell is a late entrant into the market, unlike its peer Apple Inc. (AAPL), which has already grabbed a large share of smartphones such as iPhone 3G and iPhone 3GS.

As per the technology research firm Canalys, third quarter 2009 worldwide smartphone shipments grew 4% year on year, to 41.4 million units. Nokia (NOK) maintained its worldwide smartphone leadership position with a 40% share of the market, up from its year-ago position, but down 5% from the previous quarter. Research In Motion (RIMM) was in second place, with a market share of 21%, almost flat sequentially.

Apple’s market share was 18% in the third quarter, up from the 14% share in the second quarter, with significant improvement in the iPhone 3GS supply across many countries. HTC retained the fourth position with a 5% share.

Dell’s third quarter results were not very encouraging, with revenue, gross margin and EPS declining on a year-over-year basis. Dell suffered from the PC market slowdown. Although there are signs of recovery in this market, the smartphone market is expected to witness much stronger growth rates. Therefore, Dell’s decision to enter this market at this point is a big positive. Although initial revenue may not be substantial, the company would benefit from the growth trends, if its smartphone is well accepted.

We believe that there is no reason why Dell phone should not gain popularity, considering Dell’s history of innovation -- although the success rate could vary as competition is intense. We believe that even if Dell is able to capture a small share of the smartphone market, the additional growth opportunity would be substantial.

China Mobile was a natural choice for Dell to launch its smartphone in the country. China Mobile has a registered capital of RMB 51.8 billion and assets of over RMB 700 billion. The company is aggressively developing the mobile communications industry in China and the company Listed among the Top Fortune 500 companies.
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Duke Realty Renews Credit Facility – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 20:37:53 +0000

Duke Realty Corporation (DRE), a real estate investment trust (REIT) engaged in owning, managing and developing industrial, health care and office properties across the U.S, has recently renewed its unsecured revolving credit facility to enhance its operating flexibility in the current credit-constrained market.

The credit facility, which was originally scheduled to mature in Jan 2010, has been currently extended to Feb 2013. Under the terms of the renewal, the credit facility would offer a borrowing capacity of $850 million at an interest rate of 275 basis points over the applicable LIBOR rate. In addition, Duke Realty also has an option to increase the credit facility to $1.05 billion.

Duke Realty maintains a balanced and flexible capital structure and has increased its liquidity by diligently managing overhead expenses and reducing dividend payments. With the renewal of the credit facility, the company has further strengthened its balance sheet that provides an operating flexibility to protect and enhance market positions and emerge stronger once the real estate markets fully recover.

Duke Realty is one of the largest commercial real estate companies in the U.S. For over 35 years, the company has leveraged its local presence and its integrated platform to drive returns, establishing itself as a premier publicly traded real estate developer in the country.
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Motorola Boosts iDEN Business – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 19:45:20 +0000

Motorola Inc. (MOT) has decided to purchase iDEN base station assets of the privately held RadioFrame Networks Inc. The iDEN (Integrated Digital Enhanced Network) technology allows cell phone calls to move on the same network as communication from two-way radios. In general, this technology resembles walkie-talkie features on cell phones. Financial terms of this deal have not been disclosed so far. Motorola itself is the pioneer of the iDEN technology that RadioFrame had licensed for its base station products.

The main reason for this acquisition is the superior iDEN-based base station products of RadioFrame that are lower cost and more power efficient. This proposed acquisition will enhance Motorola's portfolio of multi-channel base stations products that are optimized to support non-contiguous spectrum allocations in the special mobile radio business. Motorola may use RadioFrame’s lower-cost iDEN architecture into entirely separated spectrum bands that are allocated to the wireless carriers in the international (outside the U.S.) markets. RadioFrame has a solid client base for its base station products, notable among them being Sprint Nextel Corp. (S).

RadioFrame’s base station products will be a part of Motorola’s Home and Network Mobility segment. This segment makes equipment for cable and wireless operators. Recently, industry rumors indicated that the company has decided to sell this segment for more than $4.5 billion. As of now, Home and Network Mobility is the largest segment of Motorola. In the third quarter of 2009, this segment generated more than $2 billion revenue and $199 million operating profit.

Earlier this month, Motorola’s Home and Network Mobility segment decided to purchase IPTV specialist BitBand and will do venture funding to the LTE chip making business of Sequans Communications together with Alcatel-Lucent (ALU). BitBand has more than 60 commercial IPTV deployments throughout the world and Paris based Sequans Communications has intended to demonstrate its first LTE chipset in early 2010. Whether Motorola sells its Home and Network Mobility segment or not, it seems that the company is increasingly focusing on optimizing the resources of its largest business segment.
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Marathon to Slash Spending – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 19:23:33 +0000

In its investor day meeting, integrated oil major Marathon Oil Corporation (MRO) offered a glimpse of its 2010 production and capital spending plans.

Capital Spending Trimmed

Marathon said that it will prune its capital expenditures by about $1 billion in 2010, as the company allocates a larger percentage of funds towards the Exploration & Production (E&P) segment as against the under-pressure refining business. The Houston-based firm has pegged its 2010 capital budget at about $5 billion, down nearly 7% from the $6 billion it expects to invest by the end of 2009. As per the plan, expenditure on the downstream business (refining, marketing and transportation), which constituted approximately 40% of this year’s budget, will fall to 23%, while the remaining portion will go to exploration and production projects.

Upstream Production Outlook

Marathon’s change in focus to the upstream business can be attributed to plummeting refining profits on the back of weak demand for gasoline, diesel and jet fuel. The company’s new area of emphasis will be deepwater exploration, unconventional resource plays in North America and development in Angola.

Marathon also guided towards 2009 E&P production growth of around 6% from the 2008 level. During the four-year period 2008–2011, the company expects upstream volumes to increase at a compound annual growth rate of approximately 4% (with contributions from new projects in the Gulf of Mexico, Canada's oil sands, Libya and Angola).

In 2010, Marathon plans to drill 3–4 significant wells in the Gulf of Mexico, 2 high-risk, high-potential wells in Indonesia, as well as commence activity in Norway, Libya, Angola and the domestic onshore resource plays.

Outlook

Marathon’s move to chop capital spending follows a similar decision by rival ConocoPhillips (COP), which earlier announced a 12% reduction in its 2010 budget. In contrast, super majors such as ExxonMobil (XOM) and Chevron (CVX) have maintained their capital spending even during the current downturn in an effort to lift production.

We like Marathon’s large and geographically diverse reserve base, competitive downstream operation, and solid project pipeline. However, the uncertain commodity-price environment and the company’s heavy downstream exposure will continue to weigh on Marathon’s revenue and profitability, at least in the near term. As such, we see the stock performing in line with the broader market and rate it as Neutral.
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XL Expands in China – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 19:04:44 +0000

XL Capital Ltd. (XL) last week announced its plans to expand its international operations in China. XL has received approval from the China Insurance Regulatory Commission (CIRC) to start preparatory work to set up a Property and Casualty (P&C) company in China.

The China Insurance Regulatory Commission is an agency of China authorized by the State Council to regulate the country’s insurance products and services market and maintain legal and stable operations in the insurance industry.

XL has got permission from CIRC to prepare for China operations till the second half of 2010. After the initial preparations are done, if the company receives license, it will establish an insurance subsidiary that will serve both local and international corporations in China, as well as its existing clients with operations in China.

Year till date, gross premium generated from the P&C operations was $4.9 billion, down from $6.4 billion last year, with a combined ratio of 92.8% compared to 96.9% in the same period last year.

A substantial portion of the company’s P&C insurance business and a majority of its life reinsurance business are carried on internationally, thereby leaving it vulnerable to foreign exchange fluctuations. During the third quarter of 2009, the company suffered a loss of $16.8 million in this regard, negatively affecting results.

XL has had a representative office in Beijing since 2006, dedicated to deepening the company’s understanding of the China market.

During the third quarter, the company reported earnings of 89 cents, up from 39 cents last year. Net written premiums fell 4.4% year-over-year to $1.3 billion. Premium volumes have been negatively impacted by the global economic conditions, reduction in mergers and acquisitions, exit from certain (unprofitable) lines of business and the ongoing efforts of risk managers to reduce their concentration of risk (limits) with all insurers.

XL Capital has also been working towards developing a reliable infrastructure that will improve operational efficiency, standardize processes and optimize costs. Though we expect net premium written by the company to remain under pressure, the above measures will help it to maintain its profitability. Therefore we maintain a Neutral rating on the shares for now.
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Zacks Investment Research

Novellus Raises Guidance – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 18:44:52 +0000

Novellus Systems (NVLS) raised its fourth-quarter revenue and earnings outlook, as a result of the ongoing recovery in the semiconductor market.

The company now expects revenues of $225-245 million, compared to previous guidance of $215-245 million, which raises the mid-point from $230 to $235 million.

Management had previously guided to bookings increase of 25-50%, which were not subsequently revised. Therefore, we assume that bookings are expected to remain within this range.

GAAP gross margin expectations were also not revised and remain in the 44-47% range.

EPS expectations were raised to 25-40 cents from previous guidance of 20-40 cents. The Zacks Consensus Estimate for the fourth quarter is pegged at 31 cents, close to the middle of the revised range.

The company’s third-quarter earnings beat the Zacks Consensus Estimate by a penny. Order momentum, stronger DRAM and NAND prices, higher volumes, higher utilization rates and a lower cost structure contributed to the better-than-expected results.

The computing and smart phone markets drove strength in the third quarter and are expected to drive fourth quarter results as well.

The company generates the largest chunk of revenues from the Asia Pacific region, followed by North America and then Europe. We expect the Asia Pacific region to remain strong in the next quarter, as the strength in DRAM and NAND prices continue. Last quarter, revenues from the region increased double-digits both sequentially and year over year. We also expect improvement in both North America and Europe.

Not only Novellus, but other equipment makers such as ASML Holdings (ASML), Applied Materials (AMAT) and KLA Tencor (KLAC), microprocessor makers such as Intel (INTC) and Advanced Micro Devices (AMD), and analog makers such as Linear Technology (LLTC), Maxim Integrated Products (MXIM), Intersil Corp (ISIL) and Semtech (SMTC) reported stronger results in the last quarter.
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Zacks Investment Research

Intuitive Enters Japan – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 18:26:04 +0000

Intuitive Surgical, Inc. (ISRG) recently received regulatory approval from the Japanese Ministry of Health, Labor and Welfare (MHLW) to market its da Vinci S System in Japan. The approval thus broadens Intuitive’s geographical presence and is likely to expand its international revenues.

The da Vinci Surgical System is an advanced robot-assisted surgical system that represents a new generation in surgery. The da Vinci Surgical System consists of a surgeon’s console, a patient-side cart, and a high performance vision system. The product line also includes proprietary “wristed" instruments and surgical accessories.

The da Vinci Surgical System translates the surgeon’s natural hand movements on instrument controls at a console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports.

The da Vinci Surgical System is the only technology available commercially that can provide the surgeon with intuitive control, range of motion, fine tissue manipulation capability, and 3-D visualization characteristics of open surgery, while simultaneously allowing the surgeons to work through the small ports of minimally invasive surgery.

This computer-enhanced technology will enable surgeons to improve clinical outcomes while reducing the invasiveness of complex surgical procedures.

Intuitive’s da Vinci, da Vinci S, da Vinci Si, InSite and EndoWrist are the different variants of the da Vinci Surgical System. Intuitive had already placed a total of 1,308 da Vinci systems worldwide at the end of the third quarter. The average price per system sold in the third quarter was $1.4 million.
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Zacks Investment Research

Campbell’s Beats, Raises Guidance – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 17:42:33 +0000

Campbell Soup Co. (CPB) reported fiscal first-quarter earnings of 87 cents per share, which was above the Zacks Consensus Estimate of 81 cents. Quarterly earnings were up 14.5% compared to the prior-year quarter.

Quarterly net sales declined 2.1% year over year due to a negative impact of 4% from volume and mix and 1% from increased promotional spending, partially offset by positive contributions of 2% from price and allowances and 1% from currency translation. Gross margin for the quarter expanded 170 basis points (bps) to 41.9% versus 40.2% in the year-ago quarter, reflecting productivity improvements and pricing benefits.

Sales of the US Soup, Sauces and Beverages segment decreased 5% year over year. US soup sales fell 3%, driven by sales declines in condensed, RTS and broth. Prego pasta sauce and Pace Mexican sales dropped due to competitive pressures, while beverage sales declined due to weak sales of V-8 vegetable juice.

Sales of the Baking and Snacking segment were up 4%, driven by growth in the Arnott's branded business, led by higher biscuits sales. Pepperidge Farm sales were similar to the year-ago level as increased sales in bakery business were offset by lower sales in the cookies and cracker business.

In the International Soups and Sauces business, sales contracted 2% due to declines in Europe, primarily attributable to divestitures and lower sales in Germany. In Canada, sales increased due to gain in soups and favorable impact of currency. Sales in the Asia-Pacific region also increased, led by strength in Malaysia, Hong Kong and Australia along with the favorable currency impact.

Sales in the North American Foodservice business declined 2% year over year due to continued weakness in the food service sector. Price and sales allowances benefits were more than offset by unfavorable volume and mix.

Based on its performance in the first quarter, Campbell raised its guidance for fiscal 2010. The company now expects net sales growth of 4%-5%, as compared to its previous guidance of 3%-4% growth. Annual earnings growth is expected in the range of 9% and 11%. Earlier, the company provided earnings growth guidance of 5% to 7%. The guidance is consistent with the company’s long-term growth targets.

We hold a Neutral recommendation on Campbell shares.
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Zacks Investment Research

Existing Home Sales Soar Again – Analyst Blog

Dirk Van Dijk — Mon, 23 Nov 2009 17:14:31 +0000

In October, existing home sales rose by 10.1% and are now 23.5% above the year-ago rate. Sales were at a seasonally adjusted annual rate of 6.10 million, up from 5.54% in September and a 4.94 million pace a year ago.

Existing single family home sales rose by 9.7% to a 5.33 million pace, while condo sales soared by 13.7% to a seasonally adjusted annual rate of 770,000. Sales have been greatly aided by the "first time" homebuyer tax credit, which while eventually extended and expanded, for most of the month looked like was about to expire. Thus, in October people were scrambling to try to get in under the wire.

This is the fifth straight month that existing home sales have exceeded year-ago levels. Even more impressive is the fact that actual, non-seasonally adjusted sales actually were higher in October than they were in September. This is highly unusual, since existing home sales are highly seasonal and sales normally drop sharply in October, as can be seen in the graph below (from http://www.calculatedriskblog.com/.) We are almost back up to the October 2007 level of sales on an actual, unadjusted basis (which is reasonable to look at when comparing the same month of the year).

There was even more good news in that inventories also declined by 3.7% from September, and are down 14.9% from a year ago. Combined with the rising sales pace, that brought the months supply down to 7.0 from 8.0 last month. We are almost at "normal levels" of inventory relative to sales, but not quite. Still where we are today is much healthier than the double-digit months tha prevailed for most of 2008, and this is the second sharp drop in a row. The graph below also comes from http://www.calculatedriskblog.com/.

Lower mortgages rates -- greatly suppressed by the Fed’s policy of buying up $1.25 Trillion of mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) but that buying spree is expected to end at the end of the first quarter -- have also helped the existing homes sales market. In October, 30-year fixed rate mortgages fell to an average of 4.95%, down 2.17% from 5.06% in September and down 20.16% from the year-ago level of 6.20%.

A third and very important reason for the rebound in existing home sales is that prices have come down. Overall, median existing home prices are now $173,100, a 7.1% decline from a year ago. Existing single-family home prices have held up a little bit better, down 6.8% from a year ago, while prices for Condos are down 10.4% from last year.

Regionally, existing home sales were up by double digits for the month in every region but the West. The Midwest led the way with sales up 14.4% to an annual rate of 1.43 million. From last year, sales in the region are up 28.8%.

In the very important South region, sales rose by 12.7% and are up 25.7% from a year ago. Sales in the South were at an annual rate of 2.30 million, or 37.7% of the total. While that is well below the over 50% rate that the region accounts for when it comes to new home sales, it still makes it the largest region of the country by a wide margin.

The Northeast is the smallest region, with sales at an annual rate of 1.06 million, but that rate was up 11.6% from September and is up 27.7% from a year ago. The rebound was much more muted out West, where sales were up just 1.6% for the month and just 12.0% year over year. The West has also suffered by far the largest decline in median prices, down 14.7% from a year ago -- more than double the next largest decline (the South -- 14.7%).

In the Northeast, which is the most expensive market (median price of $235,400) prices are down just 2.6% year over year. In the Midwest, the most inexpensive market (median price $146,600) prices are actually up 1.1% from a year ago.

While the news on existing home sales is good, and the existing home market is FAR larger than the new home market, it is also far less significant to the economy than is the new home market. New homes directly stimulate residential investment, which is an important (and volatile) component of GDP. Lots of labor and materials go into building a new home.

Existing home sales have only an indirect effect on the economy. They stimulate sales of things like paint from Sherwin Williams (SHW) and furniture from La-Z-Boy (LZB) as people redecorate, but such spending is much smaller than building a whole new house. In other words, this is good news, just don’t get too carried away about its significance.
Read the full analyst report on "FNM"
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Zacks Investment Research

Nike Increases Quarterly Dividend – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 16:23:16 +0000

Nike Inc. (NKE), the world’s leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories, has recently increased its quarterly dividend by 8% to 27 cents per share from 25 cents.

Amid a challenging macroeconomic environment, when most companies are either reducing or temporarily withdrawing dividend payments, Nike has decided to increase its dividend for the eighth year in a row. The company has paid over $1.8 billion as dividends to shareholders in the last five years, and expects to continue to pay a steady dividend in the future as well.

Nike leverages a massive and well-established network of more than 23,000 retail accounts in the U.S and over 28,000 internationally to reach a wide array of customers. The company’s retail accounts consist of a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, skate as well as tennis and golf shops.

Nike remains upbeat about its performance in the coming quarters. The company stressed that it was gradually gaining market share and was in a strong position to benefit when the global economy improves. In an effort to achieve its long-term sales target of $23 billion by fiscal 2011, Nike recently executed a restructuring plan, which reorganized its geographic segments, slashed management layers, and enhanced customer focus. Moreover, in order to reduce its operating costs, the company has retrenched about 5% of its 35,000-strong global workforce.
Read the full analyst report on "NKE"
Zacks Investment Research

Good News for Bristol-Myers – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 15:40:00 +0000

Recently, Bristol-Myers Squibb Co. (BMY) received approval from the U.S. Food and Drug Administration (FDA) to market Abilify (aripiprazole) for the treatment of irritability in pediatric patients having autistic disorder. Abilify can be used to treat children aged 6 to 17 years for symptoms of aggression toward others, deliberate self injury, temper tantrums and quick mood swings.

Bristol-Myers and Otsuka Pharmaceutical Co. jointly develop and distribute the drug in the U.S. and Europe. The FDA approval of Abilify for treating irritation in pediatric patients with autistic disorder is based on data from two eight-week late-stage studies in which Abilify significantly improved scores on the irritability subscale of the caregiver-rated Aberrant Behavior Checklist (ABC-I), compared to placebo.

The most common adverse affects were sedation, fatigue, vomiting, somnolence, tremor and pyrexia. However, the efficacy of Abilify for the maintenance treatment of irritability associated with autistic disorder was not evaluated. Abilify, which is approved to treat depression, bipolar disorder, and schizophrenia, generated sales of $2,153 million in 2008, up 30% from 2007. Furthermore, sales in the third quarter of 2009 grew 16% to $653 million.

Abilify has been growing at about five times the overall antipsychotic market. The company’s beefed-up sales force and new Direct to Consumer (DTC) campaigns are aiding sales growth. Abilify faces competition from other drugs in the market such as Merck’s (MRK) Saphris, Pfizer Inc.'s (PFE) Geodon, Johnson & Johnson's (JNJ) Risperdal, AstraZeneca PLC's (AZN) Seroquel and Eli Lilly & Co.'s (LLY) Zyprexa.

Plavix, the antiplatelet blood thinner indicated to reduce the risk of heart attack in patients with atherosclerosis, is the top growth driver for Bristol. However, patent expirations loom large on the company starting 2011 when the Plavix patent expires. The company has lost patent protection on products worth about $4 billion in sales over the past four years.

Drugs such as Cefzil, Paraplatin, Glucophage, Monopril and Taxol are also experiencing declining sales due to generic competition. However, the $1 billion addition in cost cuts in 2012-2013, the extension of the Abilify agreement with Otsuka, and the acquisition of Medarex indicate that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix. Currently, we are Neutral on Bristol-Myers.
Read the full analyst report on "BMY"
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Zacks Investment Research

Becton Acquires HandyLab – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 15:00:00 +0000

Becton, Dickinson and Company (BDX) recently completed the acquisition of HandyLab, Inc, an Ann Arbor, Michigan-based company that develops and manufactures automation platforms and molecular diagnostic assays. The transaction costs Becton $275 million.

The acquisition enables Becton to develop and commercialize its BD GeneOhm molecular assays on the HandyLab Jaguar platform, the first fully integrated molecular diagnostic system. The HandyLab instrumentation technology is considered to be an industry leading molecular diagnostic automation platform.

With the acquisition, Becton plans to market its BD GeneOhm molecular assays as the new BD Max system. Becton is a global leader in the treatment of healthcare associated infections (HAI). With growing concerns over HAI, hospitals are expanding their screening and testing programs and require automation systems to support their evolving needs.

Becton addresses HAI issues by supporting hospitals with its BD GeneOhm molecular testing product line and the HandyLab acquisition enables the company to expand the product line. The acquisition will boost demand for Becton’s molecular diagnostic products that will eventually drive the company’s top-line.

Becton, Dickinson and Company develops, manufactures and markets medical devices, supplies, laboratory equipment and diagnostic products globally. The company is a world leader in safety needle products. Becton competes with players like Baxter International (BAX), Johnson & Johnson (JNJ) and Abbott Laboratories (ABT).

We believe that Becton’s sound business model and product line should weather the current economic turbulence, and is capable of withstanding competitive pressure.
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Zacks Investment Research

Semtech Beats, Acquires SMI – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 14:40:00 +0000

Semtech Corp’s (SMTC) third quarter earnings beat consensus estimates by 6 cents. This follows better-than-expected results reported by the entire peer group, including Maxim Integrated Products (MXIM), Intersil Corporation (ISIL) and Linear Technology (LLTC).

Revenue

Revenue of $75.1 million was up 13.3% sequentially and down 5.7% year over year. The sequential strength was broad-based across all end-markets except industrial and was derived from sequential increases across all product lines except power discrete. The decline from the year-ago period was recession-related.

Asia remained the largest region, with a 61% revenue share. North America was next, representing 23% of total revenue and Europe third, generating the remaining 16%. All three regions witnessed higher demand, with Asia growing 15.2% sequentially, North America growing 4.2% and Europe 20.9%. Both distribution and OEM sales grew in the last quarter, and distributor inventories declined.

Revenue by End Market

All except the industrial end-market saw double-digit sequential growth. The 21.8% and 20.9% increases in the high-end consumer and computing markets, respectively were on account of positive seasonality. The 19.0% sequential increase in communications was driven by strength in infrastructure spending.

The 9.3% sequential decline in industrial was due to weak demand for power discrete products within the military and aerospace segments of the North America region. The advanced communication and sensing product line witnessed the strongest growth, with revenue increasing 27.0% due to momentum at communications infrastructure OEMs.

The power management business grew 20.0%, helped by a more diverse product line and particular strength in high-end consumer and computing applications. Revenue from protection products was up 16.0%, again driven by consumer, communications infrastructure and computing markets. The 31.0% decline in the power discrete business was below management’s expectations, although order rates showed some improvement.

The protection, power management, advanced communication and sensing, and power discrete product lines generated 53%, 24%, 14% and 9% of third quarter revenue, respectively.

Orders

Orders were up strongly in the last quarter and we estimate the book to bill at 1.03. Turns sales increased both sequentially and year over year. We estimate that the backlog increased mid single-digits. Lead times remained short, in the 2-6 week range. Historically, management has always met guided revenue numbers, and in the last quarter revenue exceeded the high end of the guided range. Given the order momentum and backlog growth, we expect the company to meet or exceed guidance in the Jan quarter as well.

Operating Results

The pro forma gross margin for the quarter was 55.4%, up 40 basis points (bps) from the previous quarter’s 55.0%. The gross margin benefited from higher volumes and better product mix. Operating expenses of $24.0 million were higher than the previous quarter’s $2.2 million. The operating margin was 23.4%, up 192 bps from 21.5% recorded in the previous quarter.

The improvement was because of lower SG&A expenses as a percentage of sales, as well as flattish COGS and offset by higher R&D as a percentage of sales. New product development expenses had a significant impact on R&D in the last quarter.

Excluding the impact of restructuring charges, acquisition-related costs, stock compensation expenses and option and restatement related legal expenses on a tax-adjusted basis as well as one-time tax items, the pro forma net income was $16.4 million or 21.9% net margin, compared to $11.8 million or 17.8% in the previous quarter and $16.3 million or 20.5% in the year-ago quarter. Including the special items (-$0.61 per share), the GAAP EPS was -$0.34 compared to $0.12 in the Jul 2009 quarter and $0.19 in the Oct quarter of last year.

Balance Sheet

Inventories were down 4.6%, raising inventory turns from 4.5x to 5.3x. Days sales outstanding (DSOs) decreased from 35 to around 31. The company ended with cash and short term investments of $4.40 per share. Capital additions were $3.8 million in the quarter, netting a free cash flow of $19.5 million.

Guidance

The fourth quarter guidance is for sequential revenue increase of 0-4%, with the GAAP gross margin increasing by up to 40 bps, GAAP R&D of $11.2 million, GAAP SG&A of $ 20 million, interest and other income of $300K, a GAAP tax rate of 14% and a weighted average diluted share count of around 62.2 million. Capital additions are expected to be $10-15 million and depreciation of around $4 million.

Sierra Monolithic Inc. Acquisition

Management announced that the company would be acquiring SMI for $180 million in cash, pick up $8 million of existing unvested stock options standing to the credit of SMI employees and pay out another $12 million in incentives to SMI employees. Transaction costs are currently estimated at around $2.5 million. SMI is expected to generate $15 million in revenue in 2009, which is expected to grow 20-30% in 2010.

The gross margin is expected to be 55-60% (slightly higher than Semtech’s current gross margin). Management also expects the business to require an additional $6-7 million in operating expenses and attract a non-GAAP tax rate of 22-25%. Management expects the business to be accretive to GAAP earnings within the next twelve months.
Read the full analyst report on "SMTC"
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Zacks Investment Research

Tyson Foods Tops Expectations – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 14:13:32 +0000

Tyson Foods Inc. (TSN) reported a net loss of $1.22 per share for the fourth quarter of fiscal 2009. This includes a goodwill impairment charge of $1.50 per share in its Beef segment.

Excluding the one-time charge, quarterly earnings were 28 cents per share, compared to the Zacks Consensus Estimate of 26 cents and prior-year earnings of 13 cents per share.

Revenue for the quarter was flat year-over-year at $7.2 billion. Higher revenues in Tyson’s Chicken and Prepared Food divisions were offset by revenue declines in the Beef and Pork segments.

Sales in the Chicken segment came in 11% higher than the prior-year quarter, reflecting strong volumes and higher average sales price. The segment gained from its recent acquisitions and inventory reduction efforts.

Beef and Pork segments reported sales declines of 4% and 14% respectively, as volume gains in these segments could not fully offset the impact of lower average sales prices.

Tyson’s Prepared Foods division witnessed sales growth of 2% during the quarter. Lower average selling prices were more than offset by higher volumes in this business.

For the full year, Tyson posted earnings of 6 cents per share (excluding goodwill impairment charge), compared to fiscal 2008 earnings of 24 cents per share. Annual revenue of $26.7 billion was down by less than 1% compared to last year. The company witnessed higher volumes in all its divisions. However, lower average selling prices offset the volume gains for the fiscal year.

Tyson expects fiscal 2010 to be a better year than fiscal 2009, helped by strong operating performance at its Beef, Pork and Prepared Foods divisions. Also, the company is making operational improvements to maximize margins at its Chicken division.
Read the full analyst report on "TSN"
Zacks Investment Research

U.S. Bank Failures Hit 124 – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 14:00:00 +0000

U.S. regulators on Friday closed down Commerce Bank of Southwest Florida. Though there are some early signs of economic recovery, bank failures go on growing with rising loan defaults. This takes the total number of bank failures to 124, compared to 25 in 2008 and 3 in 2007. The weak economy continues to weigh heavily on banks with a stream of loan defaults.

As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow seizing could be a strategy as it is hard to get buyers for so many failed banks.

Commerce Bank had total assets of $79.7 million and total deposits of about $76.7 million. The failure of Commerce Bank represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for the bank. The latest failure is expected to cost the FDIC's insurance fund about $23.6 million.

Bank failures have cost the federal deposit insurance fund more than $28 billion so far this year. The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund.

The fund corpus now stands below $10 billion, down from $45 billion a year ago. Central Bank of Stillwater, Minnesota, will assume all of Commerce Bank’s deposits. The acquirer also entered into a loss-share agreement with the FDIC on $61 million of Commerce Bank's $79.7 million in assets. In the second quarter of 2009, the number of banks on the FDIC's list of problem institutions grew to 416 from 305 in the first quarter. This is the highest since the savings and loan crisis in 1994.

Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years. In order to replenish the declining fund, the FDIC board recently mandated the U.S. banks to pay fees for three years in advance.

Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%. The FDIC also has access to the Treasury Department credit line of up to $500 billion.

The failure of Washington Mutual last year was the largest in U.S. banking history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp, Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF). The failed banks are victims of recession and rising loan losses.

As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.

According to the FDIC, the bank failures have cost the federal deposit insurance fund more than $28 billion so far this year. Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
Read the full analyst report on "JPM"
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Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Caterpillar, Cost Plus, Inc., Gap Inc., J.M. Smucker Company and Stone Energy Corporation – Press Releases

Zacks Market Commentaries — Mon, 23 Nov 2009 13:32:24 +0000

For Immediate Release

Chicago, IL – November 23, 2009 – Zacks Equity Research highlights Caterpillar (CAT) as the Bull of the Day and Cost Plus, Inc. (CPWM) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Gap Inc.(GPS), J.M. Smucker Company (SJM) and Stone Energy Corporation (SGY).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

Caterpillar (CAT) is a market leader in construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. With its strong brand name, pricing power and global dealer network, we believe Caterpillar is well positioned to take advantage of the growing need for infrastructure development globally.

Though the company expects 2009 sales to decline more than 35% year-over-year, it anticipates an improvement in its top-line in 2010. The company forecasts a 10% to 25% increase in sales for 2010, compared to the midpoint of the 2009 outlook range.

Asserting its optimistic outlook, the company recently announced plans to increase its machinery prices by 2% effective January 2010. We are upgrading the stock to Outperform.

Bear of the Day:

Specialty retailer Cost Plus, Inc. (CPWM) is closing stores, cutting costs, and trying to preserve cash, but those moves will do little to reverse its weak sales trends and merchandise margins.

In addition, management's guidance for the third quarter cautioned investors to prepare for more weakness. Cost Plus expects same-store sales to decrease 6%-11% and a pre-tax loss from continuing operations of $19-$24 million.

Cost Plus is scheduled to report third quarter results on December 3. We have an Underperform rating on CPWM shares. Our six-month target price is $0.50.

U.S. Rig Count Hits 8-Month High – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 13:20:43 +0000

According to data from Baker Hughes Inc. (BHI), the number of rigs searching for oil and gas in the U.S. rose for the week ended Nov. 20, reflecting ramped-up drilling activity by the producers amid recent optimism about economic recovery.

As shown in the first chart below from Baker Hughes, rigs exploring and producing in the U.S. totaled 1,113 during the week. This is up by 12 from the previous week’s tally and represents the fifth successive weekly gain. The current nationwide rig count is 27% higher from the 2009 low of 876 (set in the week ended June 12).

The combined oil and gas rig count is down by 828 from the year-ago period. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ended Aug. 29 and Sept. 12.

The number of natural gas rigs drilling in the U.S. decreased by 2 to 726 -- the second loss in as many weeks. The rig count remains 55% lower than its peak of 1,606 in late summer 2008. In the year-ago period, there were 1,511 active natural gas rigs. This is shown in the following chart, also from Baker Hughes.

The oil rig count was up by 14 to 375, maintaining the positive momentum from the past nine weeks. But the tally is down approximately 11% from the previous year’s count of 419, as shown in the following chart from Baker Hughes. Oil rigs peaked at 442 in early November last year.

The number of miscellaneous rigs, at 12, remains unchanged from the previous week.

Producers had scaled back oil and gas drilling operations over the past several months in the midst of falling commodity prices and tighter access to credit. However, during recent weeks, there have been signs that the companies were beginning to bring rigs back on line (especially oil rigs) amid signs of economic stabilization that could drive up energy demand. This pushed the nationwide rig count above 1,100 working units for the week ended Nov. 13, the first time since March.

The overall picture, though, remains weak, particularly for natural gas, whose inventories have recently hit a new record high of 3.83 trillion cubic feet (Tcf) and is threatening to test the maximum capacity of 3.89 Tcf. The supply picture is expected to reverse in the coming months as producers bet on colder weather and the lagging effect of the sharp drop in domestic drilling activity takes hold.

Until then, we believe that natural gas woes (especially in North America) will continue to haunt energy service firms like Halliburton Company (HAL), Schlumberger Limited (SLB), Baker Hughes, Smith International Inc. (SII), National-Oilwell Varco (NOV) and Weatherford International Ltd. (WFT). These oilfield service names have seen their revenues and earnings plunge in the last few quarters on the back of lower volumes and a very competitive pricing environment. We have Neutral recommendations on all the above-mentioned companies.

We also maintain our Neutral recommendations for contract drillers such as Nabors Industries (NBR), Patterson-UTI Energy (PTEN) and Helmerich & Payne, Inc. (HP), given the extent of excess capacity in the sector that is expected to weigh on dayrates and margins well into next year.

We are positive on oilfield companies like Cameron International (CAM) that derives about two-thirds of its revenue from outside North America. Cameron’s international operations are expected to be a key growth driver for the firm going forward and will play an offsetting role to the relatively soft U.S. drilling scene.
Read the full analyst report on "BHI"
Read the full analyst report on "HAL"
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Read the full analyst report on "WFT"
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Zacks Investment Research

Zacks Analyst Blog Highlights: Pozen, Sanofi-Aventis, Bristol-Myers, AstraZeneca and ADC Telecommunications Inc. – Press Releases

Zacks Market Commentaries — Mon, 23 Nov 2009 13:20:07 +0000

For Immediate Release

Chicago, IL – November 23, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Pozen (POZN), Sanofi-Aventis (SNY), Bristol-Myers (BMY), AstraZeneca (AZN) and ADC Telecommunications Inc. (ADCT).

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Here are highlights from Friday’s Analyst Blog:

Pozen Initiates New Phase III

This morning, Pozen (POZN) initiated phase III studies on PA-325/40, a fixed-dose combination of 325mg enteric coated aspirin and 40mg of immediate release omeprazole. The phase III program will consist of two pivotal trials conducted under a Special Protocol Assessment (SPA) agreed upon with the U.S. FDA, and one long-term safety study.

The two pivotal programs will enroll approximately 500 patients per study at over 100 sites around the U.S. The primary endpoint of the pivotal studies is the cumulative incidence of gastric ulcers over the six-month treatment period for PA32540 versus 325 mg of enteric-coated aspirin. The long-term study will enroll approximately 400 patients and assess safety over a period of one year.

Pozen is developing PA-325/40 for use in the secondary prevention of heart attacks and strokes in patients at risk for associated gastric ulcers. Aspirin is the No. 1 recommended agent for at-risk patients, with some 50 million Americans take daily aspirin therapy for secondary prevention of heart attacks and strokes.

However, according to data presented at the American College of Gastroenterology and at the American Heart Association meeting, the use of low-dose aspirin for cardiovascular disease prophylaxis is associated with a 2- to 4-fold increase in gastro-intestinal (GI) complications, including gastric ulcers. Enteric coating is not a sufficient to reduce the risk of GI bleeding, and thus the majority of patients that should be taking 325mg aspirin are non-compliant or taking suboptimal low-dose (81mg) "baby" aspirin instead.

Pozen’s PA-325/40 is designed to provide immediate-release omeprazole as a GI-protectant for patients taking full-dose 325mg daily aspirin therapy. If the phase III trials meet the primary endpoint of reduction in cumulative incidence of gastric ulcers, we expect PA-325/40 to be approved by the U.S. FDA with the full cardiovascular label claims of regular enteric-coated aspirin. This is a significant market opportunity in our view, considering less than 15% of the 50 million Americans on daily aspirin therapy are taking a GI-protectant such as omeprazole.

Recently, data from a retrospective analysis of patients that use Sanofi-Aventis (SNY) / Bristol-Myers’ (BMY) Plavix (clopidogrel) showed an increased risk of major adverse cardiovascular events (MACE) by as much as 50% while taking a proton pump inhibitor (PPI) such as AstraZeneca’s (AZN) omeprazole (Prilosec) or esomeprazole (Nexium). The data included analysis of outcomes from 16,700 patients who underwent percutaneous coronary intervention and continued Plavix for 12 months after the procedure.

ADC Dips on Weak Outlook

Yesterday, after market close, ADC Telecommunications Inc. (ADCT) declared financial results for the fourth quarter of fiscal 2009. Earlier, the Board of Directors of ADC had taken a decision to change its fiscal year from Oct 31 to Sep 30. As a result, fiscal year 2009 ended on Sep 30, 2009, which means the company got only two months as its fourth quarter. The fourth quarter of fiscal 2009 would, therefore, not be comparable to either the prior-year quarter or the previous quarter. For this reason, management has presented pro forma results for the three month period ending Sep 30 and its comparable quarter.

Actual revenue of fourth quarter 2009 was $183.9 million, below the Zacks Consensus Estimate of $189 million. Quarterly pro forma revenue was $293.6 million, down 17.5% year-over-year. This significant decline in revenue is the result of the global economic recession across all the three business segments.

On a GAAP basis, net loss in the quarter was $19.8 million or a loss of 20 cents per share compared to a net loss of $5.6 million or a loss of 5 cents per share in the prior-year quarter. However, adjusted net income (excluding $25.5 million special charges and $0.6 million loss from discontinued operations, net of taxes) in the reported quarter was $6.3 million or an income of 6 cents per share, higher than the Zacks Consensus Estimate of an income of 4 cents per share.

Pro forma gross margin for the quarter was 34.6% compared to 33% in the year-ago quarter. This reflects the aggressive cost cutting measures taken by management during the past one year. Pro forma quarterly operating expenses were $113 million compared to $106.2 million in the prior-year quarter.

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Zacks Investment Research

Zacks Analyst Blog Highlights: China Mobile, Alcatel-Lucent, China Unicom, China Telecom and Vodafone – Press Releases

Zacks Market Commentaries — Mon, 23 Nov 2009 13:07:34 +0000

For Immediate Release

Chicago, IL – November 23, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: China Mobile (CHL), Alcatel-Lucent (ALU), China Unicom (CHU), China Telecom (CHA) and Vodafone (VOD).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Friday’s Analyst Blog:

China Mobile Outlines 4G Plan

China Mobile (CHL), the world’s largest wireless carrier by subscriber, has revealed its plan to commence the trial run of its 4G network during World Expo 2010 to be held in Shanghai from May 1 to Oct 31, 2010. The company’s 4G service is based on the TD-LTE (Time Division Duplex Long Term Evolution) mobile broadband technology. Roughly 200 participants and 70 million visitors are expected to assemble at the Expo.

China Mobile has recently selected Alcatel-Lucent (ALU) for the responsibilities of design, construction, installation and integration of communication infrastructure to facilitate the 4G network trial. The TD-LTE network will provide advanced wireless services (including high-definition TV and ultra-fast broadband Internet access) to the visitors at the exposition.

The three major Chinese telecom operators China Mobile, China Unicom (CHU) and China Telecom (CHA) are investing heavily in Shanghai to improve the city’s network infrastructure, thereby ensuring the delivery of smooth network coverage for Word Expo 2010. China Mobile plans to invest RMB 15 billion ($2.19 billion) over the next three years in Shanghai.

China Mobile’s TD-LTE venture is being supported by the British telecom giant Vodafone (VOD).

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Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

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Zacks Investment Research

Zacks Analyst Blog Highlights: Dell Inc., Berkshire Hathaway, Burlington Northern Santa Fe Corporation, JPMorgan Chase and Wells Fargo – Press Releases

Zacks Market Commentaries — Mon, 23 Nov 2009 12:49:16 +0000

For Immediate Release

Chicago, IL – November 23, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Dell Inc. (DELL), Berkshire Hathaway (BRK.A), Burlington Northern Santa Fe Corporation (BNI), JPMorgan Chase (JPM) and Wells Fargo (WFC).

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Here are highlights from Friday’s Analyst Blog:

Dell Falls Short of Expectations

Dell Inc. (DELL) reported third quarter 2010 EPS of 23 cents, below the Zacks Consensus Estimate of 27 cents.

Revenue for the quarter was $10.75 billion, down 17.0% from $12.97 billion reported in the year-ago quarter and up 1.0% from $10.62 billion reported in the previous quarter. The company’s third quarter reported revenue was adversely affected by the timing of the Windows 7 launch and due to backlog buildup in the company’s SMB and consumer businesses.

Large Enterprise posted revenue of $3.4 billion, an increase of 4.0% sequentially and decline of 23.0% year-over-year. In the last quarter, the company expended its networking partnership with Brocade and Juniper, and introduced products like PowerEdge 11g servers and expanded PowerVault storage systems.

Public revenue for the quarter was $3.7 billion, down 3.0% on sequentially and 7.0% from the year-ago quarter. Shipments were down 12.0% on a sequential basis, due to seasonality in the U.S. public sector business.

Small and Medium Business revenue for the quarter was $3.0 billion, up 5.0% sequentially and down 19.0% from the year-ago quarter. Shipments increased 9% sequentially. The segment benefited from steadily improving demand in both the Americas and the Asia-Pacific region, as well as better performance in EMEA during the second half.

Revenues for Consumer Business were down 10.0% year-over-year, but flat sequentially to $2.8 billion with shipments growing 4% sequentially.

Dell’s total sales in China, India, Brazil and Russia increased 18.0% sequentially and 5.0% over last year. China, the second-largest revenue generating country for Dell, reported revenue increase of 20.0% sequentially and 8.0% from the year-ago quarter.

Buffett Borrows for Rail Acquisition

Warren Buffett, the CEO and Chairman of Berkshire Hathaway (BRK.A) announced on Thursday to borrow $8 billion of loan for the acquisition of Burlington Northern Santa Fe Corporation (BNI). Berkshire Hathaway, which already owns a 22% stake in Burlington Northern, announced earlier this month it would acquire the rest for a total value of $34 billion. Buffet agreed to pay $100 a share in cash and stock to buy the rest of the company.

The $8 billion loan that will be provided by JPMorgan Chase (JPM) and Wells Fargo (WFC) is intended to be paid back in three years’ time.

For Berkshire, the acquisition of Burlington Northern, or BNSF, the second largest railroad, will be its biggest to date. With it, Berkshire is adding a railroad transportation business with its already diverse range of businesses including retail, manufacturing and insurance, as well as several regional electric and gas utilities.

The acquisition is expected to close in early 2010 and is subject to Burlington Northern’s shareholder approval. Post acquisition, Burlington Northern will operate from its headquarters as a wholly owned subsidiary of Berkshire Hathaway.

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Cowen’s Stone Maintains Suntech (NYSE:STP) at NEUTRAL on Q3 Earnings Report

Small Cap Pulse — Fri, 20 Nov 2009 21:06:00 +0000

November 20, 2009 ndash; Analyst Comments ndash; Cowenrsquo;s Rob Stone weighed in on Suntechrsquo;s (NYSE:STP) Q3 financial results this morning noting that given the delayed ramp of Pluto and thin-film production, and outstanding GSF A/R exposure, he thinks shares are fairly valued. He maintains a NEUTRAL rating on the stock. Q3 Results Suntech (NYSE:STP) reported Q3 revenues of $473.1 million, compared with revenues of $594.4 million for the same period last year, and $320.9 million in Q209. Gross margins in Q3 were 17.7%, down from 18.5% in Q2, and 21.5% in Q308. Net income was $30,1, or $0.16 per diluted ADS, compared with $42.5 million for the same period last year and $9.6 million in Q208. Highlights for the quarter included hitting 16.53% conversion efficiency. Management increased its FY09 shipment target from 600MW to a range of 640MW to 660MW, and an increase in total cell and module production capacity to 1.4GW by mid-2010, of which 450MW will be Pluto-enabled. Stonersquo;s Key Takeaways middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Shipments to Germany should continue to grow, but account for a smaller percentage, with stronger growth in the rest of Europe (Italy, France, Czech Republic) middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; U.S. distribution and utility scale projects, China and other Asian markets (Australia, Korea and Japan) should also drive growth middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Raising 2009-12E shipments to 640MW, 1.1GW, 1.6GW and 2.2GW including system integration of 37MW, 100MW, 160MW and 230MW middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Mix of systems reduces GM by about 60 basis points in 2009, 80-100 basis points in 2011/12 but GM in 2010 reflect better H1 module ASPs middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Raised EPS to $0.35, $0.65, $0.99 and $1.35 on revenue of $1.6B, $2.1B, $2.7B and $3.5B

Cowen’s Stone Comments on Trina Solar (NYSE:TSL) Q3 Earnings – Maintains OUTPERFORM

Small Cap Pulse — Fri, 20 Nov 2009 21:04:00 +0000

November 20, 2009 ndash; Analyst Comments ndash; Cowenrsquo;s Rob Stone weighed in on Trina Solarrsquo;s (NYSE:TSL) Q3 financial results, noting that he sees 80%+ upside in the stock relative to the market in 12 months, reiterating an OUTPERFORM rating. Q3 Results Trina Solar reported a 14.1 Y/Y decline in Q3 revenues to $249.7 million, up 66.5% over Q2, on shipments of 122.6MW, compared with 66.4MW in Q308 and 63.8MW in Q209. Gross margin was 28.5% in Q3, compared with 22.4% in Q308 and 27.4% in Q209. Net income in Q3 was $40.1 million, or $1.29 per diluted ADS compared with $32.1 million for the same period last year, and $18.9 million in Q209. Net margin was 16.1% in Q309. Manufacturing costs for module production declined to about $0.82/watt. The companyrsquo;s cash and equivalent position as of September 30, 2009 was $384.9 million. In terms of guidance, management expects to ship between 145MW to 165MW of PV modules with gross margins of 25% and 27%. For the full year, it expects total PV module shipments to be between 380MW and 400MW compared to previous guidance of 350MW to 400MW. For the FY, it expects to reduce manufacturing costs by 15% to 20%. Stonersquo;s Key Takeaways middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Gross margins rose 110 basis points while silicon costs ($0.62 vs. $0.84) fell faster than ASP. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Raised 2009 12E shipments to 390MW, 730MW, 960MW and 1.27GW (vs. 338MW, 510MW, 700MW and 960MW) noting that TSL should gain significant market share in 2009/10. Sees stable GM at about 26% on continued cost reduction. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Raised 2009-12E E/ADS to $3.04, $4.50, $5.50 and $6.90 on revenue of $827M, $1.28B, $1.56B and $1.92B. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Good visibility for the first half of2010, with large orders from Italy and Spain, and ongoing demand in Germany. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Maintains OUTPERFORM rating

CNP & FPL Ink Pipeline Deal – Analyst Blog

Zacks Market Commentaries — Fri, 20 Nov 2009 20:36:00 +0000

A subsidiary of CenterPoint Energy Inc. (CNP) and NextEra US Gas Assets LLC, an affiliate of FPL Group Inc. (FPL) signed an agreement to explore the construction of a pipeline in north Louisiana. The new pipeline will transport natural gas from the Haynesville Shale area.

The expected capacity of the potential new pipeline is up to 2.0 billion cubic feet per day. The pipeline would connect Haynesville Shale natural gas production to markets in north Louisiana and CenterPoint Energy's Perryville Hub.

The companies announced that an open season will be held to gauge market interest in the proposed new pipeline.

With the development of the new pipeline, CenterPoint and FPL Group expect to enhance the existing infrastructure in the rapidly expanding Haynesville Shale area. Gas production in north Louisiana, including the rapidly developing Haynesville Shale, remains robust. The new pipeline would assist producers with Haynesville and north Louisiana acreage, creating another option for their production.

Assuming adequate expressions of interest are received and management approval from both companies, a joint venture entity will be formed that would execute binding precedent agreements and seek necessary regulatory approvals to place the pipeline into service as quickly as possible. Each company would own an equal equity interest in the new pipeline. CenterPoint Energy's pipeline group would design and oversee construction, and ultimately operate the new pipeline.
Read the full analyst report on "CNP"
Read the full analyst report on "FPL"
Zacks Investment Research

Buffett Borrows for Rail Acquisition – Analyst Blog

Zacks Market Commentaries — Fri, 20 Nov 2009 20:11:51 +0000

Warren Buffett, the CEO and Chairman of Berkshire Hathaway (BRK.A)/(BRK.B), announced on Thursday to borrow $8 billion of loan for the acquisition of Burlington Northern Santa Fe Corporation (BNI). Berkshire Hathaway, which already owns a 22% stake in Burlington Northern, announced earlier this month it would acquire the rest for a total value of $34 billion. Buffet agreed to pay $100 a share in cash and stock to buy the rest of the company.

The $8 billion loan that will be provided by JPMorgan Chase (JPM) and Wells Fargo (WFC) is intended to be paid back in three years’ time.

For Berkshire, the acquisition of Burlington Northern, or BNSF, the second largest railroad, will be its biggest to date. With it, Berkshire is adding a railroad transportation business with its already diverse range of businesses including retail, manufacturing and insurance, as well as several regional electric and gas utilities.

The acquisition is expected to close in early 2010 and is subject to Burlington Northern’s shareholder approval. Post acquisition, Burlington Northern will operate from its headquarters as a wholly owned subsidiary of Berkshire Hathaway.

Based in Fort Worth, Texas, Burlington Northern operates one of the largest railroad networks in North America through its subsidiary, with 33,500 route miles covering 28 U.S. states and two Canadian provinces. This network covers two-thirds of the western United States, stretching from major Pacific Northwest and Southern California. The company employs more than 40,000 people.
Read the full analyst report on "BNI"
Read the full analyst report on "BRK.A"
Read the full analyst report on "BRK.B"
Read the full analyst report on "JPM"
Read the full analyst report on "WFC"
Zacks Investment Research