Comment by phil

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phil
December 17th, 2013 at 10:30 am
FTR/Jbur – Hey, buying companies that are immediately accretive to free cash flow – sounds like they stole my Build a Berkshire Workshop Idea.  No wonder I like those guys. 
STP – Doing better than I thought after yesterday's BS move.  
5-year auction today ($35Bn), no wonder they are letting the markets slip, look at TLT bouncing off $102.50 AGAIN.  
VIX 16.38 – essentially, that's total panic compared to last few months.  

Sales picked up a lot: 
 
• Redbook Chain Store Sales: +2.9% Y/Y vs. +2.6% last week.
• ICSC Retail Store Sales: +4.8% W/W, vs. -1.6% last week.
• +2.0% Y/Y vs. +1.5% last week.
• While the FOMC members settle in for their two day meeting, U.S. inflation data for November is due out
• Economists expect that CPI rose 0.1% on month after declining 0.1% in October.
• On year, inflation is seen increasing to 1.3% from 1%, while core inflation is projected to be unchanged at 1.7%
• November Consumer Price Index: +0.0% vs. +0.0% expected, -0.1% prior.
• Core CPI +0.2% vs. +0.1% expected, +0.1% prior
Stock futures tick higher but Fed meeting prompts caution
• Stock futures inch higher after CPI data for November came in flat while the Q3 current account deficit narrowed to $94.8B, but all eyes will be waiting for the start of the two-day Fed policy meeting today.
• European stocks are slipping, trimming Monday's gains, while Asian markets ended mixed.
• 3M +2.4% after issuing in-line 2014 earnings guidance and raising its dividend by 35%; Boeing +2.2% after adding $10B to its stock buyback program and hiking its dividend by 50%.
• Treasurys are little changed, with the benchmark 10-year yield pegged at 2.88%.
• Still ahead: NAHB housing market index.
Eurozone CPI falls on month, rises on year
• As expected, Eurozone CPI dropped 0.1% on month in November, as it did in October.
• On year, inflation increased 0.9% (also in line) vs +0.7% previously.
• Core CPI +0.9% vs +0.8% in October and consensus of +1%.
• Inflation has edged back up towards the ECB's target of just under 2%, still giving the bank room to further loosen policy if it wants to.
• EU shares are mostly lower ahead of the start of a two-day FOMC meeting today, when the Fed is set to discuss whether to start the dreaded taper.
• The euro is +0.1% at $1.3770. (PR)
German investor confidence jumps to seven-year high
• The German ZEW survey of investor confidence has climbed to its highest since April 2006 in December, surging to 62 from 54.6 in November and topping consensus of 55.
• The current situation print has increased to 32.4 from 28.7 and exceeded forecasts of 30.
• Sentiment for the eurozone has soared to 68.3 from 60.2 last month.
• "Despite rather disappointing economic data released recently, the financial-market experts expect the economic development in Germany and the eurozone to improve further in 2014," says ZEW President Clemens Fuest.
• The DAX is -0.4%, while the euro is flat at $1.3762. (PR)
Australia gets deficit shock
• Australia's conservative government has forecast a budget deficit of A$47B (U.S. $42.3B) in the year ending June 30, well above a projection in August by the previous Labor government of A$30.1B.
• Treasurer Joe Hockey said returning to sustainable surpluses would take at least a decade, and would "require a sustained and fundamental structural overhaul of expenditure."
• Hockey left a prediction for GDP growth of 2.5% unchanged, but said unemployment would rise to 6% vs a previous forecast of 6.25% and 5.8% in November.
• The S&P/ASX 200 is +0.3% and the AUD-USD is -1% at $0.8941.
Banks could face tougher stress tests next year
• The Fed intends to use its own estimates about the effect of a recession on bank balance sheets in its stress tests. Previously, the Fed has relied on data from the firms themselves.
• The central bank could project that bank assets would grow during a slump, as has happened in the past three recessions, rather than fall, as the banks have predicted.
• With such a finding, the Fed could require banks to hold more loss-absorbing capital or limit shareholder payouts. (Fed letter)
One of our old favorites getting gobbled up:  Hudson City and M&T extend time for merger
• Hudson City Bancorp (HCBK) and M&T Bank (MTB) agree to extend the time to complete their merger until December 31, 2014.
• To review, M&T agreed to buy Hudson City in August 2012, but regulators – displeased with M&T's money laundering policies – put the deal on ice, chilling not just this transaction, but a lot of other possible regional bank M&A.
• "M&T has received no assurance from the Federal Reserve as to whether or when the Federal Reserve will approve the merger.  However, M&T and Hudson City believe that the earliest time the merger could be completed is in the latter half of 2014."
• Hudson City CEO Ronald Hermance: "While all parties are disappointed that the transaction is delayed further, we are gratified that M&T continues to see the value in the Hudson City franchise.  Our Board of Directors continues to believe that the M&T transaction is ultimately in the best interest of the company and our shareholders, but is also committed to diversifying our business model by continuing to pursue our Strategic Plan."
• HCBK -1.2% premarket
• Press release
 
Equity REITs draw sell-side action
• The upgrades: Brandywine Realty Trust (BDN +0.8%) and Federated Realty Investment (FRT+0.4%) to Buy at ISI, CommonWealth REIT (CWH +0.3%) to Hold and Liberty Property Trust (LRY +2%) to Buy at Stifel, Extra Storage Space (EXR +1.7%) to Hold at BMO (BMO earlier downgraded PSA), and American Realty Capital (ARCP +0.3%) to Buy at CapitalOne.
• The downgrades: Cedar Realty Trust (CDR -0.5%) to Sell at BAML, and Parkway Properties (PKY -1.4%) to Sell at Citi.
BP-led group to invest $45B to pipe gas to Europe
• A consortium led by BP (BP) has signed a $45B deal to expand a natural-gas project at Azerbaijan's Shah Deniz field in the Caspian Sea and pipe the gas to Italy via Turkey, Greece and Albania.
• Output from the reserve, which holds an estimated 1.2T cubic meters of gas, is projected to increase by 16B cubic meters a year and enable Europe to reduce its reliance on Russia. The potential also exists to connect to major gas suppliers in the Middle East.
• Other companies in the group include Norway’s Statoil (STO) and Total (TOT).
• The deal is the second major agreement that BP has announced in two days, with the U.K. oil major also signing a $16B investment in Oman. (PR)
China questions two more energy execs in corruption probe
• The Chinese government has questioned two more executives from China National Petroleum (PTR) as part of a wider graft investigation into the state energy company, Reuters report.
• One of the men, CNPC chief accountant Wen Qingshan, resigned from his post as chairman of Kunlun Energy, PetroChina's natural gas distribution arm.
• CNPC has been rocked by a series of investigations targeting former and current high-ranking executives at the company and its listed units over the past five months.
FuelCell -12.3% premarket after missing earnings
• FuelCell Energy (FCEL) -12.3% premarket after posting a big miss on its FQ4 earningsnumber but beating on revenues.
• The $0.05/share loss was unchanged Y/Y and worse than the $0.03 loss in FQ3; for the fiscal year, the loss totaled $34.4M, slightly less than a year ago but FCEL hasn't posted an annual profit since 1997.
• Total revenue jumped 56% to $55.2M, gross margin widened to 4.7% from 2.5%, and backlog totaled $355.4M at the end of the quarter vs. $318.9M a year ago.
• FCEL expects customer acceptance of the Bridgeport fuel cell park during FQ1 to trigger the start of the associated $69M 15-year service contract and contribute to a quarterly increase in service revenues in FY 2014.
 
 
Enphase U.S. residential installations jump 62% Y/Y in first 3 quarters of 2013
• Enphase Energy (ENPH) saw its U.S. residential market installations (by MWs) jump 62% Y/Y in the first 3 quarters of 2013, outpacing the market's 49% expansion.
• In Q3 Enphase's installed units in California, the country's largest residential solar market, rocketed over 200% Y/Y on a MW basis.
Strong forecast for global automobile sales
• IHS forecasts the global automobile industry will produce 85M sales in 2014, up 3.7% from this year's level.
• Based on the same trend of strong growth in China and the U.S., Deutsche Bank has an even higher estimate for 2014 sales of 87.4M to rep 4% growth.
• Related stocks: GM, F, VLKAY, NSANY, HMC, TM, FIATY, HYMLF, DDAIF, BAMXY.
European automobile demand shows modest gains
• European car registrations rose 1.2% Y/Y in November to put together a third  consecutive month of gains on the continent.
• By regions, the U.K. and Greece were strong while registrations in Germany slipped 2% during the month.
• Monthly growth by manufacturer: General Motors (GM) -3.8%; Volkswagen (VLKAY) +3.2%; Daimler (DDAIF) -1.6%; BMW (BAMXY) -6.8%; Fiat (FIATY) -5.8%; Renault (RNSDF) +8.9%; Peugeot (PEUGY) -1.2%; Ford (F) -1.8%; Honda (HMC) -4.0%; Hyundai (HYMLF) -7.3%; Toyota (TM) +7.3%; Jaguar Land Rover (TTM) +1.3%; Suzuki (SZKMY) +15.8%; Nissan (NSANY) flat.
Mercedes-Benz to set annual production record
• Mercedes-Benz (DDAIF) will set a production record this year as the automaker adds even more shifts to meet stronger demand in Europe.
• Year-to-date deliveries are up 10.7% for Mercedes.
• Related: European car registrations rise in November.
Of course, CHINA!!!  Tesla's story in China begins
• Tesla Motors (TSLA) is taking down preorders for the Model S in China on its Chinese-version website.
• Demand from high-end Chinese consumers is expected to be very strong, although estimates for sales in China next year vary wildly with questions of production and potential government interference lingering.
• TSLA +0.1% premarket.
FTC probes whether dealers ganged up on TrueCar
• The Federal Trade Commission is looking at whether car dealers illegally colluded not to do business with price-comparison Web site TrueCar, which appears to have been responsible for a drop in prices
• TrueCar used to make it possible for dealers to see rival prices and so undercut each other, but the Internet firm withdrew that feature after complaints from the car salesman. Prices may now have recovered because of the move.
• The probe comes as TrueCar prepares to possibly go public next year.
MGM Resorts prices $500M note offering
• MGM Resorts (MGM) prices $500M in 5.25% senior notes due March 31, 2020 at par.
• The company is using part of the proceeds from the offering to pay off a higher-rate obligation
 
A new player in Las Vegas
• Genting Group plans to spend $3B-$4B to complete an unfinished resort on the Las Vegas Strip that saw construction abruptly stop in 2008.
• The Asian company is looking to build a gaming empire in the U.S. using its formidable cash position.
• A voter approval in New York for casinos in parts of the state sets up well for Genting.
We talked about these guys in Vegas:  Host Hotels and Resorts Inc declares $0.13 dividend
• Host Hotels & Resorts, Inc. (HST) declares $0.13/share quarterly dividend, 8.3% increasefrom prior dividend of $0.12.
• Forward yield 2.85%
• Payable Jan 15; for shareholders of record Dec. 31; ex-div Dec. 27.
Starbucks cards: Easy gift for consumers, cash cow for the company
• Apparently a Starbucks (SBUX) gift card isn't the most original gift to give during the holiday season with the company reporting that one in every ten Americans received the coffee card last year.
• In a single day right before Christmas last year, 2M Starbucks cards were purchased in the U.S. and Canada. Starbucks expects an even bigger rush to stores this year to pick up the item.
• Overall, the program has seen $16B loaded on 450M cars in 27 different countries.
• For those keeping track, Starbucks doesn't book the revenue off the cards until down the road when customers use them at store, but all that cash is available to the company.
I think they make good points:  Barington Capital escalates activist stance towards Darden with 84-page report
• 2.8% shareholder Barington Capital escalates its activist posture towards Darden Restaurants (DRI +1.3%), issuing an 84-page presentation stating its belief that  Darden's "corporate centralization and resulting internal complexity have contributed to the Company's declining financial performance and eroding competitive position."
• Barington believes $71-$80/share in value could be unlocked if the company is split into "Darden-Mature" (Olive Garden and Red Lobster) and "Darden Higher-Growth" (Bahama Breeze, Longhorne Steakhouse, Seasons 32, Eddie V's, Yard House, and The Capital Grille) and the real estate assets, which Barington believes are valued at $4B, are divested. The respective companies would then be run more in-line with value and growth companies respectively, Barington recommends. The points have been a general theme of Barington's agitation in the past several months.
• And although Barington is encouraged by Darden's proposed $50M in cost cutting efforts, the fund thinks the restaurateur "has numerous actionable avenues to lower operating expenses by up to $100M-$150M."
• Barington has hired a proxy solicitation firm and Houlihan Lokey to review its recommendations in a sign that the fund may be willing to go to bat to push through its recommendations.
 
Bloomin' Brands looks for answers in soft casual dining sector
• Bloomin' Brands (BLMN) promotes Michale Kappitt to be the company's chief Marketing Officer.
• The exec has a solid track record which includes stints at Outback Steakhouse and Burger King, but faces a challenge with Bloomin' Brands store traffic soft (Q3 comp growth -0.3%) amid a tough casual dining sector.
How AmazonFresh fits into the Amazon equation
• Credit Suisse has some big expectations for Amazon Fresh on its view that the delivery service will attempt to reach close to 33% of the population over the next five years in a broad roll-out that will try to establish the brand as a potential Wal-Mart or Target alternative for consumers.
• The investment firm increases its price target on Amazon (AMZN) to $449 and bumps up 2015 profit estimates due in part to the impact of Fresh.
• Previous on AmazonFresh
 
Retailers scrap for last-week holiday sales
• Toys R Us will stay open from 6:00 a.m. this Saturday until 9:00 p.m. Christmas Eve as it vies for late holiday season sales.
• Though falling short of Kohl's 100 straight hour blitz, the toy seller will be on the high end in the sector.
• What to watch: The expected rush in retail due to stormy weather and the late Thanksgiving will test the back-end of major retailers more than in past years. Companies with the most efficient 'buy online and pick up in stores' programs could see an edge. Gap (GPS), Macy's (M +0.3%), GameStop (GME +0.3%), and Wal-Mart (WMT -0.4%) have had some success in this area.
J.C. Penney falls as apprehension builds again
• Shares of J.C. Penney (JCP -2.7%) trip up in early trading despite some fresh data out showing the retailer is a top Google search term in its sector and more indications that department store traffic is holding up slightly better than specialty apparel sellers during the holiday season.
• There's plenty of apprehension over the retailer's make-or-break Q4 still in the air.
• A break below $8 makes shares of JCP to some traders who believe a bottom is firming.
Judge orders companies to pay $1.1B in lead paint ruling
• Superior Court Judge James Kleinberg has tentatively ordered Sherwin-Williams (SHW), NL Industries (NL) and ConAgra Grocery Products (CAG) to pay $1.1B to replace or contain lead paint in millions of homes in California.
• However, Kleinberg dismissed the claims against two other defendants, BP (BP) unit Atlantic Richfield and DuPont (DD).
• The case was brought by 10 city and county governments in California, which argued that the lead is harmful to children. The substance has been banned in residential paint since 1978.
Another hack job by TST?  Feuerstein article hits Northwest Biotherapeutics
• Shares of Northwest Biotherapeutics (NWBO) are suffering, off 7% in premarket action.
• Not helping the cause is TheStreet's Adam Feuerstein, who says DCVax "will fail just like ICT-107 failed because dendritic cancer vaccines are too weak to overcome cancer's innate ability to overpower or evade the body's immune system."
• The thrust of the argument here is that positive data from early studies of the DCVax were misleading because the 20 brain cancer patients "were handpicked for treatment."
• Feuerstein says the same was true of a small Phase 1 study of ImmunoCellular's ICT-107, which ended up missing its primary OS endpoint in a larger study (triggering a spectacularsell-off last Wednesday).
• Feuerstein is responding to an article by SA contributor Josh Ginsburg who, on Monday, explained why he thinks NWBO "is different."
Biodel inks deal with Becton, Dickinson for injection system
• Biodel (BIOD) jumps 14% in premarket trading.
• The company has inked a long-term supply deal with Becton, Dickinson (BDX) for exclusive rights to the BD Uniject SCF Disposable Auto-Disable Injection System.
• BIOD will leverage the device to serve the "glucagon rescue treatment market by replacing antiquated, difficult, and cumbersome multi-part kits with simple, convenient, portable therapies."
• In other words, the company is using the devices to deliver liquid glucagon for the treatment of hypoglycemia. (PR)
Herbalife controversy rages as stock marches higher
• SunTrust Robinson Humphrey's Michael Swartz is now more comfortable with his Buy recommendation on shares of Herbalife (HLF) following Monday's re-audit news (see here and here).
• "Considering PwC's intensive seven-month scrubbing-of-the-books in the face of heightened media/public scrutiny, it could serve as a nail in the coffin for the bear case," Swartz says, adding that although he is "uncertain as to the ultimate size or timing," HLF probably "has flexibility for a buyback in upwards of $1.5B, which could add $1+ to annualized EPS." Price target lifted to $85.
• Meanwhile, some commentators were quick to note that the re-audit had little to do with the bear case in the first place. Here's Herb Greenberg: "Let's not forget, the role of the auditor is to determine whether the numbers are audited in accordance with GAAP, not to weigh in on the [pyramid scheme] controversy."
• Similarly, here's Jim Cramer: "[I'm] just stating, frankly, the obvious — that the audit wasn't about Ponzi schemes."
• HLF +1.8% premarket
A roundup of tech ratings changes
• Facebook (FB +1.9%) has been upgraded to Positive by Susquehanna. The upgrade comes as the company begins a news feed video ad test.
• H-P (HPQ +1.9%) has been upgraded to Overweight by JPMorgan.
• Seagate (STX +1.2%) and Western Digital have been upgraded to Overweight by JPMorgan. Citi upgraded the hard drive giants to Buy last week.
• iRobot (IRBT +9.8%) has been upgraded to Strong Buy by Raymond James.
• 500.com (WBAI -2.3%) has been assigned neutral ratings by Deutsche and Piper on underwriter coverage day.
Tech giants invest heavily in Internet infrastructure
• Looking to limit costs, improve performance, and guarantee capacity and performance, Google (GOOG), Facebook (FB) and other tech giants have been investing much time and money in Internet infrastructure.
• This includes helping to fund submarine and underground cables, leasing "dark fiber" (unused optical fiber), and building their own networking hardware.
• Google now controls over 100,000 miles of cable around the world, well above Sprint's network of under 40,000 miles.
• Amazon (AMZN) and Microsoft (MSFT) have also been investing heavily in Internet infrastructure as they look to support their cloud-computing services.
• However, the telecom carriers aren't happy, fearing that they'll be reduced to providing "dumb pipes" and being, in the words of Windstream (WIN) CEO Jeff Gardner, "just a construction company."
"We chased our pleasures there, dug our treasures there:"  20th Century Fox pushes ahead with Malaysia theme park plans
• 20th Century Fox will open its $300M global theme park in Malaysia sometime in 2016
• The $300M park, called "Twentieth Century Fox World," will feature rides from Fox movies such as Ice Age, Alien vs. Predator, and Night at the Museum.
• The studio, which is owned by 21st Century Fox (FOXA), is partnering with Asia heavyweight Genting on the project.
Facebook set to launch video ads
• Facebook (FB) will reportedly announce the launch of video advertisements today and will start introducing them into users' newsfeeds on Thursday.
• Among the first ads to play will be one for an upcoming Lions Gate (LGF) film called "Divergent."
• It's not clear how much the commercials will cost, although a figure of $2M a day for all Facebook users aged 18-54 has been bandied about.
• There's money to be made, especially with advertisers looking to use up unspent annual budgets, but a major question is whether there will be a user backlash – the ads will play automatically, which some Facebook members might find exceptionally annoying.
Three breakfast reads
• Lawrence Summers: On Secular Stagnation
• Ford "Lifers" Get Second Chance as CEO Readies Exit
• Easy Money Delays Retail Shakeout